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US Wireless Market Q4 2011 and 2011 – Addendum March 26, 2012

Posted by chetan in : 3G, 4G, AORTA, Devices, Tablets, US Wireless Market, WiMax, Wireless Value Chain, Worldwide Wireless Market , add a comment

Last week, we issued our quarterly update on the US market. Wanted to expand on and clarify a statistic we mentioned in the update. We reported that “90% of the tablets use WiFi only.” For our analysis, we looked at the overall cumulative tablet base in the US and not the specific sales numbers for a given year or quarter.

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I wanted to provide some more details behind those numbers. 90% of the tablets using WiFi only doesn’t mean that 90% of the tablets SOLD are WiFi only. What we were saying was that by the end of 2011, roughly 90% of the tablets (which are a combination of WiFi only tablets like the Kindle Fire or the Samsung Galaxy or the Apple iPad and WiFi+Cellular tablets like the Samsung Galaxy, the Motorola Xoom, and the Apple iPad) were using WiFi only to connect to the network. Some of these tablets are also using MiFi and tethering capabilities of their devices to connect to the cellular network as well.

So, how does the overall tablet landscape in the US breakdown by connectivity type. As indicated in the figure below over 62% of the tablets in the US are WiFi only. Another 25% are WiFi+Cellular but are not activated by the consumer so the total WiFi tablets in use as of Q4 2011 were roughly 87% of the mix. These included tablets such as Kindle Fire and Nook Tablet along with traditional tablets such as the iPad and Samsung Galaxy. A small percentage of these users connect these users to the cellular network via MiFi and tethering options as well.

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This also means that roughly one third of the tablets with cellular connections were activated as of Q4 2011. Since customers go in-and-out of the prepaid tablet contracts, the actual number of tablets that have had a cellular connection at some point in time is obviously larger. In general, the churn is low as consumers who get hooked onto the cellular connectivity outside the WiFi zone don’t want to give it up.

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Another important point is that this distribution is not uniform across all operators either in the US or abroad. Overseas, some operators have launched family data plans where users can attach multiple devices to a single data plan just like they do for voice plans. Canadian operator Rogers launched family data plans wherein family can share 1-2 GB/mo across multiple devices. Orange Austria, France, and Spain offer two devices per data plan that includes unlimited WiFi and 2GB shared data across both devices. Vodafone Ireland offers shared mobile broadband for business users with 5GB limit shared across unlimited users. The cost for this plan is $10/connection/month with additional 5GB for $14.

Also, operators who offer more flexibility in their data plans by providing daily or weekly passes (like AT&T and Verizon provide for laptops and netbooks ) or even hourly data plans (more prevalent in developing countries) will see more traction with the tablet consumers.

Finally, another barrier to greater cellular tablet adoption is the cost difference between WiFi only and WiFi+Cellular tablets. Clearly, iPad rules the tablet market right now and the price difference between the two classes of devices is $129, enough to dissuade a segment of the tablet loving population. As the price of HSPA+ and LTE modules come down further, the difference in price between the two classes of devices is likely to go away.

US remains the leading nation in terms of tablet use and as the pricing plans mature across all the operators and the OEM costs go down, we will see majority of the consumers using cellular connectivity in the market.

Mobile Breakfast Series – Seattle – 28th March March 21, 2012

Posted by chetan in : US Wireless Market , add a comment

We are looking forward to our upcoming Mobile Breakfast Series Event on March 28th. The topic of discussion is How Mobile is Changing Media, Commerce, and Consumer Behavior. The panelists are:

Michael Bayle, SVP and GM, ESPN Mobile

Megan Tweed, VP – Media, Razorfish

Len Jordan, Managing Director, Madrona Venture Group

Vik Pavate, VP, Kovio

Chetan Sharma, President, Chetan Sharma Consulting (moderator)

These guys are at the forefront of change in our ecosystem, their insights will be quite valuable.

We are expecting a full house, so please register soon. We will close registration this weekend.

Many thanks to OpenMarket for being our partner for the event.

Hope to see you there.

US Wireless Market Update Q4 2011 and 2011 March 19, 2012

Posted by chetan in : 3G, 4G, AORTA, ARPU, Applications, BRIC, China, Connected Devices, Indian Wireless Market, LTE, Mobile Advertising, Mobile Applications, Mobile Breakfast Series, Mobile Cloud Computing, Mobile Commerce, Mobile Content, Mobile Ecosystem, Mobile Entertainment, Mobile Future Forward, Mobile Payments, Mobile Search, Mobile Wallet, Networks, Patent Strategy, Smart Phones, US Wireless Market, Wi-Fi, WiMax, Wireless Value Chain, Worldwide Wireless Market , 1 comment so far

US Wireless Market Update Q4 2011 and 2011

 

http://www.chetansharma.com/USmarketupdate2011.htm

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

ARPU

Subscribers

Applications and Services

Handsets

Mobile Data Growth

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.

Mobile World Congress 2012 Recap March 6, 2012

Posted by chetan in : 3G, 4G, AORTA, Applications, Connected Devices, LTE, MWC, Mobile Cloud Computing, Mobile Commerce, Mobile Content, Mobile Ecosystem, Mobile Future Forward, Mobile Payments, Mobile World Congress, US Wireless Market, WiMax, Wireless Value Chain, Worldwide Wireless Market , add a comment

Mobile World Congress 2012 Recap

The mobile industry had its biggest industry show last week in Barcelona. Going by the attendee numbers, the global economy seems to have rebounded though riots on the streets indicated tough time for Spain ahead. While there weren’t any blockbuster announcements, there was plenty to chew on. LTE, Connected Devices, Mobile Commerce, Privacy, WiFi offload, small cells, platform wars, mobile money, RCS, Connected Home, NFC, Cloud, and HTML5 had their share of debates and discussions. This note summarizes my observations from the show.

China passes the 1B mark – As we noted in our research piece last month “A Tale of Two Mobile Markets – China and India,” China crossed the 1B subscription mark this past weekend (Economist did a piece based on our research as well). In the last ten years, China has become the 2nd largest economy in the world behind the US while India which crossed the 900M mark last month is edging past Japan to be the #3. Given that mobile will have a central role in the ICT evolution of global markets and economies, what happens in the mobile markets of China and India will influence rest of the world.

Convergence of three screens – One of the fascinating trend is the convergence of the desktop, tablets, and smartphones at the OS/Apps layer with Apple, Microsoft, and Google being the three major pillars. Each has its strength in a given segment though Apple has the most mindshare across all three. Microsoft dominates the desktop world with over 90% share, Apple dominates the tablet world with over 60% share and runs a close second to Google on the smartphone segment. As I mentioned to the New York Times, this has significant implications on commerce, distribution, and life time value of the customer.

Operators vs. OTT – Round 2 - Mobile World Congress Keynotes started with two of the most prominent mobile operators proclaiming that the industry has significant challenges in the form of OTT providers commoditizing their revenue streams without any significant investment of their own into the network. Both Franco Bernabe, Chairman and CEO of Telecom Italia and Li Yue, President of China Mobile painted a gloomy picture and how operators need to focus on fundamentals if they were to survive the ever growing pressure on the margins. Some like KPN and SMART are seeing deterioration of their business fundamentals. However, there are some good case studies of success as discussed in my GigaOM column. I also discussed the subject in my paper released last month “Mobile Internet 3.0: How Operators can become service innovators and drive profitability” A number of operators announced their support for Joyn – the face of RCS services. The Operator/OTT story will be one of the most fascinating ones to watch in the coming months.

Mobile payments and commerce – There is significant activity in the mobile payments space but activity shouldn’t be confused for progress. Number of announcements with actual product offerings or roadmap is limited. There are some interesting case studies that are emerging however, like the one in Czech Republic where operators are collaborating with the banks to lower the commission and share the proceeds. That’s the primary way the operator model is going to work. Financial guys have protected their turf very well. And now retailers are forming their union. There has been too much focus on NFC payments rather than NFC as a platform for doing other things besides payments. As I said to the New York Times, “It will take a long time.”

Mobile Cloud – The discussion of Mobile Cloud has moved to Smart Cloud. From devices to the network to the apps, all elements of the chain are looking for the cloud to drive efficiencies in cost and performance.

Mobile Security – Mobile Security has emerged as one of the key opportunity areas for the ecosystem. Given that mobile devices are multiplying like gremlins, it is time to reign in the security. Both consumers and enterprise customers will benefit from a safety net that can protect customers from loss of data, viruses, targeted attacks, and malware. You can expect a number of offerings in this space over the course of this year.

Intel is serious about Mobile – Paul Otellini, CEO of Intel said at the launch event that they are introducing mobile technology at twice the pace of Moore’s law and is a clear statement that Intel is serious about mobile. Intel announced Orange, Lava, ZTE, and Visa as their new partners (in addition to previously announced Motorola and Lenovo) for their mobile chipset platform (smartphones and tablets). While the industry watchers are waiting for one of the big shoe to drop (the likes of Samsung, HTC, Nokia), Intel is making steady progress and the devices are blazing fast especially for 1080p video. Partners are all looking for mass-market devices (read sub-$50 after subsidy) within the next 2-4 months.

Managing Signaling traffic – While the data capacity issues get discussed a lot, signaling traffic and the problems they cause don’t get the same treatment. However, it is very clear that management of signaling traffic will remain quite important. Many of the applications are atrocious when it comes to signaling efficiency for e.g. I saw one of the mapping apps at Procera’s booth which requested connection for every single tile on the map, every time the map was rendered, so one map view could generate over a dozen signaling requests. So far, a lot of attention has been on policy management of data traffic, we better start paying attention to policy management of signaling traffic.

LTE/WiFi – Infrastructure providers and operators are looking to tighten the bond between LTE and WiFi such that the traffic can be policy managed at a granular level by application type so that based on the real-time traffic conditions, traffic can be optimized and routed accordingly.  Alcatel-Lucent with its LightRadio technology and SK Telecom were some of the players demoing the concept.

Traffic Onloading – Most vendors and operators talk about traffic offloading, but Wim Sweldens, President of Alcatel-Lucent Wireless division had much to say about traffic onloading. Even at the show, WiFi offload was being discussed along with LTE in the same sentence. With traffic, operators are also offloading the customer, he said – exposing the customer to potential security problems and perhaps loss of revenue opportunities during that session. With Light Radio WiFi®, operators will be able to more intelligently onboard the customer to their network and provide the same level of service and security as they do with their cellular network. Wim suggested that this is a good marriage between the radio and the IP world to give the best to customer while preserving the value for the operators. My discussion with Wim in this GigaOM column has more details. I will have more research coming out on the subject later in the year.

GAMAF moves - While Eric Schmidt will argue Microsoft isn’t in the mix; the platform world in mobile revolves around the furious five – GAMAF. Each has their strengths and weaknesses. Amongst the five, Google had the biggest presence at the show while Apple and Amazon were just there to scout talent, deals, and competition. Amazon and Facebook lack an OS to go with their ambitions and are pinning their hopes on HTML5. Amazon has thus far used Google’s efforts to its advantage and done a better job in some areas. MWC12 was coming out party for Facebook Mobile. Microsoft is making steady progress with 8 and hoping that it will prove to be its lucky number.

Empire strikes back – Microsoft and Nokia have been making steady progress in their quest to regain market share that stands decimated by previous strategic errors. While it is going to take unforeseen amount of time to make up for the lost market value, Nokia’s product line looks good, operators seem to provide a helping hand in creating the third viable ecosystem. Microsoft has been scrambling to get Windows 8 ready for the market so it can launch tablets and tie the three screens together. Things finally are coming together. Though a number of things can still go wrong, the two work horses are moving in the right direction. However, the biggest question still is whether consumers will give them a chance or not?

Facebook – HTML5 R Us – Facebook has been a bit tentative in mobile over the last few years but is making a concerted effort in building its strategy around HTML5. It is also doing this by rallying partners from across the ecosystem. With its massive reach, it will be a significant player in mobile, commerce, and advertising.

Connected Home – One of my favorite MWC things to do is to visit the Connected Home to see how close we are getting to the reality of connected home. AT&T and other partners showcased some of their latest technologies in home automation and the remote monitoring and home automation platform is almost ready for prime time. AT&T expects the Digital Life platform to be available later this year.

Devices – There were a number of devices launched at the show. HTC got going first with HTC One. The most significant part of the announcement was the distribution deal with 140+ operators. They are going to have a good Q2. Sony, LG, ZTE, Huawei also announced their lineup. Nokia’s pureview stood out for me with its incredible new camera technology (even though it was built on Symbian). Apple, you can finish your Lytro acquisition now. Samsung feverishly pushed its Galaxy Note.

The Untouchables – With Apple launching its LTE iPad on March 7th, the non-Apple tablet market is pretty much frozen. While there were some new tablets launched at the show, an opportunity to change the game likely won’t occur until Microsoft comes out with 8 or Google springs in a surprise. Amazon will continue to sell Kindle Fire but it is hardly making a dent to Apple’s trajectory. Apple is so far ahead of its competitors in the top tier of this key emerging segment that you might as well classify the company as the untouchables.

HyperLocal on a Global Scale - Hyperlocal targeting has been around for some time, one can do polygon targeting meaning draw a polygon of the area where the advertiser wants to target the users. The advantage is that the ads are specific and more context-aware and hence the rate of engagement is higher. Advertisers get better leads and are quite useful for time sensitive campaigns. However, the capability is generally limited to certain regions or countries. Millennial Media extended their dev platform - mMedia allows developers and advertisers to do hyperlocal targeting on a global scale. 

Privacy – There was a lot of discussion on privacy. Everyone has an opinion but not necessarily a good solution. Everyone wants to be guardian of consumer data but don’t want to be held responsible for breaches. This pretty much means regulators are going to move in and it will be hard to predict the impact.

Retailers in mobile – Some of the retailers seem frozen in Mesozoic era and can’t seem to free themselves of their archaic strategies. They realize something is wrong but can’t bring them to change how they drive commerce. There is still a lot of focus on driving traffic to the stores rather than driving commerce to the stores.

Mobile Health and Wellness – Developed countries are driving mobile wellness and developing countries are driving mobile health.

2012 is going to be another fast-paced roller coaster for the mobile industry. Looking forward to a terrific year ahead.

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 Mar 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.