LUCY HOOD, executive director, Institute for Communication Technology Management, USC Marshall School of Business:
“Federal regulators weighing the proposed AT&T and T-Mobile merger must not ignore a significant but quietly unfolding revolution in how Americans connect to the Internet for information and products. The changes began with the 2007-2008 launch of the iPhone and Android and have accelerated with the introduction of low-cost cellphone plans. What is most striking about this smartphone revolution is its democratic character.
This month’s Pew Internet Report on Smartphones spotlights some specifics. Under 30, nonwhite, low-income and less-educated smartphone users report “they mostly go online using their phones.” Some 87% of them, according to Pew, sometimes use their mobile phones to browse the web, but 38% use their handsets as their primary means to access the Internet.
National surveys conducted in June by the Institute for Communication Technology Management (CTM) at the University of Southern California similarly found that more than 60% of Latino, black and young smartphone users often or even always use smartphones for their Internet connections. This use of smartphones for Internet browsing is far more extensive than by whites. For instance, while only 26% of whites have smartphones, they are owned by 37% of African-Americans and 46% of Latinos surveyed by CTM.
The development of a mobile device capable of delivering multiple applications for Web browsing, information and entertainment is an obvious driver of the smartphone revolution. A business model has democratized the revolution: pre-paid or no-contract cellphone plans, ranging in price from $30 to $50 a month, and mostly offered by regional wireless carriers like U.S. Cellular, MetroPCS and Cricket Communications. So popular have these plans become that multiple carriers in most U.S. cities, including wireless giants AT&T and Verizon, have jumped onto the prepaid bandwagon, offering more plans and phones to consumers.
In 2010, prepaid plans accounted for 10% of the $160 billion in revenues generated by the mobile-phone market, according to CTIA, the U.S. wireless association. Recent data suggest that share will likely grow. From May 2010 to May 2011, new prepaid customers increased by 6.9 million, compared with 3.6 million new subscribers who signed the traditional two-year contract with monthly fees, according to Wireless Week.
This smartphone revolution has made wireless data the fastest-growing service category in the 300 million cellphone market, with average revenue per user growing more than 20% from 2009 to 2010. Latinos and blacks are disproportionately higher users of data services, according to CTM surveys. For example, minorities are twice as likely as the average user to access health information via smartphones. Use of m-commerce—buying via a phone—is 50% higher among blacks and Latinos.
The democratization of connectivity seems to undercut at least one objection to AT&T’s proposed merger with T-Mobile. The concern is that the merged company might decrease Internet access for low-income consumers by dropping less profitable prepaid plans. But with the U.S. cellphone market nearly saturated and with wireless-data revenue projected to outstrip voice next year, all carriers—large or small—have a strong business incentive to offer their customers cost-effective data plans as well as voice.
For years, government officials, as well as academics, worried that the rise of the Internet would create a digital divide between those who could connect and those who couldn’t. They wrestled with how to bring broadband to rural communities and to poor urban residents who couldn’t afford laptops or a broadband connection at home. Many decried the U.S.’s 12th place ranking—behind South Korea, the United Kingdom, Canada and Germany—in fixed-broadband connectivity.
But no one metric can begin to capture the complexity of today’s marketplace for Internet connectivity. Officials who still cling to such statistics as fixed-broadband access, and regulators who make policy around them, overlook the emerging reality brought about by rapid technological progress, business innovation and a dynamic wireless market. The smartphone revolution enables people to take matters into their own hands and find effective ways to narrow the digital divide.
Ms. Hood is executive director of the Institute for Communication Technology Management at the Marshall School of Business, University of Southern California. The institute’s 30 corporate sponsors include wireless and communications companies, among them AT&T, Verizon and US Cellular.
This article originally appeared in the Wall Street Journal