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Wee wireless warriors

In the past, telecom for kids didn't get much more complex than two tin cans connected by a length of string.
/ Source: Forbes

In the past, telecom for kids didn't get much more complex than two tin cans connected by a length of string.

But, times have changed. Children have become voracious consumers of cellular communication and today are the fastest growing and most profitable segment of the mobile telephone world. As the overall cellular marketplace nears saturation, young consumers are bringing new blood--and new bucks--to service providers.

"Kids are a very important market for us," says Will Souder, director of acquisition marketing for Sprint PCS. "We're reaching full penetration levels for the 25 to 55 age group, but families are giving more phones [to kids], and the age at which people are adding on is getting younger and younger. It goes all the way down into single-digit ages now."

The phenomenon of kids with cell phones is relatively new. Back when cell phones were costly and clunky, it would have been practically unthinkable to give one to a preteen. But, with today's cheap--or free--handsets and low-cost calling plans, many parents are handing their kids phones in an effort to stay in touch and keep track of their whereabouts.

Just four years ago, the percentage of kids who had cell phones was in the single digits. But by 2003, about a third of all kids between the ages of 11 and 17 owned their own cellular phone, according to the Yankee Group. By the end of this year, ownership in that age group will have jumped to over 50%.

Sure, it's still a small number of consumers compared to the overall market. Over 170 million people subscribe to cellular service in the U.S., and nearly 80% of consumers between the ages of 25 and 54 have a mobile phone, according to the Cellular Telecommunications and Internet Association. But, success can be a curse and the industry is running out of people to whom it can sell phones.

"If you're looking for new users, the only place to find them is among young people," says Dave Garver, executive director of marketing for Cingular Wireless, a joint venture of SBCCommunications and BellSouth. Most adults can only be brought on board if you convince them to switch from another service provider, he notes. By contrast, plenty of kids still don't have service and every year more and more kids come of age.

"All said, there are about 81 million people between the ages of 5 and 24 years old, and that segment is growing at a clip of about 10% a year," says Garver. "Just the sheer size of it makes it a group of people you can't ignore."

What makes the youth market particularly attractive isn't just its size, but its spending habits. Kids talk on the phone more than adults, thereby racking up bigger bills. They pay around $1.99 a pop for downloadable ring tones of their favorite songs--a market the Yankee Group forecasts will hit $1 billion in U.S. sales by 2007. They send billions of short message service texts to one another, racking up fees of around 10 cents a message. They also download games, use instant messaging applications and browse the Web.

"These consumers are so comfortable with digital data," says Ross Rubin, director of industry analysis for market research provider NPD Techworld. "They're using these services on their PC and, as they go mobile, it's natural for them to look for them on their cell phones."

And, kids use their influence to get older, less cutting-edge consumers to start using those features as well. "We hear countless stories about young adults who send a text message to their parents and teach them all about it," says Stephanie Cairns, associate director of marketing for Verizon Wireless, a joint venture of Verizon Communications and Vodafone Group. "Then that becomes a way for the parent to keep in touch with their child." Kids also help their parents decide which handsets to buy and which service providers to use.

The cellular service providers won't say how much of their income derives from users under the age of 18. But, the wireless industry today is nearly a $100 billion dollar business, and it's probably fair to assume as much as a quarter of that revenue comes from young consumers.

For now, most of these tots are having mom and dad foot the bill, using a phone covered under a family mobile plan. But, some kids take the matter into their own hands.

"At around the age of 16, a lot of teenagers begin to take control of their wireless spending," says Garver. "They begin working and they have some income." Since service providers won't allow anyone under the age of 18 to sign a contract, these consumers buy prepaid wireless service, purchasing chunks of talk time with a credit card or buying phone cards in retail chains.

It's a cheap and easy, no-commitment way for a kid to get mobile--and it's increasingly popular. In July of 2002, the Virgin Group and Sprint PCS jointly launched Virgin Mobile USA, a cellular network specifically targeted at consumers between the ages of 18 and 24. The company has since surged into the top 10 of U.S. mobile providers, and now boasts more than 1.8 million subscribers. Boost Mobile, a division of Nextel Communications, has also found success with this strategy.

As a result of the increasing popularity of mobile phones, young consumers are spending less on traditional diversions like music and fashion and shifting their attention to the mobile world. "They're focusing more of their income on phones," says Rubin. "That's the new fashion."