US Wireless Market
Update Q4 2011 and 2011
http://www.chetansharma.com/USmarketupdate2011.htm
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Addendum
Summary
The US market generated $67 billion in mobile data revenues in
2011 accounting for 39% of the overall revenues for the country.
The mobile data market grew 4% Q/Q and 19% Y/Y to reach $18.6B
for the quarter. For the year 2012, we are forecasting that
mobile data revenues in the US market will reach $80 billion.
The US market accounts for 5% of the subscriber base but 17% of
the global service revenues and 21% of the global mobile data
revenues. It also accounts for 40% for the global smartphone
sales.
If the Martians landed on earth in early 2012, they will
conclude the following: there are only 3 things certain on earth
– death, taxes, and the direction of Apple’s stock price. Apple
had a monster quarter with record sales of iPhone and iPad not
only in the US but also around the world. Apple sold over 93M
smartphones outpacing its nearest rival Samsung by a good
distance. Its share of the profits is more than rest of the OEMs
combined. Its stratospheric rise is legendary by any measure.
Today Apple eclipsed the combined market cap of Microsoft,
Google, and Amazon. Think about that for a minute. In 6-12
months, you could probably add Facebook to the equation as well.
The question on rivals’ mind is when will Apple stop defying
gravity. Until then, better be a fast follower.
Smartphones continued to be sold at a brisk pace accounting for
65% of the devices sold in Q4 2011. US Operators are averaging
80% of their postpaid sales as smartphones with Android
dominating though iPhone leads in mindshare. The Obama
administration formally placed featurephones on the endangered
species list but either chamber is unlikely to pass any
resolution to save it.
Nokia launched its Lumia series of devices with good acclaim
however it remains to be seen if it will be able to win back the
customers in big numbers in 2012.
The Post-PC Era
Ever since the iPad came into being, the chants of the post-pc
mantra are getting louder. But what is it? Is it just the
untethered devices? Isn’t iPad a person computer too? What about
the smartphones? They have more horse power than my first few
PCs combined. Is the personal computing morphing into something
else or is there a clear delineation between the Mesozoic era
and the new tomorrow? While we in the industry get obsessed by
these minutiae, what do the real consumers think about it?
Clearly, tablets are selling better than the PCs (as our
previous research has shown) both in units as well as the
revenue. But so did the laptops compared to the desktops.
So, does the miniaturization of a screen and improving computing
power represents a big shift or is this just an evolution of
personal computing. Consumers rarely think about what computing
era they are in. Between the time they wake and go back to bed
at night, there are a series of tasks they have to accomplish.
The technology is their companion to accomplish them, from
keeping calendars to creating corporate presentations to sending
messages to watching TV for entertainment to socializing with
family and friends.. the list seems endless. Often times, the
time is too short. Technology finds a way to give the time back
to us by reducing the distance between the tasks as well as
compressing the duration.
As I have said before, nothing collapses time and distance like
mobile. Tablets, particularly, iPad and the smartphones, if seen
through the eyes of the year 2000 make us superhumans providing
us capability to process several tasks in parallel. We can even
direct the computing device to figure things out while we sleep.
Computing is morphing into a true companion, a wily butler who
just knows what’s needed next. Being untethered to a desk makes
us more productive. Taking the computing evolution further –
what if we can create a desktop environment wherever we are
instead going to a desk. For my work setup, I have 4 or 5
screens running at the same time and it does help. It is hard to
see tablets in their current incarnation competing with that
task environment. However, it does allow us to collapse the
desktop and take it with us.
Tablet+Network+Cloud is an enormously powerful value
proposition. It should be noted that apps and services on the
mobile platform are defining the desktop environment now.
For the enterprise worker, many of the day-to-day tasks don’t
really need the real-estate of 3 big monitors; we can easily
accomplish a lot with a smartphone or better yet the tablet. As
such, we are seeing corporations de-investing in desktops and
laptops and moving this investment into tablets, smartphones,
apps and make their work force more nimble and competitive. This
also means, apps that used to be written for Windows will be
predominantly written on iOS and Android, at least for the
near-term. Microsoft has a strong offering in 8 and the fact
that it will work across the three screens gives it some chips
to play in the new world. Whether we call it a post-pc era or
the computing continuum doesn’t seem that relevant. What matters
most is the set of tools that help us accomplish the tasks at
hand on a daily basis. The shift is tectonic in nature, and it
is creating winners and losers at an incredibly fast pace.
However, my sense is that we are finally entering into the
ambient computing era where the computing capability is all
around us, something that Mark Weiser of Xerox PARC envisioned
more than 20 years ago and something we imagined growing up with
the original Star Trek.
We will be dealing with multiple connected devices which share a
common identity, cloud, media, security layer, and most
importantly the apps and services. The traditional PC won’t
disappear but our reliance on one single machine for creation or
consumption will continue to dissipate. We will have scores of
radios around us, multiple objects that can think and
communicate from cereal boxes to security alarms; from windows
to fabric shirts; from tables to automobiles; it feels more like
the connected era - where objects with brains and energy are
connected to create an unprecedented universe of intelligence
and productivity. This will indeed impact purchasing behavior
and the commerce flow. The social and computing interactions are
more intimate, have more purpose, and are available everywhere.
The work-life boundaries only exist in one’s mind. A business
can be started with an app on a smartphone, anywhere serving to
any consumer on the planet. The impact on productivity, the
shrinking human capital needed for a set of tasks, corporate and
nation’s competitiveness is significant.
In many developing nations, the PC era never arrived. They
jumped right into the mobile computing era. They have always
lived in the post-PC era. The implications are profound.
More than anything else, the old guard is having a tough time
adjusting to the new computing paradigm. HP, Dell, and others
have tried but failed thus far to either launch a decent tablet
or a smartphone. While Apple invented the new computing paradigm
only Samsung has been able to stand up as a worthy rival. The
success of a vertically integrated success strategy has seduced
Microsoft and Google to the doorstep of a vertical strategy.
Will they cross the chasm remains to be seen. Much depends on
how Nokia performs for Microsoft and how long can Android
juggernaut keeps growing for Google. Then, of course, there are
Amazon and Facebook who are attacking the market from a services
angle. With a strong entry of the likes of Huawei and ZTE,
players caught in the middle are struggling for a viable
long-term path to success.
The engagement model with the computing resources is undergoing
significant evolution as well. Keyboard and mouse seem relics of
a bygone era. We are falling in love with gesture computing
combined with a myriad of input and intelligence techniques.
Data processing at the speed of light is the new competitive
advantage at all computing layers.
In every shift, winners and losers are created. The ones who
fail to recognize and adapt become the relic of the historical
past duly replaced by the new creators and implementers. If we
look at the US household IT spend, over 50% of that spend now
goes to mobile. The life time value will increase for players
who can tie experiences together across multiple screens in a
seamless fashion. This will enable them to not only capture the
device revenue but also the commerce and services revenue built
on top of it.
The battle for the consumer wallet is being fought on Apple’s
turf; it is the one driving the industry narrative and the
agenda for its competitors and the ecosystem at large. Am pretty
sure we will stop using computer to define computing.
Interesting times indeed.
Competition
In any other year, the AT&T and T-Mobile merger would have
likely gone through. The interconnection of policy, politics,
and private enterprise was on vivid display last year. The
failure of the merger forced Deutsche Telekom to resort to the
only second viable option - to take the plunge and invest in the
US market. Whether 4 competitors can survive 3 years from now is
still questionable. Given that DOJ and FCC have set the
precedent, the only way a major M&A can take place in the US
service provider segment in the near term is if one of the tier
2 operators falters Q/Q. We still believe in our thesis as
outlined in our research paper “Competition
and the Evolution of Mobile Markets”
last year that the US market can’t support 4 large operators and
we are likely to see further M&A activity in the sector before
too long.
Mobile Data Growth – The Gigabyte Generation
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. Approximately 30% of the smartphone
users average more than 1GB/mo. As new devices and new network
technology roll-out keep pace in 2012, the data traffic will
grow at the expected pace. The signaling traffic is expected to
grow in even faster. Stay tuned for our research paper in the
Yottabyte series of papers on the topic later this year.
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.
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.
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 Q4 2011 and full year
2011 US wireless data market is:
Service Revenues
-
The US Wireless data service revenues grew 5% Q/Q and 19%
Y/Y to $18.6B in Q4 2011. The mobile data services revenues
for the US market hit our initial estimate of $67B for the
year 2011, a growth of 22% over 2010. 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 year accounting for 68% of
the mobile data services revenue and had 66% of the
subscription base.
-
Verizon maintained its #1 ranking in 2011 ahead of NTT
DoCoMo with a whopping $23.7B mobile data year. AT&T
maintained its #3 position with $22B in data revenues.
Sprint and T-Mobile maintained their #5 and #9 rank in the
top 10 mobile data operators list for 2011.
ARPU
-
The Overall ARPU declined by $0.43. Average voice ARPU
declined by $0.96 while the average data ARPU grew by $0.52
or 3% Q/Q.
-
The average industry percentage contribution of data to
overall ARPU was 38.9% in Q4 2011 and is likely to exceed
40% by Q1 2012. Now, 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 above
the 55% mark).
-
We expect data revenues to exceed voice revenues in the US
market in early 2013.
Subscribers
-
At the end of 2011, the mobile penetration in the US stood
at approximately 110%.
-
Helped by the growth in connected devices, the overall
net-adds increased by 5.1M with AT&T accounting for almost
50% of the growth. For the year, AT&T was a clear leader in
net-adds primarily driven by the success in the emerging
devices segment. Despite losing the iPhone exclusivity, the
operator was able to maintain solid growth throughout the
year.
-
Verizon led in postpaid net-adds.
-
For the ninth straight quarter, AT&T reported more net-adds
from connected devices than postpaid subs. AT&T now accounts
for 43% of connected devices in the US (w/ cellular
subscription of some sort).
-
Overall, AT&T has 46% of the connected device share of the
market. The connected device segment growth slowed down to
4% Q/Q but is still up 27% Y/Y.
-
Sprint added more than a million subscriptions for the fifth
straight quarter while T-Mobile subscriber woes continued as
it lost 569K subscriptions. T-Mobile’s postpaid growth has
been especially troubling as it doubled its postpaid
net-losses to 2.2M for the calendar year.
-
Rebounding from the failed AT&T merger, Deutsche Telekom
announced its investment in the US arm. T-Mobile will launch
its LTE in 2013 in its attempt to catch-up with its stronger
rivals.
Applications and Services
-
After unseating Philippines as the king of TXT messaging
earlier in the year, US TXT messaging continues to grow
albeit at a slower pace. US consumers are now sending
messages at the rate of 680 messages/sub/mo. Most operators
are seeing decline in messaging 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.
-
Q4 2011 again saw tremendous activity in the mobile commerce
and payments space with 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 65% of the devices sold in Q4 2011. Operators are
averaging 80% of their postpaid sales as smartphones with
Android dominating though iPhone leads in revenue and
mindshare.
-
Nokia’s position in the market improved slightly with the
launch of WP7 devices. 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 a monster Q4 with 37M iPhones sold and recaptured
its global smartphone leader title from Samsung though the
Korean rival bested it in the US market albeit barely.
-
40% of all smartphones sold globally in Q4 were sold in the
US making it the most attractive market for the OEMs.
-
Smartphones now account for over 80% revenue of all phones
sold in the US.
-
90% of the tablets use WiFi only (some have inactivated
cellular chipset) meaning that only 10% of the tablets (as
of Q4 2011) were cellular activated. 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
expect family data plans to be introduced in the US market
soon.
-
Verizon added another 2.2M LTE subscribers making it the
leading LTE operator in the world. AT&T’s LTE plans are
gathering steam and Sprint plans to offer LTE in 2012.
-
There is always a beauty contest amongst operators as to who
sold more iPhones. AT&T again bested its rivals by selling a
whopping 7.6M units in the quarter more than Verizon and
Sprint combined. T-Mobile is still waiting for its date with
Apple.
Mobile Data Growth
-
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 early next 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 May
2012. The next Global Wireless Data Market update will be issued
in Apr 2012.
Disclaimer: Some of the companies mentioned in this paper are
our clients.
