Wireless

The mobile handset market is set for recovery after the worst economic downturn since the Great Depression, according to Nokia, the world's largest maker of cell phones.

The cell phone market has been hit particularly hard by the worldwide economic slowdown. And companies such as Nokia and Sony Ericsson have taken a beating.

The second quarter of 2009 was particularly hard for Nokia. The company's earnings were ugly with a 25 percent drop in revenue, a 15 percent drop in handset shipments, and a more than 70 percent decline in operating profits, compared to the same quarter in 2008.

Sony Ericsson, which reported its second quarter earnings just hours before Nokia, also had a poor showing in the second quarter. The company posted a 213 million euro ($301.4 million) net loss for the second quarter, which was down from a profit of 6 million euro ($8.5 million) during the same quarter a year ago.

But for Nokia and Sony Ericsson there are glimmers of hope in their results. Sequentially, Nokia's revenue and profits improved slightly compared to the first quarter of this year. And Sony Ericsson posted a narrower net loss than analysts had forecast.

These bits of positive news are likely contributing to a growing sense that the worst of the recession may be over.

"Competition remains intense," said Nokia's CEO Olli-Pekka Kallasvuo. "But demand in the overall mobile device market appears to be bottoming out."

This is good news for an industry that some market research firms have predicted will see at least a 20 percent drop in product shipments for 2009 compared to 2008. Nokia admits that neither its company nor the industry as a whole is out of the woods just yet. It reiterated on Thursday that it expects the industry to shrink about 10 percent in 2009 compared to last year.

But news that Nokia, which sells about 40 percent of all handsets in the world, is seeing the light at the end of the tunnel is a major positive for the industry and the economy as a whole. Even though unemployment rates are still rising in the U.S. and abroad, there are other signs from the technology industry that consumers and businesses are starting to spend again.

Earlier this week, Dell said it's seeing demand for its products--PCs, services, servers--"stabilizing." And Intel released an upbeat outlook during for its second-quarter report on Tuesday. Intel's feel for the market is an important bellwether for the tech industry, and the chipmaker reported its best first-to-second-quarter growth in almost two decades. CEO Paul Otellini declared it a "clear expectation for a seasonally stronger second half."

These are all good signs that the economy is headed for recovery. But the climb back to robust growth could be a slow one. And there's no guarantee that a rising tide will lift all boats, especially in the mobile handset business.

Right now, the mobile handset market is going through a massive transition. Cell phones that were once used simply to make phone calls have evolved into jack-of-all-trade devices. Increasingly, cell phones are being used to provide Internet connectivity that allows people to use new forms of communication, such as social networking sites. Olli-Pekka acknowledged this trend during Nokia's second-quarter conference call with analysts and investors, noting that in the future more people will connect to the Internet via a cell phone than a computer.

"A new industry is emerging as the Internet and communications converge," he said. "And consumers will increasingly demand products that are more integrated."

Nokia has been at the forefront of developing devices that do just that. The company has led the market with its 3G wireless portfolio and it has led the market in terms of worldwide shipments with its smartphone devices, the N-series and E-series phones. On Thursday, it reported that some of these devices have been doing quite well worldwide. For example, it shipped 3.7 million 5800 series handsets during the quarter. And it also noted I has sold a total of 5 million units of its popular E71.

Smartphones are key
Smartphones in general are expected to lead growth in the industry as consumers look for more advanced features and easier access to the Internet and online applications.

But recently Nokia has lagged in terms of innovation here. Meanwhile, Apple is now viewed the leader in terms of innovation with its iconic iPhone. And other companies like as Research In Motion and Palm are also making advances with their own products. The new Google Android operating system, which will be on a whole slew of devices in the second half of 2009 and into 2010, is also expected to push the industry forward in terms of innovation.

Nokia and Sony Ericsson, each recognize that they need new products in the smartphone market to excite consumers. Sony Ericsson's flagship smartphone, Xperia, has so far not been particularly strong. But the company is working on other new products. And during a conference call with investors, Sony Ericsson Chief Executive Dick Komiyama said his company's new product portfolio should contribute to "healthier topline development" once shipments start later in 2009.

Nokia's Olli-Pekka also noted that the company plans to increase its focus on developing more advanced phones.

"The line between handsets and PC will not exist in the future," he said. "And our ambition is to become the leading provider for these integrated mobile devices."

But Olli Pekka also emphasized the need to address the low and mid-range of the mobile market as well. And he emphasized the need for Internet connectivity and sophisticated technology in these devices as well.

"As we have said before, one size doesn't fit all," he said. "Nokia will continue to address all price points and all markets globally."

This is exactly the market that INQ Mobile, a new handset maker backed by Hutchison Whampoaa, is addressing. Smartphones may offer more growth, but basic Java-based feature phones still make up the bulk of the market. Today about 40 percent of the cell phone market is made up of phones that operators buy for between $36 and $99, according to Strategy Analytics. These are typically basic feature phones. Smartphones, which sell to carriers for more than $300 a pop, make up about 17.8 percent of the market currently, says Strategy Analytics.

In terms of market share, these figures are not expected to change much over the next few years. Mass market devices, which are in the mid-tier in terms of pricing, will continue to make up about 40 percent of the overall cell phone market well into 2014, the firm has said. But this doesn't mean that the average consumer will settle for me-too low-functioning devices. They are increasingly demanding more advanced functionality in lower-priced devices.

"The market is going through a huge seismic shift right now," said Frank Meehan, CEO of INQ Mobile. "People want more functionality in their phones, even the less expensive phones. They are demanding a good user interface. And they're refusing to put up with a bad Internet experience."

Meehan believes that this market has been largely overlooked by the major cell phone manufacturers, which have done a poor job integrating Internet-based applications and social networking into their devices. His company is trying to address this void with new, inexpensive devices that make it easier to access Internet based applications like Facebook with a single click.

The challenge for companies such as Nokia and Sony Ericsson over the next couple of years as the industry moves out of the recession and toward Internet-enabled devices is to address the high-end of the market as well as the low and mid-tier of the market. For these companies it will require a balance between controlling costs and adding innovative new features. As Nokia's Olli-Pekka pointed out during the conference call, the winners in this new era in the cell phone market aren't apparent yet. But he is confident that Nokia can rise to the occasion.

Net neutrality advocates got a boost of support Wednesday from the Obama administration when it released grant guidelines for spending the government's $7.2 billion broadband stimulus package.

Companies winning grants to help build new broadband infrastructure will have to follow the Federal Communications Commission's Internet Policy statement, which prohibits companies from deliberately blocking or slowing Internet traffic on their networks.

Proponents of that concept, Net neutrality, have been pushing the government to pass laws or set stricter requirements to ensure that consumers get access to content they want and that competitors are not run out of business by network operators.

The phone companies and cable operators have opposed such legislation, a sentiment that seemed to be shared by the Republican-controlled FCC under the previous presidential administration. But now that Democrats are in charge, Net neutrality advocates have been looking for indications of how the new FCC led by recently sworn-in Chairman Julius Genachowski will handle the issue.

It is still too early to know whether Democrats will push for new laws. But it's becoming more clear that protecting access on the Internet is an important issue to many.

Consumer and advocacy groups, such as Public Knowledge and Free Press, applauded the decision to make Net neutrality a condition of the grants.

The Obama administration released guidelines Wednesday for companies and other groups applying for the first of three batches of grants that will be distributed to promote broadband as part of the economic stimulus package passed by Congress earlier this year.

The first batch of funds is about $4 billion and represents more than half the $7.2 billion that the government has allotted to fund broadband infrastructure investment over the next two years. About $4.7 billion of that money will be doled out by the National Telecommunications and Information Administration for grants to build broadband infrastructure in unserved or underserved areas and to further develop public safety as well as stimulate demand for broadband. The remaining $2.5 billion will be allocated by the Department of Agriculture (USDA) to provide loans to service providers building broadband infrastructure in rural areas.

Other important aspects of the rules that came out this week include the government's definition of broadband. The rules for the grants define broadband transmission speeds to be no less than 768Kbps downstream and at least 200Kbps upstream to end users. These speeds hardly seem like broadband to most consumers used to cable model services and other high-speed Internet services like Verizon's Fios service.

But the lower speed definition is to ensure that companies addressing rural markets that may only be able to be served by slower DSL connections or wireless services can still receive grants. In an effort to promote higher speed services, however, the government will give preference to companies planning to deliver high-speed services.

The government also outlined what it means when referring to an "underserved" region. Areas where less than 50 percent of households have no access to broadband will be considered underserved and eligible for grants.

More specific rules to help companies write grant proposals for getting these funds will be released next week.

NEW YORK--Collins Osei, who had bought an iPhone 3G last year, came to the AT&T store Friday not to buy the latest-generation iPhone 3G S, but instead he wanted to downgrade to a less expensive Nokia phone.

Nokia 2600

(Credit: CBS Interactive)

Osei said his decision to go back to a basic-feature phone was all about cost. The iPhone and its service plan are simply too expensive, he said. Osei, who is in the middle of his two-year contract with AT&T, had his iPhone 3G stolen recently. But he said replacing it with a new one would cost too much. Instead, he picked up a Nokia 2600 for a mere $43.

But Osei's decision didn't hinge just on the upfront cost of the phone. He also said he was tired of paying the additional $30 a month data charge that is mandatory with the iPhone.

"The iPhone plan was just too expensive," he said. "They made me pay $30 extra a month for data, and I don't really need the Internet on my phone. So I went back to a regular phone. And now I'm on a plan that costs $39.99 a month."

Osei might not be the only consumer out there turned off by the high cost of the iPhone service fee. Unlike previous iPhone launch days, there was no line of people this morning waiting outside the AT&T Time Square store hoping to get the latest iPhone 3G S. In fact, it looked like more customers were leaving the store empty-handed or with other devices than those leaving with new iPhones.

q&a Leap Wireless is finally in the right place at the right time.

The company, which sells its prepaid service under the Cricket and Jump Mobile brands, has been in the wireless service market since 1998, when it was spun off from mobile chipmaker Qualcomm. It filed for Chapter 11 protection in 2003 and was restructured and emerged from bankruptcy protection a year later.

Doug Hutcheson, CEO of Leap Wireless

(Credit: Leap Wireless)

Now the company is strategically expanding its network into 14 new markets with spectrum it won in two recent Federal Communications Commission auctions. It now operates in 29 states and holds licenses in 35 of the top 50 U.S. markets, including Chicago and Philadelphia, where it recently launched service, and in Washington, D.C. and Baltimore, where it plans to launch soon.

And all of this happening as Americans are getting fed up with lengthy and expensive wireless contracts from national carriers, such as AT&T and Verizon Wireless. And as finances tighten, people are looking to reduce their monthly expenses by finding cheaper options for phone service. Prepaid service plans, which allow customers to pay in advance for service without signing a contract, provide a good alternative. Low-cost unlimited plans, from Leap and others, make it an easy choice even for wireless subscribers who talk and text a lot.

I recently chatted with Leap CEO Doug Hutcheson to get his take on the prepaid wireless market and get his thoughts on the future of the industry. Below is an edited version of our conversation.

Q: Prepaid cell phone plans are getting a lot of attention lately. Why do you think that is?
Hutcheson: The prepaid cell phone market is in its third or fourth phase of development right now in the U.S. And it's at the same phase that the European market entered about five or six years ago. Prepaid really started to take off in Europe as wireless penetration started to reach 100 percent. And of course the economic realities of today are also a factor. For a number of people, prepaid wireless is the best value.

Do you think prepaid carriers, such as Leap Wireless, are in a position to threaten the nationwide incumbents, such as AT&T or Verizon Wireless?
Hutcheson: I don't think we are a material threat to either AT&T or Verizon Wireless. They have built great, broad franchises with 80 million customers. What we are trying to do is focus on our customer base, which tends to be younger and more ethnically diverse with people at the median to below median household income level. We serve this market really well. And this is a customer base that others aren't as interested in serving or aren't able to focus on. These operators have their own prepaid products, but I think AT&T's primary focus is on selling iPhones and two-year contracts. And Verizon is focused on its 4G rollout and combining those services with its Fios fiber network.

After the economic meltdown over this past year, many Americans are looking for ways to cut back their monthly expenses. And prepaid wireless plans offer a great alternative to expensive contract plans.

Traditional prepaid services or pay as you go services allow people to buy their own phone at full retail price and then put a certain amount of money in an account that is deducted based on usage. Some plans offer buckets of minutes for a set price, and some allow people to just put however much money they want in their prepaid phone accounts. These plans allow people to know exactly how much they are spending each month, and if they run out of minutes or money in their accounts, they simply add more online, over the phone, or at a retail location.

These plans differ from post-paid plans, which offer buckets of minutes for a set price, and then bill customers at the end of each month, sometimes resulting in surprisingly high phone bills or excess charges for services that were never used.

Prepaid services have long been popular in Europe and other parts of the world, but in the U.S. these services have traditionally served only niche markets. But now prepaid is gaining steam in the U.S. And consumers of all stripes looking for good deals with no service contracts are considering canceling their post-paid services and going to prepaid.

Ideal candidates for prepaid services include people who use their phones rarely to call friends or family when they are out and about or who only own a cell phone because they think they may need it for an emergency. My 66-year-old, retired father falls into this category. Teenagers are also prime candidates for prepaid services, especially for plans specific to text messaging, such as Virgin Mobile's Texter's Delight or T-Mobile's Sidekick plan. These plans offer loads of free texting and cheap per-minute voice charges.

And now a new category of prepaid services has emerged that will likely appeal to traditional post-paid customers, who talk, text, and access the mobile Web a fair amount each month. Several carriers including Virgin Mobile, Boost Mobile, MetroPCS, and Leap Wireless' Cricket offer low-cost unlimited plans that include voice calling, messaging, and unlimited Web surfing. And the beauty of these all-you-can-eat plans is that customers aren't required to agree to a pesky one-year or two-year contract and risk paying expensive early termination fees.

Verizon Wireless is expected to launch its long-awaited Netbook from Hewlett-Packard on May 17, according to a report from the blog Boy Genius Report.

This HP Mini 1000 is similar to the one that Verizon Wireless is rumored to soon be offering on its 3G wireless network.

(Credit: CNET)

The blog said the company will be offering the 115NR Netbook from HP with wireless broadband capability for $199 after a mail-in rebate. The subsidized device will come with a two-year service contract that will likely set users back $40 to $60 a month, the site said.

Verizon declined to comment on these most recent rumors. But the company confirmed earlier this year that it is planning to launch a Netbook on its network.

The big question now is whether consumers will actually buy the device and agree to a hefty service contract. Pricing details for the 3G wireless service aren't known yet. But Verizon currently charges $40 a month for a laptop data plan that offers 50 megabytes worth of data each month. And its $60-a-month plan offers 5 gigabytes of data downloads every month.

If the Boy Genius blog is accurate about the $199 price tag for the Netbook, and Verizon sticks with its current data plan pricing, Netbook users can expect to spend $1,160 to $1,640 over the life of the contract for the service and Netbook, depending on which plan they choose. (This doesn't include taxes or fees.) Considering that HP's Mini 1000 Netbooks retail for about $300 without a 3G service contract, this might seem a bit much for some consumers to stomach.

It's clear that Verizon sees Netbooks and other wireless-enabled devices as its future. Today, nearly 85 percent of the U.S. population owns a cell phone. As this penetration rate approaches 100 percent, it's unlikely that cell phone operators will experience much new growth simply by adding new cell phone subscribers.

In fact, the bulk of Verizon's new wireless customers in the most recent quarter came from its acquisition of regional wireless operator Alltel. If Verizon had owned Alltel in the first quarter of 2008, Verizon's subscriber base in the first quarter of 2009 would have only grown 3.3 percent year-over-year.

Other wireless providers are in the same boat. And they are also looking for new ways to generate revenue. Sprint Nextel, the nation's third largest wireless operator, provides the wireless service for Amazon's Kindle. CEO Dan Hesse said during the company's first quarter 2009 conference call that he sees devices like the Kindle providing a big boost to the company's wholesale business.

AT&T, which has already been offering subsidized Netbooks on its network, is also interested in expanding its business opportunity with wireless-enabled devices. As a result, the company has established a new business unit, which is tasked with finding new consumer and embedded devices to use AT&T's wireless network.

But in order for these wireless companies to be successful, they will need new business models. Ralph de la Vega, president for AT&T mobility, recently said as much at the CTIA tradeshow in Las Vegas.

"We need to be more flexible," he said. "This is a new frontier. And we need to approach it with new ideas. We can't be forced to go down an old path."

But when it comes to Netbooks, it looks like AT&T and Verizon Wireless have simply taken a page out of their own cell phone playbooks. AT&T is also charging $40 to $60 a month for data service. The idea is that the companies subsidize the devices, and then make up that subsidy quickly with a hefty monthly service charge.

To their credit, this business model has worked well in the cell phone market. But I don't think they will find the same success as they try to expand the wireless services market to include other devices. And the reason is simple. A cell phone is essentially useless without a voice plan. And in order to ensure consumers sign up for expensive data plans, some new smartphones, such as Apple's iPhone and Research In Motion's BlackBerry devices, require users to sign up for data plans.

But Netbooks and other devices, such as digital cameras, Netbooks or MP3 players, can be used without connecting to the Internet wirelessly. And many of these products already come with Wi-Fi, which can often be accessed for free and without a lengthy contract. What's more, these devices can also be bought easily through other retailers.

For these reasons, I think it will take more than a $100 subsidy to get consumers to sign up for these Netbook deals. Verizon and other wireless operators will have to rethink their business models, especially in this economy when people are looking to reduce their monthly bills. Cheaper data plans could certainly help.

Prepaid wireless providers are scooping up subscribers as cash strapped consumers downgrade to lower cost cell phone service.

First quarter earnings reports from MetroPCS Communications and Leap Wireless on Thursday provided further evidence that consumers are flocking toward no-contract, unlimited prepaid services. These carriers, which operate primarily in smaller urban areas, each reported they had nearly doubled their subscription rate compared to a year ago.

MetroPCS said its new subscriber additions increase 51 percent compared to the same quarter a year earlier. In total it added 684,000 new subscribers, bringing its customer base to 6 million. This was the third quarter in a row in which the company had a record breaking increase in subscribers.

Leap Wireless, which sells its service under the Cricket brand, also had a big quarter, increasing subscribership by 40 percent compared to the same quarter a year earlier. In total, the company added 493,000 new customers, ending the quarter with 4.3 million wireless subscribers. A year ago, Leap ended the first quarter with 3.1 million customers.

MetroPCS increased revenue 20 percent to $795.3 million and posted earnings of $44 million.

Leap actually posted a wider first quarter loss, mostly due to the company's expansion into new markets, such as Chicago and Philadelphia. The company lost $47.4 million, or 74 cents a share, compared a loss of $16.9 million, or 28 cents a share, in the first quarter of 2008. Revenue increased 25 percent to $587 million.

All of this news comes just days after Sprint Nextel reported huge subscriber gains in its prepaid service from its subsidiary Boost Mobile. Boost added about 764,000 customers to its service.

What all three services have in common is that they offer low-cost, prepaid plans with all-you-can-eat voice, text messaging, and Web browsing. The Boost Unlimited service, which launched in January, costs only $50 a month. And MetroPCs's and Leap's services are in the same neighborhood.

Based on these strong subscriber numbers, it appears that consumers are looking for more affordable cell phone plans. This is likely a direct result of the ailing economy, which has resulted in high unemployment throughout the country.

While it's true that cell phone service has become essential for most Americans, that doesn't mean consumers are willing to pay a lot of money for it. And as finances tighten, people are looking to reduce their monthly expenses by finding cheaper options for phone service. Prepaid service plans, which allow customers to pay in advance for service without signing a contract, provide a good alternative. And now the low-cost unlimited plans make it an easy choice even for wireless subscribers that talk and text a lot.

MetroPCS and Leap Wireless have each been offering their low-cost prepaid unlimited plans for quite some time, but as these carriers move into bigger markets, such as Chicago, Philadelphia, and New York, they are putting pressure on other wireless operators to match or beat their prices.

Sprint's Boost was the first to answer that challenge with its $50 unlimited plan. Virgin Mobile followed with its own all-you-can-eat plan for $50 a month. And T-Mobile USA, owned by Deutsche Telekom, is also getting more aggressive with its prepaid cell phone plans.

The question now is whether the two biggest cell phone companies, AT&T and Verizon Wireless, which make millions of dollars in profits from postpaid subscribers, will also go after the prepaid market. And if they don't, will they slash prices on their postpaid contract service plans? AT&T is already rumored to be considering lowering the price of its iPhone service plan by $10 when the new iPhone comes out this summer.

The prepaid cell phone market has finally hit the U.S. in a big way as economically strapped consumers flock to inexpensive pay-as-you-go services. The result will likely mean that big cell phone providers may be forced to slash prices on contract service plans to keep consumers from defecting.

This is good news for consumers, who could see lower prices on both prepaid and post-paid service plans. But it is very bad news for cell phone operators, which make more money from their post-paid customers than they do from prepaid customers.

Prepaid cell phone plans, which have been very popular in Europe and other parts of the world for several years, allow consumers to buy a phone at full retail price, without committing to a contract, and pay for service in advance. By contrast, post-paid services require consumers to sign a one- to two-year service contract, and their usage is billed on a monthly basis. In exchange for signing a contract, wireless operators often subsidize the cost of the phone.

For years, the post-paid business model has dominated the U.S. cell phone market, providing strong growth for U.S. wireless operators. Meanwhile, the prepaid market in the U.S. has been largely left to consumers who are young, price-sensitive, or considered credit risks. While all of the major cell phone operators offer prepaid services, smaller operators, such as Leap Wireless, MetroPCS, and Virgin Mobile USA, have largely dominated this market.

Now, it looks like the tide is turning. First-quarter earnings from all of the major cell phone operators indicate that consumers are flocking to new all-you-can-eat prepaid plans instead of the contract-bound post-paid plans.

"Post-paid (wireless service) growth is arguably over," Craig Moffett, a Sanford Bernstein equities analyst, said in a research note published this week.

Post-paid subscriber growth came to a "virtual halt" in the first quarter of 2009, Moffett noted. He estimates that net additions of post-paid customers across all major carriers fell 58 percent from the first quarter of 2008 to the first quarter of 2009.

Meanwhile, prepaid customers are on the rise. A year ago about 50 percent of new cell phone users signed up for prepaid cell phone service, Moffett said in his note. But in the first quarter of 2009, about 80 percent of cell phone subscriber growth came from prepaid plans.

Sprint Nextel, which reported results on Monday, is the most obvious example of how things appear to be shaking out in the wireless industry. Sprint added about 674,000 new prepaid subscriptions in the first quarter, according to Moffett's estimates. But the company lost nearly 1.25 million post-paid subscribers.

Driven by bad economy
The boom in prepaid cell phone service is likely being driven by the sour economy, and by the fact that providers, such as Sprint and Virgin Mobile USA, have recently introduced $50 unlimited voice services. Sprint's Boost Unlimited service also includes unlimited text messaging and unlimited wireless Web access. Leap Wireless and MetroPCS also offer similar all-you-can-eat plans.

Sprint's service, offered through its subsidiary Boost Mobile, uses excess capacity on the former Nextel iDEN network. So the low-cost service didn't require an expensive network upgrade. The service launched in January, and it was deemed a huge success. Sprint executives said Monday the initial uptake of the service was more than the company had expected.

It seems the $50 price tag could be too good for some consumers to pass up. Comparable post-paid service plans offered by AT&T and Verizon Wireless cost $99.99 a month. And Sprint's own "Simply Everything" plan, which includes unlimited Web surfing and e-mail in addition to unlimited voice and messaging service, costs $99.99 a month.

Sprint's CEO Dan Hesse said during the conference call with analysts and investors that there "is no question that there is a movement toward prepaid." But he was careful to point out that he doesn't see the prepaid market cannibalizing the more lucrative post-paid business model. In fact, he said that the prepaid market is actually expanding the entire wireless market.

"Some of these prepaid customers are people using cell phones for the first time," he said. "So I think overall, as an industry, we will see more revenue growth than we would have seen without prepaid services."

But with more than 80 percent of the U.S. population already using a cell phone service, it's getting harder to sell wireless service to people who don't already own a cell phone. That means that wireless operators are already trying to steal each other's existing customers.

The problem for wireless carriers is that not all cell phone customers are equal. Moffett's analysis indicates that prepaid customers typically generate less than half the value of post-paid subscribers over time. And the reason is simple. On average, prepaid customers generate less revenue per month than post-paid customers. They are more likely to switch back and forth between service providers. And they typically use more network resources, averaging around 2,000 voice minutes per month compared to about 1,000 minutes per month, than post-paid customers.

As a result, carriers, such as Sprint, that are growing their prepaid subscriber base at the expense of their post-paid customers, will, over time, make less money, Moffett reasons.

But regardless of whether carriers want to offer more prepaid services, the troubled economy is likely accelerating the trend. As more Americans lose their jobs and household budgets get tighter, some cell phone subscribers are starting to opt for cheaper prepaid cell phone plans when their current post-paid contracts run out.

A recent study conducted by Opinion Research Corporation (ORC) for the New Millennium Research Council (NMRC) suggests that many people are already canceling their cell phone plans and getting prepaid cell phones as a reaction to the financial crisis.

It is clear that the current trend is probably bad for wireless operators. But if more wireless operators match Boost with their own $50 all-you-can-eat prepaid service plans, a pricing war could emerge, which will likely benefit consumers. And it's very likely the price drops won't stop at the prepaid plans. If carriers start losing even more post-paid customers, they may also be forced to reduce the price of their contract-based all-you-can-eat plans.

But because most prepaid services only offer basic phones, the price war may not immediately affect more advanced smartphone sales and service plans. Still, as the cell phone market reaches saturation, wireless operators can't afford to lose any subscribers.

Motorola continued to lose money during the first quarter of 2009 as shipments for wireless handsets declined amid the ailing economy.

The company was already in pretty bad shape when the global economy started to tank last year. And since then, things have continued to get worse. Without any cool new handsets and with dropping demand from customers, Motorola's troubled handset business continues to drag the company down.

During the first quarter, which ended April 4, Motorola reported that shipments of cell phones fell about 46 percent to 14.7 million compared with the same quarter a year before. And shipments were down about 23 percent compared to the fourth quarter of 2008. The mobile-devices division's operating loss widened to $509 million as sales for the unit dropped about 45 percent to $1.8 billion. But the loss was an improvement over the $595 million the division lost in the fourth quarter of 2008.

Motorola's two other major divisions, home networking and emergency response communications, helped buoy the company's overall earnings. But even these divisions were hit by the dragging economy in the first quarter. As a result, Motorola reported a net loss of $231 million, or 10 cents a share. In the year-ago period, the company reported a loss of $194 million, or 9 cents a share. Revenue was down about 28 percent to $5.37 billion compared with $7.45 billion a year ago.

Motorola has been taking a series of steps to reduce costs. It has suspended its dividend, and it's cut about 6 percent of its workforce. The company also set aside plans to spin off the handset business because at this point it can't survive on its own.

The company's executives have said that the cost cuts are making a difference. And the company has predicted that it will lose only between 3 cents and 5 cents per share, adjusted for onetime items, in the second quarter of 2009. It expects to be generating cash in the second half of the year.

Currently, Motorola has about $6.1 billion in cash, down from $7.4 billion at the end of 2008.