Mobile Breakfast Seriesis
a quarterly event that brings together thought leaders and
visionaries from the global mobile industry to interact and share
ideas, insights, and best practices with the entrepreneurs,
enthusiasts, and others who are passionate about mobile. The next
event is on Dec 4th -
The Impact and Evolution of Mobile Broadband
(w/ Om Malik, Clearwire, Intel, Openwave, and Huawei). Only few
seats remaining.Registration.
The US wireless data market grew 5% Q/Q and 27% Y/Y to exceed $11.3B
in mobile data service revenues and thus exceeded $10B for the third
straight quarter. As we mentioned in our Q1 2009 research note,
given the strong growth in data revenues and overall service
revenues, the worst is over for the US mobile industry. The US
market touched 25% penetration of smartphones in Q3 2009, a new
milestone.
While the flailing economy hit certain segments of the wireless
ecosystem hard esp. the infrastructure and handset segments,
consumers haven’t really pulled back on the mobile data overall
spending. Additionally, the CAPEX spending has stayed strong in 2009
given the activity around 3G/4G deployments and trials. As expected,
there was an increase of prepaid subscribers which dropped the
overall revenues for some of the carriers. The US subscription
penetration was approximately 91.3% at the end of Q3 2009.
As we mentioned in our last three research notes that this time
around, the fate of the US mobile industry is more closely tied to
the overall economy compared to the previous recessions. As the
consumer sentiment improved over the last two quarters along with
better than expected Q1-3 2009 earnings from corporations, the
mobile industry is back on track. While the structural flaws in
various industry segments remain, the outlook for the Q4 2009 and
2010 remains bright and we are expecting the overall data revenues
to now increase by over 30% compared to 2008 with a record-setting
Q4.
So, what does this mean? Well, the markets can still be volatile,
but overall the market seems to be feeling better about the economy
than it was in February. The
Conference Board Consumer Confidence Index though
retreated from June is at a healthy 47.7.
What to expect in the coming months?
The high unemployment has slowed the growth in the data card segment
but the smartphone consumers have more than picked up the slack.
Also, as expected, there was a shift from postpaid to prepaid in
some user segments. For example, for T-Mobile, prepaid accounts for
almost 20% of their customer base compared to 17% from an year ago.
The fight for the low-end customer is also having an impact on the
traditional prepaid players and the price pressure is reducing their
margins. It is quite likely that 50-60% of such consumers don’t go
back to postpaid thus permanently lowering the ARPU base for such
customers and carriers who have experienced more postpaid to prepaid
shift will have to make up for the lost revenues elsewhere.
In fact, the churning in the last few quarters has distanced the top
two (AT&T and Verizon) and the next two (Sprint and T-Mobile) by the
biggest gap in the history of the industry. By the end of 2009, this
gap will rise to 36% compared to 28% at the end of 2008 and 21% in
2002.The "Rest" category has essentially diminished from the market
dropping from a dominant 43% market share in 2002 to 12% in 2009.
The trend of the landline replacement by Mobile continued in Q3
2009, now reaching almost 25%. In the third quarter, messaging
growth slowed down. The messaging volume was up only 4% and
messaging revenues were up 3% QoQ. With its expanding 3G network,
T-Mobile like its peers has started to benefit from smartphone
penetration reaching to 6% of its subscriber base. Overall, The
increased use of smartphones and datacards is putting a pressure on
carrier networks and accelerating their strategies to deploy LTE/WiMAX.
We estimate that by end of 2009, the US mobile data traffic is
likely to exceed 400 petabytes, up 193% from 2008. To truly tackle
the problem head-on, operators will need to adopt a multi-pronged
strategy to manage their traffic more effectively. We discuss mobile
data traffic in much more detail in our paper "Managing
Growth and Profits in the Yottabyte Era."
We will have more on this subject in the coming days (You can also
read our RCR Wireless columns on the subject - Defining
Mobile Broadband
and
Solutions for the Broadband World).
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 Q3 2009 US wireless data
market is:
Service Revenues (Slides 11-12, 17, 19)
The
US Wireless data service revenues grew 5% Q/Q to $11.3B in Q209.
Compared to Q308, the data service revenues grew 27%.
Verizon and AT&T accounted for 80% of the increase in data
revenues in Q3 2009.
The
US mobile data service revenues crossed $10B for the third
straight quarter and stays ahead of Japan and China by a
distance.
AT&T
experienced the most growth with over 6% increase Q/Q followed
by Verizon and Sprint at 5%.
Verizon's data revenues exceeded $4B/quarter only inches behind
the global leader of over 10 years NTT DoCoMo.
AT&T
and Verizon now account for 68% of the market data services
revenues and 61.5% of the subscriber base.
The
average industry percentage contribution of data to overall ARPU
is now 28%. US market is likely to touch the 30% mark in 2009
though it might not quite eclipse it.
The
top four US carriers are now a permanent fixture in the top 10
global operators by mobile data service revenues occupying #3,
#4, #6, and #8 spot respectively. Apart from NTT DoCoMo and
China Mobile, Verizon Wireless and AT&T are the only two other
operators generating more than $3B in quarterly mobile data
service revenues.
ARPU (Slides 13-15)
Overall ARPU decreased by $0.14. Average voice ARPU declined by
$0.57 while the average data ARPU grew by $0.43 or 3%.
Verizon led in (blended) data ARPU with $15.59 followed by AT&T
and Sprint. In terms of % contribution, Verizon exceeded 30% to
become the first US operator to do so. It was followed closely
by AT&T and Sprint respectively. T-Mobile also exceeded $10 in
data ARPU for the first time.
AT&T
experienced something unique - an increase in voice ARPU (for
the first time in 10 quarters). The voice ARPU increased $.03 in
Q3 2009.
Subscribers (Slides 16-18)
In
Q309, the US market added approximately 2.7M new subscriptions
down 1% from Q109.
The
number of data subscribers has been on the rise with Verizon
leading the way. At the end of Q309, 67% of US subscribers were
using some form of data services.
The
messaging volumes in the US market now average almost 568
messages/subscriber/month or at the frequency of almost a
message/hour/sub thus reaching close to the messaging leader
Philippines.
In
terms of net-adds, thanks to the boost from the iPhone, ATT
again led in Q309 with 2M net-adds, edging its friendly rival
Verizon which added 1.2M net subscriptions. Sprint lost 565K.
T-Mobile lost customers for the first time in its history. It
lost 77K customers in the quarter.
The
3G penetration in the US stays at a healthy 43% in Q309. Verizon
led the pack while T-Mobile is slowly expanding its 3G coverage.
The growth in 3G and smartphones is helping offset some of the
downward pressure on the data revenues and overall ARPU.
The
gap between the top two (AT&T and Verizon) and the next two
(Sprint and T-Mobile) is at its maximum. By the end of 2009,
this gap will rise to 36% compared to 28% at the end of 2008 and
21% in 2002.The "Rest" category has essentially diminished from
the market dropping from a dominant 43% market share in 2002 to
12% in 2009.
Applications and Services
Non-messaging services continue to grab 50-65% of the data
revenues for the US carriers.
The
flat-rate pricing movement that was started by Willcom in Japan
which moved to Europe became more prevalent in the US market
with industry wide flat-rate pricing plans that included data.
All the major carriers seem to be offering flat-fee access plans
for most of the new smartphones being introduced in the market.
Approximately 20% of the consumers have flat-rate data plans.
There are probably 18-20 sub-segments within mobile data
services and consolidation looms. While the valuations are still
high for rapid consolidation, we think that due to recession
pressure, the M&A scene is starting to heat up.
The
usage and data consumption trends are enabling carriers to
accelerate their 4G plans and develop long-term business and
technical strategies.
Handsets
Nokia sold 100M+ units in Q3 2009. Samsung again had a solid
quarter with over 60M devices sold inching its market share to
almost 21%. LG Electronics at 11%, Sony Ericsson at 4.9%, and
Motorola at 4.7% rounded up the top 5.
The
third quarter was again dominated by blockbuster launches of
smartphones. Androids have been invading the industry en-masse
and 2010 looks to be a terrific year for consumers and
competition.
The
growth in smartphone usage is also putting pressure on the
networks which are not able to handle the load during peak times
in certain cities thus forcing carriers to look for alternate
strategies to satisfy the demand for broadband - usage billing,
UMA, Femtocells, Hotspots, WiMAX, LTE, and others.
Policy and Regulations
Q3 also marked the start of an intense FCC scrutiny of
the wireless industry. In outlining the four key principles of
a) looming crisis of spectrum shortage b) removal of red tape c)
enforce net-neutrality and d) open Internet, things have already
started to change in the US Wireless Industry. Google has played
the game of Armadaian tactics with Kasparovian acumen. The
impact of the codified principles (and the subsequent court
battles) can have a significant impact on not only the US
wireless industry but the global ecosystem as well.
Open
The
appstores battle is intensifying with OEMs and carriers are
announcing their plans and some of them are opening their wares
to woo the developer community. In the midst of the appstores
hoopla, Apple announced the passing of the 2 Billion download
mark with increasing number of developers participating the
ecosystem. The new functionality being released with 3.0 is
taking the battle up a notch. The clear-cut business model of
30/70+ split is attractive to the long-tail of developers. While
there is no dearth of applications, findability remains a
challenge. Also, appstores are changing the monetization
strategies for content and application developers.
The
App vs. Mobile Web debate is getting intense. The evolution is
pretty clear - for the applications that don't require
significant UI resources, it will be better to develop in for
the browser, for intensive games, the native platform will be
ahead of the browser advances. The location API access on the
iPhone browser is breakthrough to have developers start thinking
about the webapps. But, what does it do to the control points
and the revenue models?
While there has been much consternation around the word "Open,"
one is hard pressed to find a consistent definition what it
might actually mean. One could provide access to one API and
declare themselves an open heretic while others could end up
opening up their business more than needed and yet be accused of
being closed. Clearly, the degree to openness is in the eye of
the recipient. There is no black and white, just shades of grey
and that's where the battles will be won and lost. In the end,
it is all about "access" to the market and the "freedom" to earn
profits. Rest is noise.
It
is worth debating as to what can be mandated to be open, do the
rules apply just to the operators and OEMs, or we should extend
the courtesy to software platforms, search indices, aggregated
user profiles, billing engines, etc.
It
is also becoming obvious that we need to redefine the device
categories. Featurephones are no longer dumb terminals, many
empower the users with smartphone functionality. Devices like
iPhone, Droid, Pre no longer fit the smartphone stereotype, they
need a separate category for themselves - appphones, ddhmvcs
(data devices that happen to make voice calls), platformdevices,
mobilecomputers, geniusdevices, agilechips, astuteconceirge, you
get the point.
Misc.
Not
surprisingly, Venture capital market experienced a continued
decline in 2009, with companies announcing $1.5B in financings
vs. $3B for the same time period. (Source: Rutberg)
In a
sign of convergence battles to come, T-Mobile’s @Home and
various Femto cell initiatives are taking hold. Cable operators
are also aggressively seeking triple-play by providing the
wireless component of the service.
China crossed the 700M subscription mark in Q3. India crossed
the 500M mark for telephone penetration (wireline + wireless) of
which 472 are mobile subscriptions. In terms of net-adds, India
has outpaced China for the last 16 months. The Indian market
added almost 155M vs. 101M in China during the last four
quarters. (more discussion on the international market in our
global market update next year)
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 Feb
2009. The next Global Wireless Data Market update will be issued in
Mar 2010.
Watch out for our end of the year survey and commentary on global
wireless markets and trends for 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.
Mobile
Breakfast Series, Seattle. The Impact and
Evolution of Mobile Broadband (w/ Om Malik, Scott
Richardson, Ken Denman, Charlie Martin, Pankaj Kedia) Seattle.
Register
In addition, Chetan will be doing some
private briefings to carriers, content providers and enterprise
solution providers
Chetan Sharma Consulting is a
consulting and advisory firm helping companies in the mobile and
voice communications sector. Our expertise is in developing
innovation-driven product, business, and IP strategy. We've
helped companies like NTT DoCoMo, China Mobile, Samsung, KDDI,
Motorola, Alcatel-Lucent, Sony, Virgin
Mobile, KTF, Sprint Nextel, Reuters,
Disney, Qualcomm, Motricity, Reliance, BEA, HP, Merrill Lynch,
Cincinnati Bell, Bain, SAP, Vulcan, American Express, and many
others. What can we do for you?
www.chetansharma.com
If you have questions or
suggestions or feedback on this subject or on the wireless & mobile industry at large,
please contact us at feedback@chetansharma.com - we look forward to hearing from
you.
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