Cellphone sales decline in U.S.

U.S. purchases of new cellphones declined in the first quarter for the first time in several years, signaling that worries about an economic slowdown are hurting the handset market, according to two new studies.

The drop was concentrated among poorer customers using prepaid plans and among households earning $75,000 to $99,000 a year. The upper end of the cellphone market-phones featuring full keyboards for email and text messaging, and extra features for music downloads and video viewing-continued to see growth.

The overall decline in handset sales also comes amid finds that growth in wireless-service subscriptions is slowing as the market reaches saturation, with 83% of the U.S. population owning a cellphone now.

One study, from U.K. market-research firm Strategy Analytics, showed a 5% drop in the quarter compared with a year earlier, while a separate report from NPD Group showed a 22% drop in purchases of new handsets in the quarter.

The studies are the latest piece of bad news for handset makers, particularly Motorola Inc., the U.S. market leader that is particularly exposed to the lower end of the market. Motorola cellphone sales slid 39% in the first quarter, and the company attributed much of that loss to the U.S., where it sells half of its phones.

The evidence of slowing wirelessservice subscriptions came from a report by Bernstein Research estimating that the U.S. wireless industry added 23% fewer subscribers in the first quarter, compared with a year earlier. The slowdown in wireless subscription rates started six months ago, said telecom-and-cable analyst Craig Moffett, who added "we expect growth to slow further from here."

The analyst said growth was slowing most rapidly among new subscriptions for children younger than 12 and for "deeply subprime users, and it's reasonable to think that in a weak economy, that both of these populations would be strapped,”he said.

The research on handset sales reached a similar conclusion. "When money is tight or expected to be tight, many consumers tend to delay upgrading to a new phone," said Neil Mawston, wireless analyst for Strategy Analytics.

As the market plateaus, carriers and handset makers will look for growth in phones with full keyboards for the boom in text messaging and extra features for multimedia applications. Handset makers charge more for these phones, and carriers can generate extra revenue from customers who use the phone's features.

This trend benefits makers of feature-rich handsets such as Samsung Electronics Co., LG Electronics Co., BlackBerry maker Research in Motion Ltd. and iPhone makerApple Inc. Motorola has struggled to add high-end phones.

At the end of the first quarter, Motorola held 25% of the U.S. cellphone market, compared with 34% at the end of the first quarter of 2006, according to Strategy Analytics. During the same period, Korean competitors Samsung had increased its share of the U.S. market to 22% from 15%and LG rose to 21% from 16%.

-Amol Sharma
contributed to this article.