Executive Summary
The US wireless data market grew 5% Q/Q and 22% Y/Y to exceed
$12.5B in mobile data service revenues in Q1 2010 - on track so
far to our initial estimate of $54B for the year.
In a significant milestone that went largely unnoticed, Verizon
Wireless edged past NTT DoCoMo - the decade old leader in mobile
data revenues to become the biggest mobile data operator by data
revenues. Helped by its 93M subscriber base and high ARPU, the
Verizon juggernaut is steamrolling. Rest of the 3 top US
operators also occupy leading positions amongst the top 10
global mobile data operators.
The US subscription penetration was approximately 94% at the end
of Q1 2010. If we take out the demographics of 5 yrs and
younger, the mobile penetration is now past 100%. While the
traditional net-adds have been slowing, the “connected device”
segment is picking up so much so that both AT&T and Verizon
added more connected devices than postpaid subs in Q1 2010.
Given the slow postpaid growth in, operators are fiercely
competing in prepaid, enterprise, connected devices, and M2M
segments.
Data traffic continued to increase across all networks. US has
become ground zero for mobile broadband consumption and data
traffic management evolution. While it lags Japan and Korea in
3G penetration by a distance, due to higher penetration of
smartphones and datacards, the consumption is much higher than
its Asian counterparts. Given that it is also becoming the
largest deployment base for HSPA+, LTE and WiMAX, most of the
cutting edge research in terms of data management and
experimentation with policy, regulations, strategy, and business
models is taking place in the networks of the US operators and
keenly watched by players across the global ecosystem.
We are starting to see the inevitable changes in broadband
pricing starting with T-Mobile and MetroPCS. Over the course of
this year, we are likely to see newer pricing models that tie
usage to pricing and add multiple devices to a single data
bucket.
The fabled iPad landed in the market and it is a winner. Apple’s
latest gizmo has created a new user experience category of
casual and couch computing that will foster growth in the
connected device space. Kids of the now generation are
growing with connected electronics that is fundamentally
altering the behaviors and expectations of interaction,
communication, consumption, and monetization.
Privacy brouhaha has been brewing for some time and the polity
class is getting interested in stepping in. If people are really
serious about tackling privacy, OEMs and carriers should build a
physical/soft privacy button on the device with 3-5 levels (just
like for the ringer volume) that allows users to open/close
privacy across all applications and services with the touch of
a button. All apps and services should adhere to the principle
via APIs. The other mistake companies make about privacy is by
treating everyone the same. Privacy is about the perception of
control and transparency. If it is given back to the consumer,
they are likely to engage more and have a more positive impact
on revenue streams that are likely to flow.
In an another global milestone, Softbank became the first
major operator to have more service revenues from data
services than voice services. In Q1 2010, 55% of its service
revenues were attributed to data services. (While Smart and
Globe have been reporting 50%+ revenues from data services for a
long time, the total revenues are not at scale with the leading
global operators. Incidentally, for the first time in many
years, the data revenue % slipped below 50% for the both
operators in Q1). Based on current projections, US is likely to
cross the 50% data revenue threshold in late 2012 or early 2013.
NTT DoCoMo is next in line to cross the 50% mark this year.
All this has setup an absolutely fascinating period in the
communication/computing industry. Convergence is everywhere and
is leading to fundamental reset of the value chains and
ecosystems. We are going to be discussing the ins and outs of
how the industry is going to evolve in the next decade in our
Sept 8th event –
Mobile Future Forward
which is bringing leading industry thought-leaders, inventors,
and doers to brainstorm, discuss, and debate what’s next. Hope
you can join the discussion.
What to expect in the coming months?
The pace of product introduction is accelerating with each
quarter. Devices of all shapes and sizes are coming into the
market. Players are having to re-evaluate their businesses and
long-term strategies. Several new impressive handsets got
introduced during the course of 1H of 2010. iPad finally
launched and even the next generation iPhone walked into a bar.
Microsoft announced its comeback with the W7 launch though the
time it is taking to launch is making partners nervous. The
change in UI was refreshing though the inability for the OEMs to
differentiate is not winning friends. HP acquired Palm in
attempt to become relevant again in the mobile device space.
Some other players missed out in buying an attractive IP
portfolio. It has been an action packed 2010 thus far and we can
expect more of the same for the remainder of the year.
2010 has also been active on the regulatory front as the
national broadband plan was unveiled in March (our
thoughts on the plan).
The Comcast ruling delivered a blow to the FCC and any
directives or policies will hardly have any impact on the
ecosystem in the short-term.
With the looming spectrum shortage, regulatory bodies can have a
significant impact on the competitiveness of a nation. Many
countries in South America have imposed unnecessary spectrum
caps. Others are behind in sorting out their spectrum
allocations. The industry and regulators need to work
hand-in-hand to make progress beyond speeches and paperwork.
To start planning for 4G, 5G, and beyond, US should think about
rolling a 50 year broadband plan. While more spectrum is always
helpful, will we have all the spectrum we need in 2050? or do we
need to invent new technologies and business models that use
spectrum more wisely? This topic will keep the industry occupied
for some time to come. (Former FCC Chairman, Kevin
Martin headlined our Mobile
Breakfast Series event
in March and discussed the Spectrum
Crises.
Our
June
10th
event is bringing CEOs of some of the most innovative mobile
startups to discuss the ecosystem)
2010 is also the year of network rollouts. T-Mobile has been
rolling out HSPA+ at an impressive rate, Clearwire has been
expanding the network so fast that it has become the biggest
construction company in the US, Verizon is betting big on LTE
and AT&T has been adding backhaul, upgrading to HSPA+ and
planning for LTE all at once. Even the smaller carriers like
MetroPCS are looking for competitive advantage with quicker LTE
launch and beat others by carrying the first LTE smartphone. (We
will be releasing the next edition of our
“State of the “Mobile” Broadband Nation”
paper later this year)
As we had mentioned last year, the mobile data traffic kept on
growing disproportional to the revenues. A series of solutions
have come into the market from players big and small. We will be
releasing the second edition of our in-depth research paper on
data growth - "Managing
Growth and Profits in the Yottabyte Era"
later this month.
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 2010 US wireless
data market is:
Service Revenues (Slides 7, 16)
-
The US Wireless data service revenues grew 5% Q/Q to $12.5B
in Q110. Compared to Q109, the mobile data service revenues
grew 22%.
-
Verizon and AT&T accounted for 60% of the increase in data
revenues in Q4 2009.
-
T-Mobile’s 3G drive is starting to pay off. While the
net-adds were still in the red, it experienced the highest %
growth amongst its peers in mobile data service revenues for
the quarter.
-
In a significant milestone, Verizon Wireless edged past NTT
DoCoMo, the mobile data revenue leader since the late
nineties. By the end of the year, China Mobile and AT&T are
also likely to cross their Japanese counterpart in quarterly
mobile data service revenues.
-
AT&T and Verizon now account for 69% of the market data
services revenues and 62% of the subscription base.
ARPU (Slides 8-11)
-
Overall ARPU decreased by $0.17. Average voice ARPU declined
by $0.84 while the average data ARPU grew by $0.67 or 4.6%
Q/Q.
-
As expected, the average industry percentage contribution of
data to overall ARPU crossed the 30% mark in Q110 and is
likely to get past 35% by end of the year.
-
Verizon led in (blended) data ARPU with $17.06 followed by
AT&T and Sprint. In terms of % contribution, all the top
three operators exceeded the 30% mark. T-Mobile ended the
quarter with 23.70% of its revenue coming from data
services.
Subscribers (Slides 12-14)
-
In Q409, the net-adds had increased from past several
quarters, however, in Q110, the net-adds declined again.
-
The texting see-saw between US and Philippines continued in
Q110. US average was around 615 messages/user/mo just behind
Philippines.
-
In a sign of the times, for the first time, AT&T and Verizon
reported more net-adds from connected devices than postpaid
subs.
-
T-Mobile and Sprint improved their net-add declines from
last quarter though it was primarily from the prepaid
segment. T-Mobile’s 21% and Sprint’s 23% subscriber base is
now prepaid. The national prepaid penetration is touching
20%.
Applications and Services
-
Non-messaging services continues to grab 60-65% of the data
revenues for the US carriers.
-
There is a significant shift taking place in terms of app
revenues. In 2010, there will be more revenues generated
(globally) from off-deck than on-deck for the first time and
while the on-deck revenues are in billions, the decline
trend looks irreversible. In the US, this shift will occur
next year. (We released our
mobile apps economy research paper
last quarter)
-
The usage and data consumption trends are enabling carriers
to accelerate their 3.5G/4G plans and develop long-term
business and technical strategies.
-
The news reports of resuscitation of the media industry by
iPad were premature.
Handsets
-
Nokia sold 108M units in Q1 2010 including 21.5M
smartphones. Samsung again had a solid quarter with over 64M
devices sold increasing its market share to 22%. LG
Electronics at 9%, Sony Ericsson at 3.6% rounded up the top
4. For the first time, Motorola didn’t figure in the top 5
device makers. Android, Apple, and RIM made gains as well.
-
The constant drumbeat of new devices continued with Droid,
Nexus One, HD2, EVO, and iPad.
Open
-
The battle for “Open” is breaking out in the street with
latest episode being Apple vs. Adobe. We tend to forget that
open is a means to an end, not an end in of itself. We are
experiencing a fascinating period of transition in the
mobile industry and some of the biggest brands in computing
and communications are right in the middle of it.
Data Traffic (Slide 15)
· As
we noted in our last update, the data traffic is now
significantly more than the voice traffic. The good news is that
there are several solutions that available and are being
invented that will help manage the data growth. The question is
how fast will the operators deploy some of these solutions.
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
2010. The next Global Wireless Data Market update will be issued
in Sept 2010.
Your feedback is always welcome.
Should you have any questions about navigating or understanding
the economic and competitive icebergs, please feel free to drop
us a line.
Thanks.
Chetan Sharma
Disclaimer: Some of the companies mentioned in this note are
our clients.
