Market Update Q1 2013
The US mobile data market grew 2% Q/Q and 14% Y/Y to reach $21
billion in mobile data revenues. Data is now almost 45% of the
US mobile industry service revenues and as we had forecasted a
few years back, the cross-over point of 50% might occur later
this year. For the year 2013, we are expecting $90 Billion in
mobile data service revenues for the US market.
For the quarter, the market added a paltry 1.1 million new
connections, a decline of 60% from Q1 2012. It was the lowest
net-adds Q4 quarter in the US mobile history (barring the early
days of tepid growth). The postpaid category added only 200K
subs largely on the back of Verizon’s 677K net-adds.
AT&T sold more iPhones but Verizon sold more smartphones. With
T-Mobile joining the iPhone bandwagon, iOS lead in the US market
is likely to continue.
T-Mobile continued to lose their postpaid subs for the 11th
straight quarter. Sprint also lost over half a million postpaid
subs primarily due to the Nextel business. Once Nextel is
sunsetted mid-2013 for good, we can expect a pick-up of
net-postpaid subs at Sprint.
The see-saw battle between Softbank and Dish for Sprint/Clearwire
continued as expected but as expected Softbank is likely to
prevail when it is all said and done. After completing the Metro
acquisition, T-Mobile started to integrate the 8M+ base into the
company. We can expect that the next round of M&A will continue
once we are done with the Sprint decision.
As we mentioned in our previous
smartphones are now past the 50% mark in the US and continue to
sell at a brisk pace accounting for almost 85% of the devices
sold in Q1 2013. Apple led the smartphone sales amongst the top
4 operators with 50% share for the quarter. While the US
penetration of smartphones is over 50%, the 50% of the sub base
is concentrated in only 30% of the households thus leaving
plenty of growth in the marketplace.
In terms of Q/Q growth, Connected Devices segment grew 17%,
Wholesale 5%, Prepaid 4%, and Postpaid was flat.
Verizon and AT&T maintained their top positions in the global
rankings by mobile data revenues. A survey of the entire
ecosystem shows that the US companies dominate the top 5
rankings of profit share. China Mobile leads the industry with
Apple, Verizon, AT&T, and NTT DoCoMo completing the rankings.
What really drives mobile device performance?
Will a 3rd mobile ecosystem emerge this year? Is it necessary?
Specifically, what problem does it solve? What factors influence
the purchase behavior of the consumer? And can OEMs change their
strategy to impact sales? Why have Microsoft and Nokia not been
able to make a dent in the trajectory despite having a
compelling OS, range of devices, consumer-friendly price-points,
better distribution, and increased level of advertising dollars?
Will Blackberry be able to recover? Why hasn’t HTC One been able
sell in similar numbers as the Galaxy S4 despite being better by
most accounts? What will it take for LG to increase share? Can
Motorola stay relevant? Can new entrants disrupt the waters? Can
ZTE and Huawei come from the bottom and disrupt the top players?
Will Apple and Samsung be able to protect their position on the
These questions have been a matter of intense debate in the
media and in the ecosystem. We try to address these questions in
some detail in our recent paper
“What Really Drives Mobile Device Performance?”
As I mentioned to the New York Times,
is no longer good enough to have a great product, an OEM needs
to perform well across multiple variables.
The Fourth Wave and the shift towards services
It is evident that there is a subtle shift from devices/access
to services/solutions. In our paper on the topic “Operator’s
Dilemma (and opportunity): The Fourth Wave”,
I proposed that we need a new framework to think about the next
generation of revenue opportunities. The fourth curve
opportunities are massive but require a different skill set and
strategic approach than the past three curves. It is being
widely adopted in the operator community around the world and
some operators have started to break out the 4th wave
revenues in their financials.
We will be discussing fourth wave in much more detail at our
annual thought-leadership summit –
Mobile Future Forward
with the incredible leaders who are making billion dollar
decisions every day.
OTT impact on legacy businesses and models
In the last 12 months, Whatsapp moved around more messages than
all the mobile operators combined in any country and that
includes US and China. US and China collectively have
approximately 1.5 billion subscriptions. Whatsapp with its 200M
base has moved more messages in the last 12 months than all the
operators in both US and China combined. Ok, let that sink in
for a few minutes. For a significantly small fraction of the
cost, Whatsapp moves around more messages than every single
telecom operator on the planet. Of course, Whatsapp makes a tiny
fraction of the revenue compared to the operators. What Whatsapp
and similar players lack in ubiquity and interoperability, they
make it up by being the commodity utility provider at a low cost
to the consumer. The notion of designing by a standards
committee above the IP layer is just no longer needed in
majority of the cases. Once you have the IP connection,
consumers will gravitate towards innovative solutions and be
willing to fragment their communication behavior across multiple
apps. SMS will stay relevant for the foreseeable future but the
growth is in IP communication. We will also see more cooperation
between the IP app players and the operators as they find common
We will see the same impact of IP and mobility on the various
verticals like Retail, Energy, Education, Entertainment, Travel,
etc. Some operators have been preparing for this shift and going
outside their traditional products and services to launch
services like AT&T’s Digital Life to address opportunities in
the home, Verizon’s efforts in health and public safety and
Sprint’s steps in mobile advertising and analytics.
Operator M&A – The Rule of Three Strikes Back
The M&A game continued with intense frenzy in the ecosystem.
T-Mobile completed the Metro acquisition which gives it more
heft and scale to compete as a value-player. However, the real
drama has been going on with the Softbank and Sprint merger with
Dish playing the role of the spoiler.
original thesis has been that Softbank is a better fit than Dish
and Dish’s strategic intention might actually be T-Mobile not
Sprint. It was a masterful decoy to raise the cost and pain for
Softbank and Sprint. It is likely to be all sorted out in the
next few weeks.
There have been some interesting twists and turns but as we have
stated before, the US market competitive equilibrium will be
complete when Sprint and T-Mobile get together at some point
down the road. As
outlined in our research paper on the subject,
market forces find their way to get to 3 dominant operators that
compete for attention and revenues, rest becomes noise. While
the regulators might scoff at the idea, the inevitable market
forces will find their way around.
Operators with better balance sheets will also look for global
expansion especially in Europe where economic impact on the
telcom operators has been severe, however the M&A efforts will
be complicated by respective governments desire to keep control
of the national infrastructure provider.
The Patent Battles
In 2012, Samsung had a strong showing not only in the market
place but also in the patents area. It edged past Nokia to
become the overall mobile patents leader in the industry. IBM
and Microsoft also improved their rankings. Nokia, Ericsson, and
Alcatel-Lucent slid in rankings. Motorola dropped out of top 10.
Not surprisingly, companies who have been around for a while
especially in the infrastructure and the platform space lead the
overall mobile patents. Samsung has been fiercely building its
patent portfolio in both Europe and the US and the efforts have
paid off as it has built a significant portfolio and a
formidable lead that is likely to serve it well in the coming
A more startling observation is the mobile patent grants as a
percentage of the total patent grants in a given year have risen
significantly for the US market indicating the importance
innovators attach to mobile in their business. In the US, one
out of every five patent granted in 2012 was related to mobile.
Less than a decade ago, this number was less than 10%. The
European market has seen lower growth relative to the US market.
Roughly one out of every ten patents granted in Europe are
Samsung was the leader in the mobile patents granted in 2012 in
the US and that propelled the company to the top ranking in
overall patents (1996-2013). Samsung was followed by IBM, Sony,
Microsoft, RIM, LG, Qualcomm, Ericsson, Panasonic,
Alcatel-Lucent, and Nokia for the top 10 companies by mobile
patent grants in 2012.
The top 5 categories for patents grants in the US for 2012 were
Telecommunications, Digital Multiplexing, Digital Processing –
Data Transfer, Digital Processing – Financial, and Digital
Processing – Databases.
The top 5 filers of mobile patents in the US were IBM,
Microsoft, Samsung, Qualcomm, and Sony. Apple made it to top 10
for the first time on the strength of its patents filed in the
computer graphics processing category.
For more detailed analysis, please refer our research paper on
the subject –
Mobile Patents Landscape – An In-Depth Quantitative Analysis.
SMB leading indicator of mobile adoption
Small businesses are at the heart of the US economic engine.
They represent roughly 45% of the non-farm GDP. Every
administration, every president focuses on small business growth
and job creation. In our paper “The
ABCs of SMB Transformation: Apps, Broadband, and the Cloud,”
we explored how mobile is transforming the SMBs. The main
conclusions were: a) SMB segment is a leading indicator of
technology adoption and we can learn a great deal about the
broader trends by understanding how SMBs adopt technology b)
there are tangible gains in productivity – on average SMB
workers save 40 minutes per worker per day which translates
into significant impact on profits and c) there is a tangible
impact on computing, enterprise software and services as the
business processes are shifting towards iOS and Android.
What to expect in the coming months?
All this has setup an absolutely fascinating 2013 in the
communication/computing industry. Convergence is everywhere and
is leading to a fundamental reset of the value chains and
ecosystems. Players who firmly attach themselves to the 4th wave
will reap benefits while the ones who miss it will see their
fortunes dwindle. We are gearing up for our
annual Mobile Brainstorm Summit – Mobile Future Forward
on Sept 10th, 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 2013 US wireless
data market is:
The US Wireless data service revenues grew 2% Q/Q and 14%
Y/Y to over $21B in Q1 2013 thus exceeding $20B for the
second straight quarter.. For the year 2013, we are
forecasting that mobile data revenues in the US market will
reach $90 billion.
Verizon and AT&T dominated the quarter accounting for 70% of
the mobile data services revenue and had 66% of the
Verizon and AT&T maintained its #1 & #2 mobile data revenue
ranking in Q1 2013. Sprint and T-Mobile also maintained
their rankings in the top 10 global mobile operators.
The Overall ARPU increased $0.35. Average voice ARPU
declined by $0.42 while the average data ARPU grew by $0.87
or 3% Q/Q.
The average industry percentage contribution of data to
overall ARPU is now at the 45% mark in Q1 2013 and is likely
to exceed the 50% in 2013. All the top three US operators
are over the 45% mark. (For reference, all three major
Japanese operators are now over the 65% mark).
The US operators added 200K postpaid subs and approximately
T-Mobile’s postpaid woes continued for the 11th straight
Verizon led the market with 720K net-adds. It was followed
by AT&T at 291K, and T-Mobile at 5K. Verizon and AT&T
accounted for 86% of the market’s net-adds Nextel continues
to drag Sprint’s postpaid additions. Sprint is expecting the
transition from Nextel to Sprint to be complete in the next
AT&T continued to lead the connected device segment with 48%
Shared Data Plans
data plans launched by Verizon and AT&T saw positive results.
The tablet and other device attachment rate has gone up by 60%.
data plans moved tablet session based consumers to postpaid
tablet plans with more predictable revenue stream. The $10
surcharge for every device is still an inhibitor for many
consumers. Over time, we expect this fee to go away to bring in
many more consumers experience data services across devices
other than their smartphones.
Applications and Services
The market is seeing a lot of activity in the mobile
commerce and payment services as well as in various industry
verticals like healthcare, retail, and education. We will be
discussing how mobile is changing all the vertical
industries at our fall summit Mobile Future Forward where
industry leaders in each of these vertical segments will
convene to share their experiences and expectations.
The cloud and security segments have also gained significant
traction with incumbents as well as startups launching new
initiatives and technologies.
OTT and the impact on legacy services
last 12 months, Whatsapp has moved around more messages than all
the mobile operators in the US and China combined. Those of you
who have read our
Fourth Wave paper
shouldn’t be surprised by this shift.
Smartphones continued to be sold at a brisk pace accounting
to almost 85% of the devices sold in Q1 2013.
iPhone dominated smartphone sales for Q1 2013. In Q1, iPhone
accounted for 50% of the total smartphone sales at the top
At the end of Q1 2013, Samsung continued its lead in 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 on 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. It renewed
its entry into the battlefield with Windows phone last year
but sales have been poor. In Q1 2013, Windows device sales
were less than 0.5 million despite heavy marketing (read
to get more insights into why Windows hasn’t been able to
make a dent so far).
Apple finally launched its iOS 7 update with the hardware
unit to be launched later this year.
Verizon continues to sell more LTE smartphones as its LTE
sub tally rose to 27.5M making it the leading LTE operator
in the world. AT&T’s and Sprint’s LTE rollouts are gathering
steam. T-Mobile is also ramping up its LTE deployment.
Expect the “fastest network” marketing to continue for at
least another seven quarters. Verizon reported that 50% of
its total data traffic is on the LTE network now.
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.
Mobile Data Growth
The smartphone data consumption at some operators is
averaging over 1 GB/mo. Some devices are averaging close to
2-3 GB/mo. As we move into 1GB range along with the family
data plans kicking in, you can expect the data tiers to get
bigger both in GBs and dollar amount.
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
Your feedback is always welcome.
We will be discussing a number of issues raised in this research
update at our annual mobile executive thought-leadership summit
– Mobile Future Forward on Sept 10th in Seattle. Thought-leaders
include: Biju Nair, EVP and CSO, Synchronoss; Curtis Kopf, VP –
Customer Innovation, Alaska Airlines; Danny Bowman, Chief Sales
and Operating Officer, Samsung; David Small, Chief Platform
Officer, Verizon Enterprise Solutions; Erik Moreno, EVP, Fox
Networks; Fay Arjomandi, CEO - Vodafone Xone, President/Chairman
– Vodafone Americas Foundation; Geeta Nayyar, Chief Medical
Information Officer, AT&T; Glenn Lurie, President, AT&T
Wireless; Hank Skorny, VP and GM – Software Services, Intel;
Henning Schulzrinne, CTO, FCC; Jef Holove, CEO, Basis; Jude
Buckley, President – Mobility, Best Buy Co; Kevin Packingham,
Chief Product Officer, Samsung; Manish Jha, GM – Mobile, NFL;
Marianne Marck, SVP – Consumer Products, Starbucks; Marios
Zenios, VP – Uconnect, Chrysler Group; Matt Carter, President –
Emerging Solutions, Sprint; Raj Toleti, CTO, Patient Point;
Ralph de la Vega, CEO, AT&T Wireless; Rowland Shaw, VP -
Strategy, Ericsson; Stephen David, former CIO, P&G; Steve Elfman,
President, Sprint; Terry Myerson, Corporate Vice President –
Mobile, Microsoft; Tracy Isacke, Head, Telefonica Digital
We will be keeping a close eye on the trends in the wireless
data sector in our blog, twitter
and our annual thought-leadership summit –
Mobile Future Forward.
The next US Wireless Data Market update will be released in
August 2013. The next Global Wireless Data Market update will be
issued in July 2013.
Disclaimer: Some of the companies mentioned in this research are