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US Mobile Data Market
Update Q2 2012
http://www.chetansharma.com/USmarketupdateQ22012.htm
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Summary
The US mobile data market grew 5% Q/Q and 19% Y/Y to reach
$19.3B in Q2 2012. Data is now almost 42% of the US mobile
industry service revenues. For the year 2012, the market is on
track for mobile data revenues in the US market to reach our
initial estimate of $80 billion.
The US operators reversed the postpaid decline in last quarter
to add almost 400K postpaid subs largely due to the strong
performance of Verizon Wireless. Sprint and T-Mobile saw further
postpaid declines. For T-Mobile, Q2 marked the eight straight
quarters of postpaid losses.
In terms of Y/Y growth, Connected Devices segment grew 21%,
Prepaid 12%, Wholesale 4%, and Postpaid was flat. AT&T, AT&T,
Sprint, and Verizon are number one respectively in these
categories. The connected devices segment has been an area of
growth for the industry but for the second straight quarter, the
Q/Q growth fell below 5%. This is largely driven by lower growth
in the M2M segment.
Driven largely by the economy, the prepaid subscriptions went
past 100 M for the first time in the US market. Given that the
revenue from new subscribers has fallen below the 5% mark for
the first time, the revenue growth will be primarily driven by
services to the existing subscriber base. The new revenue will
be dominated by data access revenues for the next couple of
years.
As has been obvious for some time, the device ecosystem has
become a two horse race – iOS and Android. Apple and Samsung.
Google’s acquisition of Motorola finally closed and everyone is
watching as to what comes next. Amazon showed off its ambition
with Kindle Fire and is now getting ready to launch a new set of
devices in time for the holiday season. Apple launches its
iPhone 5 with LTE and gives some more polish to iOS next month.
Microsoft will start selling its Surface tablet in a matter of
weeks. The only one left out of the launching musical chairs is
RIM which has pushed out its launch into 2013.
Samsung continued its march of being the undisputed unit leader
in mobile device space. After displacing Nokia in Q1 2012, it
continued to dominate in units shipped in Q2 2012. However,
Apple dominates both the device revenues and more importantly
just crushes the competition on device profits. It has only 6%
of the global unit shipment share but over 70% profit share. In
tablets, Apple completely dominates the landscape in both
shipments and revenue. In fact, 97% of the profits in the tablet
segment go to Apple with the remaining ecosystem fighting for
the crumbs. Apple has the complete stronghold on the supply
chain and has sucked out the oxygen from the OEM world.
Nokia’s Lumia launch in Q2 fizzled in the US and elsewhere. It
will get another shot at glory and perhaps its last with the
Windows 8 launch in Sept.
If we exclude the M2M subscriptions and just look at the human
subscriptions, the smartphone penetration went past 50% for the
first time in the US market. Smartphone sales continued at a
brisk pace crossing the 70% mark (of the devices sold) in Q2
2012.
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.
Zuned Out
Apple launched iPod in 2001. During the early days, Microsoft
ignored it until it realized it better start paying attention to
the growing phenom. It asked its suppliers to build them a
Microsoft iPod. One by one, they all failed. Depressed and
frustrated, it took matters in its own hand and introduced Zune
in 2006, full five years after the first iPod came into the
market. By that time, Apple had already sold 66M units and still
hadn’t hit its peak. As is customary, Microsoft took another few
iterations to get it right. By the time a competitive product
came out, it didn’t matter. The main reason was that the
customers were Zuned Out. They had already made their choice,
invested their time and money into a platform and it will take
more than a crowbar to move them onto something new. Microsoft
retired Zune in 2011
Fast forward to 2007. iPhone came out. Nokia, RIM, Microsoft and
others dismissed it and more importantly failed to understand
and acknowledge its impact. Their corporate schizophrenia is
well documented. Microsoft wisely realized that it can’t just
keep paring down the mothership OS for mobile and took time to
rewrite it. The new OS was actually good and well designed, it
was quite fresh. iOS and Android would do well to borrow some
ideas from it to enhance the user experience. However,
Microsoft’s partners by this time were more enamored with
Android. So in Nokia, Microsoft found a partner who can help
shine the light on its new shiny OS. By the time initial
credible versions of the new windows OS started to ship, Apple
had already shipped over 200M units of iPhone. By the time RIM
ships devices with the new OS (if it gets to that point), Apple
would have shipped over 300M units. Consumers have already
invested their time and money into platforms and ecosystems.
Will Microsoft, Nokia, and RIM get a second chance or will they
be Zuned Out?
Then came the iPad that completely took Microsoft by surprise.
It pioneered the concept a decade earlier but was completely
outflanked by the wily Apple. Zune wasn’t significant to
Microsoft’s core business. It had ignored mobile as well for the
better part of the decade as it didn’t disturb the Office and
Windows PC franchises. But tablets are different. Apple
singlehandedly created a new category in 2010 and has dominated
it ever since. It is altering the basic notion of computing.
Enterprises are dumping their PCs and moving to iPad. We have
seen that in our work as well. All of a sudden, there is a
direct threat to Microsoft’s core business. This time the
implications are very serious. It can no longer afford a
misstep. So, instead of letting partners produce mediocre
products that have no chance of success in the market, Microsoft
is taking the matters in its own hands early on and produce
something that on surface looks a pretty compelling product. If
it can get the pricing right, it can make a dent and be a
contender in the new computing landscape. It can use its
products, distribution power, developer ecosystem, and the bank
balance to alter the scales. But Apple has a big lead. By the
time Surface comes out, Apple would have sold over 100M iPads.
If Microsoft executes, maybe there is a chance to not get Zuned
Out this time around. If it fails, the company itself might be
Zuned Out in due course along with many of its longtime
partners.
In the theory of market entry, fast follower is actually a smart
strategy. Microsoft was a master at it. However the strategy has
its limitations. Against an agile and ruthless competitor like
Apple or Google, you better be a really fast follower (Samsung)
else time starts to work against you. A slow follower strategy
only works if you have something truly innovative (iPhone) or
the incumbents are asleep at the switch (Xbox) or the business
model is disruptive (Netflix). Also, the fast follower strategy
is only sustainable when you are adept at anticipating
competitor’s future chess plays.
Shared Data Plans
We have been advocating shared data plans to create more
consumer demand for over two years. When I talked to
CNBC
earlier this year (Jan),
I said that in all likelihood the family data plans will be
introduced in the US market in 2012. I discussed this more with
Bloomberg
and
USA
Today
and suggested that most likely Verizon will launch them first.
Verizon and AT&T launched the shared data plans this summer with
AT&T getting the benefit of launching it second. While it is a
great start, to be truly effective, some of the fees need to be
reduced or completely eliminated.
Operator’s Dilemma (And Opportunity): The Fourth Curve
While the European operators are feeling the heat from the OTT
players (which is further compounded by an abysmal economy), the
impact on the US operator revenues hasn’t been significant, yet.
Last quarter we released our
Mobile Future Forward Research 2012 Paper
that took an in-depth look at the evolving landscape. The first
of its kind study looks at the revenue curves over the course of
the mobile history and discusses the need to invest in the
fourth curve. The paper results were discussed in
WSJ,
The
Economist,
GigaOM,
Seattle Times,
and many other fine publications around the globe. The fourth
curve will define the fate of many providers. Earlier this year,
we discussed the topic in-depth in our Seattle and London forums
and we will go even deeper into the subject at our annual
brainstorm -
Mobile Future Forward
on Sept 10th with all major participants.
mCommerce > eCommerce: Mobile First to Mobile Only
In the last couple of years, the realization in the industry set
in that mobile is going to really dominate the world.
Very quickly, we are at another pivot point wherein the
mobile first doctrine is going to move to mobile only. It is
not that the desktop world will disappear into oblivion. Far
from it. But, the investments, strategy, and execution will be
driven by mobile. As we said in our
global research update earlier this year,
in 3-5 years, with few exceptions, if a company is not doing
majority of its digital business on mobile, it is going to be
irrelevant. There are already several data points to support
the theory. Leading apps and services like Facebook, Twitter,
Pandora are already operating in the world where mobile is
driving majority of their user engagement. Expedia, Fandango and
others are seeing the early signs of migration into the mobile
dominated world. Starting soon we will start to see businesses
with mCommerce Revenues > eCommerce Revenues.
Postpaid Doldrums
The prepaid subscriber base exceeded 100M in the US for the
first time. As postpaid growth sputters, prepaid is picking up
the net-adds. So, the question emerges, where will the net-sub
and net-revenue growth going to come from in the next few years.
The smartphone penetration in the US is at 50% (excluding M2M),
so the significant opportunities are in the upgrades and
non-data to data conversion. Family data plans (see above) will
help in bolstering data revenues as well. Multiple
devices/consumer will increase the sub penetration which is at
110%.
Mobile Data Growth – The Gigabyte Generation
The overall data consumption in the US market in 2012 is
expected to exceed 2000 Petabytes or 2 Exabytes. Since the
advent of the iPhone five years ago, the US market has seen
triple digit growth in mobile data consumption. In 2012, we
expect the mobile data growth to be around 80%. This has largely
been driven by the introduction of data tiers, the use of WiFi
offload, more developer education, throttling in some instances,
and some compression and offloading solutions. However, as LTE
becomes more widespread in the US, we expect the traffic growth
to pick up again.
Market Consolidation
Even though the regulators have indicated their distaste for big
mergers, it hasn’t stopped the industry to play the M&A
speculation parlor game. Except for a few impossible scenarios,
all sorts of deals are being contemplated. The market economics
is clearly crying out for more consolidations. The smaller M&As
won’t move the needle and bigger M&A are not going to be on the
table until we get into a new calendar year.
New Revenue
At the turn of the century, roughly 15% of the service provider
revenue came from new subscribers. By the end of the year, we
expect this will drop down to 3%. This means that the new
revenue will have to come from a) converting non-data to data
subs and b) launching new services in different verticals for
the existing subs.
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 on Sept 10th. 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. We are assembling industries
who’s who to help you figure out where the industry is headed
next.
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 Q2 2012 US wireless
data market is:
Service Revenues
-
The US Wireless data service revenues grew 5% Q/Q and 19%
Y/Y to $19.3B in Q2 2012. 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 quarter accounting for 68% of
the mobile data services revenue and had 66% of the
subscription base.
-
Verizon and AT&T maintained its #1 & #2 mobile data revenue
ranking in Q2 2012. Sprint and T-Mobile maintained their #5
and #9 rank in the top 10 mobile data operators list for Q2
2012.
ARPU
-
The Overall ARPU declined by $0.03. Average voice ARPU
declined by $0.63 while the average data ARPU grew by $0.60
or 3% Q/Q.
-
The average industry percentage contribution of data to
overall ARPU is now at the 42% mark in Q2 2012 and is likely
to exceed the 50% mark early next year. 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 over the 60% mark).
Subscribers
-
The US operators bounced back from its first ever decline
and added 400K postpaid subs.
-
T-Mobile’s postpaid woes continued for the eight straight
quarters.
-
AT&T and Verizon both added more than a 1 M subs while
Sprint added 283K.
-
For the eleventh straight quarter, AT&T reported more
net-adds from connected devices than postpaid subs.
Applications and Services
-
While many of its brethren are seeing messaging volume
declines, messaging in the US market grew by 5% YOY and 1%
Q/Q. US consumers are now sending messages at the rate of
696 messages/sub/mo. However, most operators are seeing
decline in messaging revenue 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.
-
Q2 2012 again saw tremendous activity in the mobile commerce
and payments space with a 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.
On the retail side, Starbucks is a player to watch as it
tries to become a more active participant in the digital
ecosystem.
Handsets
-
Smartphones continued to be sold at a brisk pace accounting
to over 70% of the devices sold in Q2 2012 with Android
dominating though iPhone leads in revenue and mindshare.
-
Samsung now leads in every major 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 renews its entry into the battlefield with Windows 8 next
quarter.
-
Apple’s iPhone sales declined in Q2 but with iPhone 5 round
the corner, it is all set to dominate the remainder of the
calendar year.
-
US continues to sell over 40% of the world’s smartphone
every quarter thus making it the most attractive market for
OEMs.
-
AT&T continues to dominate the connected devices segment
with over 47% market share.
-
Verizon continues to sell more LTE smartphones as it added
another 3.2M subs in Q2 2012 making it the leading LTE
operator in the world. AT&T’s and Sprint’s LTE rollouts are
gathering steam. T-Mobile announced that it is putting the
cash and spectrum it got from AT&T to good use and deploying
LTE by 2013. Expect the “fastest network” marketing to
continue for at least another seven quarters.
-
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. However, iPhone sales
in the US declined as consumers await iPhone 5. T-Mobile’s
date with Apple is starting to look like a possibility in
the near future.
Mobile Data Growth
-
The overall data consumption in the US market in 2012 is
expected to exceed 2000 Petabytes or 2 Exabytes. The
smartphone data consumption at some operators is averaging
close to 850 MB/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.
-
The Signaling traffic has increased 3x.
-
Mobile data traffic growth is likely to slow down to roughly
80% after doubling for the last five years. Voice traffic
will dip below 10% of the overall traffic in 2012.
-
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.
Global Update
Your feedback is always welcome.
Chetan Sharma
We will be discussing a number of issues raised in this report
in our annual mobile executive thought-leadership summit -
Mobile Future Forward on Sept 10th in Seattle.
Confirmed speakers include: Abhi Ingle, VP, Advanced Solutions,
AT&T; Antonio Benjamin, Global CTO, Citi; Brad Duea, SVP –
Products, T-Mobile; Biju Nair, EVP and Chief Strategy Officer,
Synchronoss; Bobby Morrison – President, Verizon; Carlos
Domingo, President and CEO, Telefonica R&D; Dan Deeney, Partner,
New Venture Partners; Dave Whalen, VP/GM, Intel; Ed Cantwell,
SVP, West Wireless Health Institute; Erik Ekudden, Head of
Strategy, Ericsson; Erik Moreno, EVP, Fox; Frank Meehan,
Executive, Horizons Ventures; Glenn Lurie, President, AT&T
Mobility; Gus Hunt, CTO, CIA; Hank Skorny, VP/GM, Intel; Houk
Reed, VP, Tekelec; Jana Messerschmidt, VP, Twitter; Jeff Smith,
CTO, Numerex; Kevin Fitchard, Senior Reporter, GigaOM; Kevin
Packingham, SVP – Product Innovation, Samsung; Marianne Marck,
VP – Engineering, Starbucks; Mark Anderson, CEO, Future in
Review; Mark Young, VP – Mobile and Connected Devices, NBC
Universal; Michael Bayle, SVP and GM, ESPN Mobile; Mike
Woodward, President - Americas, HTC; Neville Ray, Chief Network
Officer, T-Mobile; Nick Wingfield, Reporter, New York Times; Oke
Okaro, Global Head of Mobile, Bloomberg; Renee James, SVP,
Software and Services Group, Intel; Stephen Bye, CTO, Sprint;
Stephen David, former CIO, Proctor & Gamble; Steve Elfman,
President, Sprint; Todd Simpson, Chief Innovation Officer,
Mozilla; Wim Sweldens, President, Alcatel-Lucent Wireless.
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 Nov
2012. The next Global Wireless Data Market update will be issued
in Oct 2012.
Disclaimer: Some of the companies mentioned in this paper are
our clients.
