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Future Forward 2011 - Sept 12 2011
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US Mobile Data Market Update Q1 2011
http://www.chetansharma.com/usmarketupdateq12011.htm
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The US wireless data market grew 4% Q/Q and 23% Y/Y to reach
$15.4B in mobile data service revenues in Q1 2011 and is on
course to increase Y/Y by 22% to $67B in 2011.
Of all the segments, the connected device category registered
the highest growth at 9.6% Q/Q while the postpaid subscriptions
growth was almost flat for the quarter. Connected devices
(including tablets, M2M, telematics, eReaders, etc.) now account
for 8% of the subscription base.
For the first time, the smartphone sales crossed the 50% share
mark in the US. Also, the US now accounts for approximately
one-third of all smartphone sales in the world.
The Big News - AT&T’s proposed acquisition of T-Mobile
The big news during Q1 2011 was of course the blockbuster
announcement of the acquisition of T-Mobile USA. We had pondered
on the viability of 4 operators in the US market in the past.
All the major mobile market eventually settle with three main
players controlling the market. So, the news wasn’t a surprise
as we had expected something to break loose and conform to the
natural market evolution. T-Mobile US has been under tremendous
pressure for the last 2 years being unable to expand its
postpaid base despite modernizing its network/backhaul and
introducing a slew of impressive handsets. It was getting
squeezed both from the top (Verizon and AT&T) and from the
bottom (MetroPCS, etc.) while duking it out with Sprint in the
middle. The decision window was closing as Deutsche Telekom had
to decide if it wanted to invest in LTE or not (in the US
market). Given that the parent business has been under pressure
as well, it decided to take the most attractive available
option.
The proposed merger will obviously have an impact on the market
structure. The market power will get concentrated in the top 2.
The HHI3 Index will go from .22 to .31 but the HHI3 value will
be at par with UK, Canada (though the Canadian market is not a
good proxy for a competitive market), and some of the other
markets. The biggest task for the US regulators will be to
analyze the impact on the consumer interest and service pricing
on a market-by-market basis.
Putting things into perspective, this move is not unusual for a
developed market. On average, the top 3 operators in the
developed markets around the world control 94% of the market.
The proposed merger roughly resembles the merger that took place
in UK last year when T-Mobile and Orange, the number 3 and 4
player (each having approximately 19% of the share) respectively
in the market merged to form Everything Everywhere and become
the number 1 player in the market with 38% market share.
However, if we look at the history of competitiveness in the US
mobile market, the market and revenue concentration will be at
its highest in the history of the US wireless industry. Such a
move is likely to have an impact on the ecosystem depending on
the regulatory policies.
Last month, we published a first of its kind in-depth study on
competition in mobile markets -
“Competition and the Evolution of Mobile Markets - A Study of
Competition in Global Mobile Markets”.
The paper presents the analysis and an in-depth analytical
framework to study the competitive landscape in the global
mobile markets.
Transparency
as a competitive advantage
An unfortunate side effect of an industry moving too fast is
that regulations are often behind the curve (we discuss the role
of regulators in our Competition paper mentioned above). Q2 will
see a lot of heated debates around privacy and competition.
Current regulatory framework in the US seems ineffective to meet
the demands of the digital age. The indecision and a weak
regulatory framework can be harmful to the ecosystem. While the
industry has done a poor job of explaining targeting and
relevancy and the associated consumer benefits, by over
reacting, regulators can mess up the potential for better
services. It is not the mechanics they need to regulate but the
“transparency” of services and policies in plain English.
Regulating transparency seems to be a more effective way. The
ecosystem players will do better if they use transparency not as
a threat but as a competitive advantage.
The new troika - AAG
A couple of years back, I gave a talk about the changing mobile
ecosystem and what it means to compete in an environment where
the ecosystem stacks get reshuffled every few months. I wrote
about that in an essay that was published in the
Mobile Future Forward book
last year. While innovation is coming from all angles - fast and
furious - the troika of Apple, Amazon, and Google is leading the
way right now. Their interests are clashing in multiple
dimensions - device, user data, cloud, advertising, local,
commerce, books, etc. In a fast changing environment, either you
define the market or be defined by it. The journey from being an
arch-rival to a frenemy (and vice-versa) can be a short one.
A significant shift
As we mentioned in our last research note, 2010 marked the
milestone of the start of a new computing and communications
era. For the first time in the US, the smartphones shipments
exceeded the traditional computer segments (that consists of
desktops, notebooks and netbooks). Smartphones and the connected
devices now account for 51% of the computing devices revenue
in the US (devices include desktops, notebooks, netbooks,
tablets, eReaders, and conventional feature and smartphones)
The growth in of connected devices
The connected devices category is the fastest growing segment of
the market and while the ARPUs are low, due to the higher
margins this segment will prove to be the most profitable in the
coming years. By the end of 2011, connected devices will be
commanding double digit market share. However, not all
sub-segments are going to be successful in the operator channel
until multi-device data pricing plans are introduced.
Apple’s iPad has been, as expected, a runaway success. Several
other tablets launched in 2011 but none has come close to being
a credible challenge. OEMs will do well to segment the market
and price accordingly rather than follow Apple in performance
and pricing. Market is fairly young and there is tremendous room
for growth. Another trend that is obvious is the development of
an alternate ecosystem. 85% of the tablets use primarily use
WiFi for connectivity meaning that OEMs need more diverse
distribution channels. Operators who start to bundle multiple
devices by single data plans and data buckets are going to see a
better yield in this category.
We do expect multi-device or family data plans to start being
introduced in the US market in 2011. Also, the $200-250 Android
tablets will start to emerge during the second half of the year
to broaden the choices for the consumers.
Turmoil in the OEM land
Another headline grabbing event in Q1 2011 was that of
Microsoft’s partnership with Nokia. Nokia’s lack of a credible
response to Apple and Android has left the company scrambling
for survival. Nokia still dominates the unit sales but the
domination of Apple and the Android OEMs has taken away
significant profits and ecosystem mindshare. Industry is
awaiting the first release of the Windows phone from Nokia which
will have a lot riding on it. If the release of iPhone 5
coincides with this release, the Christmas selling season will
be interesting.
The OEMs that have impressed the most are HTC and Samsung. The
collapsed release cycles and the fierce pace of introduction of
new devices have caught many of the traditional players
unprepared. These things have a tendency of going in cycles so
we expect the pendulum to swing again in the next 12-24 months.
There is a fight for the #3 spot and it is likely that Windows
will fill that void. However, for developers, iOS and Android
are the only platforms they need to worry about right now.
Verizon finally got its iPhone and as expected it didn’t make a
big dent into the AT&T’s financials.
Platforms - Horizontal vs. Vertical
Over the past few quarters, we have seen a fascinating battle
brew between the horizontal (Android and Windows) and the
vertical (Apple, RIM, Nokia) device platforms. In the US, in the
smartphone category, the horizontal platforms (primarily
Android) has been gaining significant share since Q1 2010 and
now have over 65% share of the new devices sold while the
vertical platforms’ share has declined to 35%. However, the
revenues and profits are still dominated by the vertical
platforms.
What to expect in the coming months?
All this has setup an absolutely fascinating 2011 in the
communication/computing industry. Convergence is everywhere and
is leading to a 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 12th mobile thought leadership summit – Mobile
Future Forward which
is bringing exceptional industry thought-leaders, inventors, and
doers to brainstorm, discuss, and debate what’s next. Hope you
can join us.
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 2011 US wireless
data market is:
Service Revenues
-
The US Wireless data service revenues grew 4% Q/Q and 23%
Y/Y to $15.4B in Q410. The mobile data services revenues for
the US market are expected to reach $67B in 2011.
-
Verizon and AT&T had a good mobile data quarter accounting
for 76% of the increase in data revenues in Q1 2011.
-
T-Mobile’s HSPA+ drive is starting to pay dividends. While
the postpaid net-adds were still in the red, its data growth
is starting to match with its peers. The 27% smartphone base
definitely helps.
-
For the quarter, AT&T and Verizon accounted for 69% of the
market data services revenues and 65% of the subscription
base.
-
AT&T edged past China Mobile to become #3 operator by mobile
data revenues. Verizon is already at #1 followed by NTT
DoCoMo. Sprint and T-Mobile maintained their #6 and #8 rank
in the top 10 mobile data operators list for Q1 2011. The
proposed merger of AT&T and T-Mobile will make AT&T #1 by a
distance and place 20% of the global mobile data revenues in
the hands of the top two US operators.
ARPU
-
The Overall ARPU increased by $0.11. Average voice ARPU
declined by $0.36 while the average data ARPU grew by $0.47
or 3% Q/Q.
-
The average industry percentage contribution of data to
overall ARPU was 35% in Q111 and is likely to touch 40% by
year’s end.
-
Verizon and Sprint were neck-and-neck in data ARPU followed
by AT&T. In terms of % contribution, all the top three
operators exceeded the 30% mark. T-Mobile ended the quarter
with approximately 29% of its revenue coming from the data
services.
-
We expect data revenues to exceed voice revenues in the US
market before Q2 2013.
Subscribers
-
Helped by the growth in connected devices, the overall
net-adds increased by 4.9M.
-
For the sixth straight quarter, AT&T reported more net-adds
from connected devices than postpaid subs. Connected devices
are now almost 12% of AT&T’s subscription base.
-
Overall, AT&T has 43% of the connected device share of the
market. The connected device segment grew 9.6% Q/Q and 48%
Y/Y.
· Sprint
is on good comeback adding over million customers. Sprint
extended its streak of positive net-adds to four quarters by
adding over a million subs for the second straight time since
Q1 2006.
· T-Mobile
however continues to be sandwiched between the top three and the
next three and is having a hard time adding postpaid
subscribers.
Applications and Services
-
While the percentage share of the data revenues is declining
for messaging, the revenue growth stays strong with almost
$5B in revenues.
-
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. The fight
for the 3% block is finally in the open. Operators,
financial institutions, and the internet players are all
vying for a piece of the mobile wallet. Much more to come in
2H 2011. (We will be going in-depth into mobile commerce and
payments in our upcoming
Mobile Breakfast Series event on Jun 28th)
Handsets
-
Nokia sold 108.5M units in Q1 2011 accounting for 28% of the
market share. Samsung continues to be one of the most agile
players in the device business shipping 70M for a 18% share
of the market. The nimble team at HTC outclassed its bigger
peers and edged past Nokia in market cap.
-
Apple, a company that was given a lifeline by Microsoft in
1997 is now valued 45% or $100B more than Microsoft
primarily on the strength of its wireless portfolio.
-
In the US, for the first time, 51% of the devices sold were
smartphones. Global average is at 26%. One-third of all
smartphones sold were sold in the US making it the hot bed
for consumer devices.
-
Smartphones now account for 80% revenue of all phones sold
in the US.
-
In the vertical vs. horizontal platform battle, the
ecosystem is shifting towards horizontal domination in the
near-term (units sold) while a majority of the profits
reside in the vertical column.
-
85%
of the tablets use WiFi only (some have inactivated cellular
chipset) meaning the operator channel is not a necessary
distribution channel. Operators who start to bundle multiple
devices by single data plans and data buckets are going to
see a better yield in this category.
Global Update
·
Race to a billion - India went past 800M in Q1 2011 subs and is
closing on China and we expect that by the end of the year,
India will become the largest mobile market on the planet. By
early 2012 both India and China will have more than a billion
subscriptions.
·
China Mobile crossed the 600M subscription mark however its 3G
introduction has had a tepid response thus and its 4G strategy
remains in flux.
·
More details to come in our global market update.
Your feedback is always welcome.
Thanks.
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
2011. The next Global Wireless Data Market update will be issued
in Jun 2011.
Disclaimer: Some of the companies mentioned in this paper are
our clients.
