Smart-phone users rack up bigger bills than wireless subscribers with voice-only calling plans.
Smart phone users gobble up gigabytes of data visiting social networking Web sites, downloading music, watching video, sending photos and checking e-mail.
Laptop computer users on the go are another area of potential growth as more users connect to high-speed, third-generation networks. Analysts say lower-priced mini-laptops, called netbooks, will boost data revenue further.
In 2009, the number of mobile devices accessing the Web will jump 43% to 706 million worldwide, forecasts market research firm IDC. And according to U.K.-based Informa Telecoms & Media, global data revenue will jump to $347 billion by 2013, up from about $188 billion last year.
Bandwidth-hungry devices are pushing wireless networks to their limits. That's why many wireless firms plan to upgrade to faster, higher capacity networks that use fourth-generation "LTE" technology, short for long-term evolution. The LTE upgrade is expected to start in 2010, sparking a new round of industry investment.
The wireless phone business is capital-intensive. In the U.S., the biggest wireless firms spend about 15% of their revenue every year to expand, upgrade and maintain their networks. Smaller players MetroPCS PCS and Leap Wireless LEAP, which are building out networks in new markets, spent above 40% in 2008.
Capital spending also runs high in emerging markets. China Mobile CHL spent about 33% of revenues, $19.9 billion, on its network last year as it expands into rural areas.
Analysts expect wireless firms globally to cut capital spending around 10% to preserve cash during the slowdown. But because customers can easily switch service providers, wireless firms are leery of making cutbacks that will lower the quality of service or lead to more dropped calls.
Wireless firms must add network capacity as their subscriber bases grow and as those customers call more, taking advantage of calling plans that offer bigger buckets of minutes at lower prices.
Data traffic is even more expensive for wireless firms to deliver.
While data-plan subscription fees have been falling, wireless firms are trying to discourage their heaviest users from clogging up their networks by capping usage at several gigabytes per month and charging hefty overage fees.
Name Of The Game: With subscriber growth slowing, wireless firms must invest in their new growth driver -- data services.
Informa estimates that wireless firms will reap 34% of overall revenue from data services in 2013, up from about 21.6% last year.
"Wireless companies are trying to cope with the data traffic tidal wave coming across their networks," said Thomas Wehmeier, analyst at Informa.
In developed countries, wireless is steadily replacing fixed-line phone service. In the U.S., one out of six consumers use wireless as their only phone service. That trend may accelerate as more wireless firms roll out $50-or-less monthly rate plans, analysts say.
Wireless subscriber growth has boomed in emerging markets, where fixed-line phone service can be hard to get.
More than 4 billion people around the world use mobile phones, more than three times the 1.2 billion who use personal computers, says IDC.
In-Stat predicts that wireless subscribers will hit 5.6 billion in 2013, up from 4.27 billion in 2009, with most growth coming from India, China, Indonesia and Africa.
Data revenue growth is highest in markets where wireless firms have upgraded to high-speed 3G networks. Only about 10% of cell-phone users worldwide use 3G phones now, leaving plenty of room for growth, says Informa.
In Japan, 95% of all wireless phone subscribers use 3G services. But the penetration rate is smaller everywhere else, even in developed economies -- 29% in the U.S. and 21% in Western Europe.
Japan's NTT DoCoMo DCM and U.K.-based Vodafone VOD lead the industry in data revenue growth per subscriber.
The boom in mobile traffic growth is spreading from developed countries to emerging markets as prices for 3G phones fall, says Tony Holcombe, chief executive of Syniverse, which offers technology services to wireless firms.
"When people get a smart device, data usage increases dramatically," he said. "It doesn't matter what geography."
Wireless carriers have fared better than many industries during the recession, but the downturn is taking an undeniable toll.
Though Verizon Wireless and AT&T's T wireless unit reported year-to-year sales gains in the first quarter, the numbers were flat from the previous quarter.
Emerging markets aren't bullet-proof, either. India's biggest wireless firm, Bharti Airtel, said first-quarter revenue rose 26% from a year earlier but only 2% from the previous quarter. China Mobile's first quarter sales rose 12% from a year earlier but fell 9% from the previous quarter.
And Mexico-based America Movil's AMX first quarter sales rose 15.4% from the previous year but were flat sequentially.
America Movil warned it will add fewer subscribers than forecast in 2009 because of weakening economies in Latin America. Germany's Deutsche Telekom DT, which operates T-Mobile, also has slashed its 2009 outlook.
Wireless firms that serve mainly prepaid subscribers, who buy airtime as they need it rather than as a monthly subscription, may be vulnerable to changes in consumers' disposable income, analysts say. Monthly subscribers, meanwhile, are switching to prepaid calling plans to save money. And businesses are pulling back on company-paid wireless devices.
Even before the recession, prices for calling rate plans were falling.
Among U.S. wireless firms, average monthly voice revenue per subscriber fell 20% from $48.20 in 2003 to $38 in 2008, says UBS. Average data revenue rose to $10.25 from $1.76 over the same period.
But fierce competition could undermine growth in data services. Hutchison Whampoa has been Europe's most aggressive marketer of 3G services, charging as little as $14 monthly for data.
Hutchison has forced other carriers to cut rates, even though it has yet to generate positive cash flow from its 3G services, according to a Morgan Stanley report.
Wireless carriers are betting on several technologies to keep sales growing. Twenty wireless firms are testing LTE technology, and network upgrades are slated to start as early as 2010 for some.
LTE promises to hike peak data rates more than 10-fold to above 100 megabits per second, boost network capacity and improve indoor coverage. It may also help carriers manage the costs of data services, says Mark Lowenstein, president of consulting firm m-ecosystem.com.
"The under-recognized aspect of wireless firms plunging into 4G is the need to deliver data at a much lower cost per bit," he said.
Wireless firms are just starting to target services that link industrial devices, autos and consumer electronics to the Internet -- services that could benefit from LTE's faster speeds.
To cut costs, Vodafone and other wireless firms are forging deals to share network infrastructure, such as cell-phone tower sites.
Offloading network traffic to broadband networks in homes is another cost-saving strategy. Many wireless firms are testing femtocell technology, which hands off wireless calls to broadband modems in homes, improving indoor call quality without expensive new towers.
Some consumers are getting cheaper service but still view wireless as a necessity.
Wireless phone companies are scrambling to innovate and expand their offerings so they don't become mere suppliers of bandwidth while other companies such as Google GOOG rake in the big money.
Wireless phone companies aim to tap mobile advertising as a new revenue stream. Kelsey Group estimates mobile ad revenue will grow 20-fold to $3.1 billion by 2013, though wireless firms will vie with others for a share of the pie.
And they say they will cut capital spending further if the recession lingers.
Upside: Venture capital is flowing to hundreds of start-ups developing products for mobile TV, advertising, mobile payments, and location-based services. Any of those could boost demand for high-speed data.
Risks: New technologies and regulation.
Skype, the Internet calling service, has released software for several phones that let users bypass their carrier to make cheap phone calls over the Internet.
Though wireless firms will try to restrict how Skype's software can be used -- limiting its use to Wi-Fi networks, for example -- European regulators may force carriers to carry Skype calls. Europe has already cracked down on text-messaging roaming fees.