As the wireless telecommunications industry has matured over the past two decades, the industry's contribution to the economic health of the United States has also grown and is now one of significant stature. Wireless provides millions of Americans jobs, contributes billions of dollars to the United States economy and is expected to become a larger part of the U.S. economy than the agriculture and automobile sectors within five years. The industry has unquestionably benefited from a light regulatory environment that has nurtured a climate of intense competition and, as a result, substantial consumer gains in productivity and surplus revenue. The industry is fulfilling its promise as a key sector of the economy with tremendous potential to not only infuse the economy with much-needed vitality, but to further increase its fiscal support of local, state, and federal government through the payment of corporate and personal income taxes.

Of the $104.4 billion Americans spent on wireless in 2004, Ovum’s research indicates that more than 70 percent of the value add generated by the wireless telecom industry was retained in the U.S. resulting in a gross domestic product contribution of $92 billion. To put this in context, if the wireless telecommunications industry were a country, its economy would be bigger than that of Egypt, as measured by GDP. The growth of revenues generated by the industry’s supply-side value chain combined with the economy-wide productivity gains from wireless services has positively impacted U.S. GDP, employment, and government revenues.

Supply Side Benefits from Wireless Services

U.S. businesses and consumers spent $118 billion on wireless telecom products and services in 2004, with this revenue flowing along an extensive U.S. industry value chain. We can see that during 2004, U.S. end-users spent $104.4 billion to purchase wireless telecom services. The vast majority of that, $101.2 billion, flowed to facilities-based carriers, while $3.2 billion was paid to resellers such as Virgin Mobile USA and Tracfone Wireless. Resellers and Mobile Virtual Network Operators (MVNOs) received $3.2 billion in service revenues, with resellers remitting $900 million to their wireless carrier wholesalers for airtime, leaving resellers and their other upstream suppliers with valued added revenues of $2.2 billion.

Furthermore, facilities-based wireless carriers paid wireline operators $4.1 million for leased lines for their networks and to terminate calls on the wireline networks. Wireless carriers also paid a substantial proportion of their revenues to the suppliers of support services. These suppliers, together with their own upstream suppliers, generated a value add of $40.4 billion in 2004. In addition, wireless carriers received $12 billion in endusers payments for handsets and related accessories and $900 million in payments from wireline carriers for terminating wireline to wireless calls.

In 2004, end-users purchased a little more than 50 percent of their wireless services, handsets and related accessories from independent retailers such as Best Buy and Radio Shack. Although these end-user payments are booked by the facilities-based carriers rather than by the independent retailers/dealers, independent retailers/dealers receive commission on each sale, and in 2004 these commissions totalled $9.8 billion, forming the bulk of independent retailer revenues in 2004. In addition, the network equipment suppliers had a value add of $6 billion.

Productivity Gains from Wireless Services

For several decades before 1995, the U.S. lagged both Japan and the European Union in GDP growth. But, over the last ten years, the U.S. has outpaced Japan and the European Union in labor productivity growth. While the Internet and computers have won much of the credit for improving productivity, telecommunications, and especially wireless telecommunications, have become an essential component in generating productivity gains for U.S. businesses. This increased productivity is leading to substantial gains by U.S. businesses which in turn mean GDP growth and increased global competitiveness. Looking solely at the use of just five wireless data applications, we estimate that U.S. business users enjoy at least $15 billion per annum in productivity gains. This estimate is very much a lower limit because it is premised on the use of just a few of the currently available wireless data applications.

It is clear that wireless voice services play a central role in enabling productivity growth. Increases in productivity are typically hard to quantify; however, one measure is the consumer surplus generated by the use of wireless voice services. U.S. wireless consumers enjoy far lower rates than users in other parts of the world, particularly Europe. For example, if the average wireless consumer in America spends $54 per month on wireless voice and data services, that same consumer would pay approximately $125 U.S. for the same services in the European Union. Were U.S. carriers to charge at European Union levels, we estimate that the U.S. consumer surplus from wireless services would be halved, demonstrating that U.S. consumers and businesses enjoy substantially greater economical welfare from wireless services than their E.U. counterparts do. We estimate that the use of wireless services in the U.S., largely for voice applications, generated a consumer surplus of $157 billion per annum for 2004.

The relatively new wireless data services are also now starting to improve U.S. productivity. In 2004, we estimate that these productivity gains were worth in excess of $8 billion. To put this savings in context, the nascent wireless data segment is roughly as large as the entire economy of the country of Bahrain, one of the oil producing countries in the Persian Gulf.

Wireless Generates U.S. Employment

A significant indicator of the growth of the industry and the positive impact it is having on the United States’ economy is the number of U.S. jobs now dependent on wireless telecom. The industry is a major generator of employment in the U.S., as we estimate that 3.6 million jobs in the U.S. are dependent on the industry. 534,000 jobs are generated by direct employment in the industry; firms which provide support services to the industry employ a further 1,344,000 staff; and the industry generates a further 527,000 jobs indirectly.

Finally, we needed to take account of the multiplier effect, which induces further employment. The 2,405,000 U.S. jobs that depend either directly or indirectly on the U.S. wireless telecom services industry generate expenditure in the economy, which, in turn, creates other jobs. For example, employees of wireless carriers spend money on restaurants, vacations, clothing, food, etc., and generate additional jobs as a result. Applying a conservative multiplier of 1.5 increases the number of jobs dependent on the U.S. wireless services industry from 2,405,000 to a total of 3,608,000. This figure is estimated to increase to by an additional two to three million by 2015.

Wireless Contributions to Public Spending

The industry and its employees are also a major contributor to government revenue, wireless telecom companies and their workers paid $63 billion2 to federal, state, and local government in 2004 in the form of various taxes and other fees.

We estimate that directly or indirectly, 3.6 million jobs were dependent on the U.S. wireless services industry at the end of 2004 with an average wage of $33,400 per annum. The average worker paid 7.5 percent in social security payments and 13.8 percent in income tax; employers, in addition to paying employees, paid 7.5 percent of their wages in social security payments to the Government. Furthermore, on average, end-users paid federal, state and local sales taxes, fees and surcharges of 14 percent on $104.4 billion in wireless service sales and on average, end-users paid sales tax of 6.9 percent on handset equipment sales of $12.3 billion. In addition, wireless carriers paid 2.5 percent of their interstate telecom service revenues into federal Universal Service Funds, representing 33 percent of the total contributions to federal universal service funds.

Overall, the wireless telecom services industry paid $62.6 billion to federal, state, and local bodies of the U.S. government in 2004. This figure comprises:

• $14.6 billion (14 percent of $104.4 billion) in federal, state, and local sales and transaction taxes and surcharges on wireless services;
• $9 billion (6.9 percent of $12.3 billion) in sales taxes on handset purchases;
• $9 billion (7.5 percent of $33,400 x 3.61 million jobs) in employer-paid social security payments;
• $9 billion (7.5 percent of $33,400 x 3.61 million jobs) in employee-paid social security payments;
• $26.5 billion (22 percent of $33,400 x 3.61 million jobs) in income tax from
• workers dependent on the wireless services industry;
• $2.6 billion in contributions to federal and state Universal Service funds.

Future Benefits From Wireless Services

Over the next 10 years, we can expect that the use and supply of wireless services and handsets will generate more than $450 billion in additional U.S. GDP and will create an additional two to three million jobs. In addition, the industry is expected to generate $700 billion in additional consumer surplus from use of wireless voice services as volumes of use grow and prices decline further. Furthermore, the productivity gains from wireless data services services will become much more evident. We estimate that productivity gains will generate more than $600 billion in additional GDP over the next decade. To put these gains in context: the tax cuts of the Bush Administration are estimated to be worth approximately $670 billion to the U.S. economy over the next 10 years, and the recent proposal to repeal the Estate Tax is estimated to be worth around $290 billion over the next 10 years.

Wireless technology supercharges the revolution in information technology, by enabling businesses to apply information technology everywhere, rather than just at offices.

About the author: Roger Entner

Roger Entner is the VP Wireless Telecoms for Ovum, covering market developments, technology trends and companies in the North American market place. With over ten years experience in the industry, his particular focus is on mobile service providers, the business models underlying the wireless sector and regulation. Formerly Director of Yankee Group's Wireless/Mobile US advisory service, in 2002 he was named their Analyst/Programme Manager of the Year.

Prior to this he worked at LCC International, a leading wireless engineering and consulting firm, where he served as strategic marketing manager. He was responsible for LCC International's corporate strategic planning, development of new services and establishing business alliances. Before working at LCC International, Roger was a managing analyst at Markowitz & McNaughton, a strategic advisory consulting firm covering wireless and landline telecommunications. He has been recognised as one of the leading wireless analysts in the US and has been widely quoted by The Wall Street Journal, The New York Times, The Washington Post and many other national and international publications. He has also appeared on CNN, NPR, Bloomberg Radio and CBS News Radio among others.

Roger is also an advisor for the National Science Foundation's Small Business Innovation Research/Small Business Technology Transfer Research programmes.

Roger Entner holds a BA in Business Organisation from Heriot-Watt University in Edinburgh, Scotland and an MBA in International Business from George Washington University in Washington, DC.