US Mobile Data Market
Update Q1 2012
http://www.chetansharma.com/USmarketupdateQ12012.htm
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Summary
The US mobile data market grew 6% Q/Q and 21% Y/Y to reach
$18.7B in Q1 2012. Data is now over 40% of the US mobile
industry service revenue. For the year 2012, we are forecasting
that mobile data revenues in the US market will reach $80
billion.
For the first time in the history of the industry, the US
operators had a net decline in postpaid subs. The top 7
operators lost a combined 52K postpaid subs. In overall
net-adds, Sprint bested both of its bigger rivals for the first
time since Q1 2002. That was exactly a decade ago when Cingular
and Nextel brands were still around, before Google IPO and
before Zuckerberg enrolled into Harvard. In fact, Sprint is the
only US operator that has added more than 1 million subs every
quarter since Q4 2010. However, most of these net-adds are
coming from prepaid and wholesale segments. If we look at the
net-adds over the last 4 quarters, AT&T comes out on top by a
distance. In terms of postpaid net-adds only, Verizon is the
clear leader during the same time period.
In terms of Y/Y growth, Connected Devices segment grew 23%,
Prepaid 15%, Wholesale 10%, and Postpaid 1%. AT&T, Sprint,
Sprint, and Verizon are number one respectively in these
categories.
One-third of US consumers don’t use landline phones. The
wireless only US population went past 100M subs in Q1 2012.
Mobile will continue to increase its share of the household IT
budget and thus improving the overall revenue picture. However,
there will be fierce battle for the prized postpaid subs that
have been slowly migrating to prepaid as a result of the
economic doldrums. It is quite possible, they will come back but
predicting the reverse migration is tough.
Q1 2012 will also be remembered for Samsung’s ascend to the top
of the hill ending Nokia’s 14 year run. In terms of unit sales,
it dominates the overall unit shipments and also the more
lucrative smartphone segment. However, Apple dominates both the
device revenues and more importantly just crushes the
competition on device profits. It has only 8% of the global unit
shipment share but over 70% profit share.
Apple has the complete stronghold on the supply chain and has
sucked out the oxygen from the OEM world. Samsung for its part
has done a credible job at keeping pace and in being
competitive. As expected, the Chinese OEMs – ZTE and Huawei (and
some new ones that you will hear about in the next few quarters)
are coming on strong from the bottom. This means, the players
caught in the middle face perilous times.
AT&T edged past NTT DoCoMo to become number two in global mobile
data revenues rankings for the first time. Now top positions in
the global rankings are occupied by the US operators.
Smartphone sales continued at a brisk pace accounting for almost
70% of the devices sold in Q1 2012.
Operator and OTT – The way forward
We are at a critical juncture of the industry evolution. The OTT
phenomenon is shifting the tectonic plates at a rapid pace. What
seemed like a minor irritant only a few quarters back is become
a nuisance virus that is eating away the core. Some operators
have gone into panic mode while others have stepped back,
assessed the situation, embraced it, and will try to exploit the
opportunity. The truth of the matter is that the two biggest
apps – voice and messaging didn’t really evolve a period of two
decades. When the last big invention was interoperability and
that too a decade ago, you know things are ripe for disruption.
Thanks to the availability of always-on IP networks, new and
nimble players are pushing the boundaries of what’s possible. It
is not that some of these concepts haven’t been around for a
while. RCS has been around for the last 5 years and this year
there has been some tangible progress. However, while the world
waits for interop and wide availability, startups can offer
similar and in most cases, better services now. They can iterate
rapidly and reach scale at much faster pace. We are in
software-defined world after all. Smarter operators are
launching their own OTT services while nodding at the standards
implementations.
It is such a critical topic for the industry that we are
devoting two Mobile Breakfast Series events to this topic. The
first in
Seattle on June 7th
with AT&T, T-Mobile, Groupon, Ivycorp, and Sidecar and the
second in
London on June 29th
with Telefonica, Orange, Rebtel, and Horizons Ventures. We will
also be delving deep into the subject at our annual mobile
brainstorming summit –
Mobile Future Forward
on Sept 10th in Seattle.
Mobile First to Mobile Only
Couple of years, the realization in the industry set in that
mobile is going to really dominate the world. Senior
executives like Eric Schmidt at Google started to preach the
gospel. Very quickly, we are at another pivot point wherein
the mobile first doctrine is going to move to mobile only.
It is not that the desktop world will disappear into oblivion.
Far from it. But, the investments, strategy, and execution will
be driven by mobile. As we said in our
global research update last month,
in 3-5 years, with few exceptions, if a company is not doing
majority of its digital business on mobile, it is going to be
irrelevant. There are already several data points to support
the theory. Leading apps and services like Facebook, Twitter,
Pandora are already operating in the world where mobile is
driving majority of their user engagement. Expedia, Fandango and
others are seeing the early signs of migration into the mobile
dominated world.
Postpaid Doldrums
For the first time in the history of the industry, the US
operators had a net decline in postpaid subs. This is because of
the shift to prepaid in recent times as well as the increased
competition for the last few potential postpaid subs. So, the
question emerges, where will the net-sub and net-revenue growth
going to come from in the next few years. The smartphone
penetration in the US was at 43% as of Q1 2012 so the
significant opportunities are in the upgrades and non-data to
data conversion. Family data plans (see below) will help in
bolstering data revenues as well. Multiple devices/consumer will
increase the sub penetration which is at 110%.
Family data plans
We have been big advocates of family data plans for the last 2
years and they are finally coming to the US market in the next
few months if not weeks. Like gravity, it’s inevitable.
Consumers want simplicity and common sense. Family data plans
doesn’t necessarily mean that all family members will be forced
onto a single data plan but rather the consumers given the
opportunity to combine data usage under the same umbrella if
they wanted to. If all in the family are heavy data users,
initially, some of the data tiers might not make sense but for
the vast majority, there are always going to be devices or
family members who don’t need a separate full-fledged data usage
plan.
When I talked to
CNBC
earlier this year (Jan),
I said that there is a 90%+ probability that the family data
plans will be introduced in the US market in 2012. I discussed
this more with
Bloomberg
and
USA
Today
last week. Verizon and AT&T have been preparing the media and
the consumers for this eventuality. Once one operator opens the
door, expect rest to follow. Our
Atlanta Mobile Breakfast Series
will touch upon this topic during the discussion on Connected
Devices, the Cloud, and the Consumer (with AT&T, Synchronoss,
and CNN).
Mobile Data Growth – The Gigabyte Generation
The smartphone data consumption at some operators in the US is
averaging close to 800 MB/mo. As we move into the 1GB range
along with the family data plans getting introduced shortly, you
can expect the data tiers to get bigger both in GBs and $.
Mobile data traffic growth continued unabated doubling again for
the 8th straight year. We expect the mobile consumption to
double again in 2012. Data now constitutes over 85% of the
mobile traffic in the US. As new devices and new network
technology roll-outs continued in 2012, the data traffic will
grow at the expected pace. The signaling traffic is growing at
even a faster pace, 3 times in some cases. Stay tuned for our
research paper in the
Yottabyte paper series
on the topic later this year.
Platform wars
Now that Google’s Motorola deal is approved in China and
Facebook’s stellar IPO is behind us, we are going to witness a
contentious platform battle between the fab five. Google is
preparing to get deeper into handset business while Amazon and
Facebook are tinkering with their own handsets. Microsoft is
banking on the Lumia success and the release of Windows 8 and
its impact on the ecosystem will be closely monitored. Samsung
is putting some resources behind Tizen to hedge its bets in case
things go south with its current partnerships. The platform
narrative is still being defined by Apple which has the
commanding mindshare of the developers, operators, and the
profits. Follow the money and the puzzle unravels in front of
your eyes.
Mobile Patents Landscape
2011 was the most active year for mobile patents in terms of
disputes. All the major players were active in filing and
protecting their turf for the future battles. IBM topped the
industry in the most number of mobile patents granted in 2011 in
the US followed by Samsung and Microsoft. The rest of the top 10
in order included Sony, Qualcomm, LG, Ericsson, Panasonic,
Broadcom and RIM. Of the major players, Nokia occupied #12,
Intel #13, Apple #16, Motorola #21, and Google #23 spot in the
top 50 ranking. Amongst the mobile operators, Sprint was the
leader with 323 patents granted in 2011. We have more research
coming out later in the year that shows the relative patent
strength of the various mobile players.
Market Consolidation
The AT&T-T-Mobile merger might not have gone through but that
doesn’t stop industry to play the M&A speculation parlor game.
Except for a few impossible scenarios, all sorts of deals are
being contemplated. The market economics is clearly crying out
for more consolidations. However, in an election year, there is
an uneasy uncertainty that is gripping the market. The smaller
M&As won’t move the needle and bigger M&A are not going to be on
the table until we get into a new calendar year.
Connected Universe, Monetizing Opportunities
While 2011 was the year of figuring what the opportunities are
in the new connected era, 2012 is starting to focus on how to
monetize those opportunities. That will be the theme of our
Mobile Future Forward
Thought-leadership summit in Sept. More details to come. Almost
all the vertical industries are benefiting from the connected
devices and ubiquity of broadband networks – security, health,
retail, utility, transportation, entertainment, and others. We
will take a deep dive into the issues, the best case studies,
the opportunities, and the players. We are assembling industries
who’s who to help you figure out where the industry is headed
next.
What to expect in the coming months?
All this has setup an absolutely fascinating 2012 in the
communication/computing industry. Convergence is everywhere and
is leading to a fundamental reset of the value chains and
ecosystems.
As usual, we will be keeping a very close eye on the micro- and
macro-trends and reporting on the market on a regular basis in
various private and public settings.
Against this backdrop, the analysis of the Q1 2012 US wireless
data market is:
Service Revenues
-
The US Wireless data service revenues grew 6% Q/Q and 21%
Y/Y to $18.7B in Q1 2012. For the year 2012, we are
forecasting that mobile data revenues in the US market will
reach $80 billion.
-
Verizon and AT&T dominated the quarter accounting for 68% of
the mobile data services revenue and had 66% of the
subscription base.
-
Verizon maintained its #1 ranking in Q1 2012. AT&T also got
ahead of NTT DoCoMo to occupy the number two spot in global
mobile data revenues ranking. Sprint and T-Mobile maintained
their #5 and #9 rank in the top 10 mobile data operators
list for Q1 2012.
ARPU
-
The Overall ARPU increased by $0.54. Average voice ARPU
declined by $0.41 while the average data ARPU grew by $0.96
or 5% Q/Q.
-
The average industry percentage contribution of data to
overall ARPU exceeded the 40% mark in Q1 2012 and is likely
to exceed the 50% mark next year. All the top three US
operators are above the 40% mark with Verizon leading the
trio. (For reference, all three major Japanese operators are
now at the 60% mark, with Softbank at 65%).
Subscribers
-
For the first time in the history of the US mobile industry,
the postpaid net-adds were negative. While one data point
doesn’t make a trend, we are approaching the peak of the
curve where new traditional postpaid subscribers will be
hard to find. It is possible that the newly minted prepaid
subs might return to postpaid subscriptions. The shift is
correlated to the economic woes. Majority of the new
subscribers will come from connected devices as we have been
saying for the last couple of years.
-
In the last 11 quarters, T-Mobile has been able to add
postpaid subscribers in only one quarter which was back in
Q2 2010.
-
At the end of Q1 2012, the mobile penetration in the US
stood at approximately 110%.
-
Sprint had the most net-adds at just over 1 million though
most of them were in the prepaid and wholesale category.
T-Mobile recovered from massive defections last quarter to
add 187K new subs in Q1 2012.
-
For the tenth straight quarter, AT&T reported more net-adds
from connected devices than postpaid subs.
-
AT&T now accounts for 48% of connected devices in the US (w/
cellular subscription of some sort).
-
Rebounding from the failed AT&T merger, Deutsche Telekom
announced its investment in the US arm and laid out some
aggressive LTE launch plans. T-Mobile will launch its LTE
network in 2013 in its attempt to catch-up with its stronger
rivals.
Applications and Services
-
While many of its brethren are seeing messaging volume
declines, messaging in the US market grew by 6% YOY and 1%
Q/Q. US consumers are now sending messages at the rate of
687 messages/sub/mo. Most operators are seeing decline in
messaging revenue growth due to IP messaging. As expected,
this transition will continue around the world at different
rates. In the US, while the change is underway, we don’t
expect any dramatic declines like in Philippines or the
Netherlands in the near-term.
-
The market is finally starting to see activity in the mobile
commerce and payment services as well as in various industry
verticals like healthcare, retail, and education.
-
Q1 2012 again saw tremendous activity in the mobile commerce
and payments space with a lot of announcements from the
operators, Internet players, and startups as well as the
retailers and the ecommerce players. All are vying for a
piece of the mobile wallet. Much more to come in the next 12
months.
Handsets
-
Smartphones continued to be sold at a brisk pace accounting
for almost 70% of the devices sold in Q1 2012. Operators are
averaging 80% of their postpaid sales as smartphones with
Android dominating though iPhone leads in revenue and
mindshare.
-
Nokia lost its 14 year old top ranking to Samsung which
slowly and steadily gnawed its rivals marketshare. Samsung
now leads in every major unit sale category both on the
world stage as well as in the US. However, profits are a
different equation where Apple overshadows its rivals like
Gulliver in the Lilliput land.
-
While it is fairly clear that Windows will acquire the #3
spot behind iOS and Android, the journey to a substantial
and competitive market share is still ways off.
-
Apple had another monster quarter and with iPhone 5 around
the corner, it is all set to dominate the remainder of the
calendar year.
-
US continues to sell roughly 40% of the world’s smartphone
every quarter thus making it the most attractive market for
OEMs.
-
AT&T continues to dominate the connected devices segment
with over 47% market share.
-
Verizon added another 2.9M LTE subscribers making it the
leading LTE operator in the world. AT&T’s LTE rollouts are
gathering steam and Sprint plans to offer LTE in 2012.
T-Mobile announced that it is putting the cash and spectrum
it got from AT&T to good use and deploying LTE by 2013.
Expect the “fastest network” marketing to continue for at
least another seven quarters.
-
There is always a beauty contest amongst operators as to who
sold more iPhones. AT&T again bested its rivals by selling
roughly 47% of the iPhones in the US. T-Mobile is still
waiting for its date with Apple even though it has started
to order the attire.
Mobile Data Growth
-
The smartphone data consumption at some operators is
averaging close to 800 MB/mo. As we move into 1GB range
along with the family data plans getting introduced shortly,
you can expect the data tiers to get bigger both in GBs and
$.
-
Mobile data traffic growth continued unabated doubling again
for the 8th straight year. We expect the mobile consumption
to double again in 2012. Data now constitutes over 85% of
the mobile traffic in the US.
-
While the spectrum debate rages on, in addition to the
network and backhaul upgrades, policy management and data
offload have emerged as top two solutions that operators
deploying around the world. Signaling management solutions
like Diameter routing are also getting good traction.
However, a long-term video solution is still elusive. As we
have been saying in our Yottabyte series of research papers,
a comprehensive solution strategy is needed to effectively
manage margins/bit.
-
We will have the 3rd edition of our
“Managing Growth and Profits in the Yottabyte Era”
research out later this year.
Global Update
Your feedback is always welcome.
Chetan Sharma
We will be keeping a close eye on the trends in the wireless
data sector in our blog, twitter
feeds, future
research reports,
and articles.
The next US Wireless Data Market update will be released in Aug
2012. The next Global Wireless Data Market update will be issued
in Nov 2012.
Disclaimer: Some of the companies mentioned in this paper are
our clients.
