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New Research Paper: The ABCs of SMB Transformation: Apps, Broadband, and the Cloud May 6, 2013

Posted by chetan in : 3G, 4G, 4th Wave, AORTA, Applications, Chetan Sharma Consulting, Connected Devices, Enterprise Mobility, European Wireless Market, Mobile Cloud Computing, Mobile Ecosystem, US Wireless Market, Wireless Value Chain, Worldwide Wireless Market , add a comment

The ABCs of SMB Transformation: Apps, Broadband, and the Cloud

- A collaboration between Chetan Sharma Consulting and AT&T

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

Download pdf (1.5 MB)

Introduction

In 2013, the US mobile data revenues will exceed $90 billion accounting for over 165% growth in the last 5 years. This makes US the biggest market for mobile data solutions and services. The smartphone penetration in the US went past 50% by mid-2012. The number of applications available to consumer has quadrupled in just the last two years. While the growth in the smartphone segment has been quite impressive, the tablet adoption rate has been the highest in the consumer electronics history. The advent of mobile broadband, powerful computing devices, reliable cloud services and applications have changed the computing landscape forever.

At the same time, the Consumerization of IT is changing the face of the enterprise architecture as well. This is felt more acutely in the small-and-medium business (SMB) segment. US is also the biggest enterprise market in the world and the SMB segment represents the more agile and technology-savvy of the ecosystem. In fact, we think it is a leading indicator of how technologies are going to be adopted in the enterprise ecosystem, what trends will prove to be disruptive, which vertical segments will embrace efficiency, and most importantly, how should we think about the ever-changing landscape as we look towards rest of the decade.

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. Given the importance of small businesses to the economy, it is worthwhile to look at how their technology needs are changing. Additionally, it is important to understand how they are adopting technology and the impact it is having on their productivity, competitiveness, and efficiency. The technology adoption is also putting some of the traditional industry segments at risk while creating several new growth areas.

To understand the impact of mobile broadband, devices, and cloud applications, we conducted a survey of eighty SMB companies of different shapes and sizes across the US serving different verticals constituting over ten thousand employees. We also looked at the data from over twelve thousand companies in the SMB segment and over twenty thousand larger enterprises. Additionally, we conducted a series of interviews to better understand the motivations, requirements, and feedback of these companies. These companies have been in business for twenty years on average with over two years of experience with mobile data solutions. By understanding how they use and benefit from mobile data solutions, we can better identify the course of enterprise mobility in the US and around the world.

Some interesting findings:

· Small and medium businesses are leading indicators of technology adoption. As referenced in this paper, SMB smartphone and tablet penetration is more than 90 and 65 percent respectively; whereas national smartphone and tablet penetration is roughly 55 and 22 percent.

· Mobile First to Mobile Only. Last year, we proposed that we will start moving from mobile first to mobile only economy. We said that we are approaching a pivot point wherein the mobile first doctrine is going to move to mobile only. We are starting to see strong evidence of that shift. In our survey, roughly 30% of the SMBs are transitioning from desktops/notebooks to smartphones/tablets. Business software and solutions are being transformed by the use of smartphones and tablets. With this shift, we’ve seen the emergence of a generation of app developers focusing primarily on the mobile app platform.

· Mobile broadband, cloud, and apps are providing real and tangible ROI. The SMBs in the survey saw an average savings of 40 minutes per worker per day, which translates into significant impact on profits over the course of the year.

Your feedback is always welcome.

Chetan Sharma

Disclaimer: Some of the companies mentioned in this paper are our clients.

Abhi Ingle – The Mobile Cloud Connected Enterprise

Posted by chetan in : 4G, 4th Wave, Applications, Enterprise Mobility, Mobile Cloud Computing, Mobile Ecosystem, Mobile Future Forward, Worldwide Wireless Market , add a comment

The following piece is excerpted from the 2011 Mobile Future Forward Book – Connected Universe. Unlimited Opportunities. It was written by Abhi Ingle, then VP, Advanced Mobility Solutions at AT&T and now VP of Innovation and Head of Foundry at AT&T

Technology and Structural Change

An observation of the technology industry reveals three broad trends having a visible impact on business today. First, mobile computing devices continue to add computing capacity and new capabilities at an exponential rate of growth (Figure 1a and 1b). (Moore’s Law is still very much in effect and shows no signs of slowing). Second, wireline and wireless connectivity is being migrated to a flat, high-speed internet protocol architecture providing the ability for the stack of services to be disaggregated. This allows applications to run seamlessly across multiple devices simultaneously in stationary, nomadic and mobile scenarios. Third, the explosion of cloud computing in terms of infrastructures, platforms and applications continues to develop and is now gaining acceptance in mainstream scenarios, both consumer and business (Figure 2).

Figure 1a and 1b: New Uses for Computing (Source: IDC) and New Model of Computing Innovation (Source: 2011. Intel Investor Meeting).

Figure 2: AT&T Mobile Data Volumes Up 8,000% Over Four Years (Source: 2011. AT&T).

Amplifying the impact of these technological changes is a sea-change in technology purchasing, evaluation and consumption in the marketplace. Technology purchasing–previously a top-down IT-driven process–has now morphed in to a bottom-up consumer-driven phenomenon. Alternately referred to as the “consumerization of IT” or the “Bring Your Own Device” (BYOD) movement, it is having a tremendous influence on business IT, effectively redefining where and how technology decisions are made. (Ted Schadler (Forrester Research) and Josh Bernoff (Forrester Research) have written Empowered, an entire book dedicated to this trend alone).

Any of these advances taken individually is an exciting evolution, but the opportunity presented by the combination of these technologies and trends taken together is revolutionary. This troika of technological advancements and industry trends can be viewed through two lenses, either as an incredible opportunity or an insurmountable challenge.

This dichotomous view is understandable. There are formidable obstacles as companies realize that they may have to reengineer twenty years of PC-centric architecture to contend with multiple connected devices, multiple computing platforms and multiple applications (which may or may not run on all of the same platforms). It can be an overwhelming task even for the most forward-thinking organizations. We choose to view this as a rare opportunity for businesses agile enough to harness these trends to make dramatic business improvements by transforming classic enterprise IT architectures to real-time, business process driven, cloud-based mobile architectures. A systemic phased approach with the right partners can make this a manageable and self-funding transformation.

We find the three technology changes referenced earlier to be mutually reinforcing. For example, the advent of powerful smartphones, tablets and connected devices changes the computing paradigm to be one in which there are many devices per person. Having several devices inherently leads to the necessity to have data and applications accessible by multiple devices simultaneously.

What is the phenomenon ideally suited for housing applications allowing access from multiple end points? The cloud! And, of course, all of this would not work if all of these devices were not always on and connected through incredibly fast flat IP networks (wireless and wireline). The business network is, in fact, the most mature virtualized element, secure MPLS-based connectivity which increasingly forms the core of enterprise connectivity today was the original “cloud or virtualized” service. The virtualization of data centers, servers, storage, processing power and the XaaS phenomenon is taking the other elements towards the same evolution as the network, in effect creating a virtualized or cloud fabric in which network, processing, storage and software can flex to the needs of the enterprise on a dynamic basis (Figure 3).

Figure 3: Cascading Waves of Innovation (Source: 2011. AT&T).

Much has been written about the technologies involved in this change, but surprisingly little about a business framework that can fully take advantage of these changes. Capitalizing on this opportunity will require a holistic framework encompassing people, processes, assets (Figure 4) and linkages between the three in an architecture that provides the enterprise with the ability to sense, analyze and respond in real-time (Figure 5).

Figure 4: Framework for a Real-Time Event Driven Enterprise. (Source: 2011. AT&T).

Figure 5: Sense, Analyze, Respond Relationship. (Source: 2011. AT&T).

Consider two companies we have worked with recently on extreme ends of the spectrum. The first, a large beverage distribution company, with a history of successfully implementing progressive mobility solutions, wanted to retain its competitive advantage.

The second, a 20-person company providing specialized healthcare supplies, with no automation, sought to capitalize on creating a real-time enterprise which they could never have afforded prior to these technological changes. Both of these companies have dramatically transformed their business processes around the concept of the real-time enterprise in which people, process and assets are always connected and can be optimized on the go.

Figure 6: Beverage distribution company scenario illustrates real-time demand and supply adaptation (Source: 2011 AT&T).

To understand how the beverage distribution company is thinking about the future and how they can capitalize on the technology changes, visualize this scenario:

A large group of bicycle riders are out on a long ride on their bicycles on a hot day and require a sports drink to rehydrate (Figure 6, Illustration A). Those of you familiar with road biking will recall that the form fitting lycra outfits that most road bikers wear typically limit what one can carry. Imagine that on the bicycle’s handlebar (where in the past a GPS device would have resided) is instead a sled for the rider’s mobile smartphone, GPS and near field communications, where he or she can use an application to locate the nearest drink machine (Figure 6, Illustration B) and get directions to it (Figure 6, Illustration C).

Once there, the rider can use his or her mobile device to pay for and receive a drink using Near Field Communication (NFC) technology. The process is repeated for the entire group of bikers, depleting the machine of all the sport drinks (Figure 6, Illustration D). In a non-real time world, the company would fail its’ consumer at the moment of truth – it would direct thirsty riders to an empty machine. But in our real-time connected world, the connected vending machine has already signaled its status to the cloud, has been taken off the database before the next set of riders would see, and they are automatically directed to the next closest machine.

Simultaneously, cloud based analytics ensure that “restock work orders” are routed to all supply trucks in the area (Figure 6, Illustration E). (All trucks are equipped with automated vehicle location technologies that are continuously connected). Each supply truck driver has a handheld device to receive the alert and the ability to accept a restocking order and go refill the depleted machine. As soon as this is done the vending machine resignals its status and is immediately shown on the next dynamic search a consumer makes. Imagine the efficiencies and revenue maximization as a result of these real-time interactions!

One could even imagine correlating this cycle to the weather/temperature or time of day to drive even further efficiencies. Clearly, not everything outlined in this scenario has been implemented to date, but by preparing for the future, this company is systemically transforming its business processes and moving to a real-time mobile IT architecture.

Now let’s take a look at the small twenty person specialized health supplies company harnessing these technology trends to completely revise the operations of their company around a mobile, real- time cloud delivered core.

Figure 7: Rehabilitation Company Specializing in Wheelchairs (Source: 2011 AT&T).
(ProntoForms is a trademark of TrueContext Corporation.)

The Scenario Prior to Transformation: The company– a privately owned corporation–supplies custom wheelchairs to customers. The company operated primarily via paper forms requiring extensive calling back and forth using basic phones and a classic company reception system despite the fact that the company could not afford to keep the company phone line staffed around the clock. The company also owned two delivery vans to pick up and deliver wheelchairs the company was either servicing or supplying. Since the company could not afford any more vans, multiple calls to these vans to ensure on time delivery and pickup was critical.

The AT&T Mobility Applications Consultant who called upon this company soon realized the company was too small to either host, manage or support any onsite software or even deploy and maintain PCs. The answer was delivering four applications through the cloud direct to smartphones (in this case iPhones) and to specialized tracking devices. What follows is a summary of the 4 different solutions and the problems they addressed. (Refer to Figure 7 for the following).

Solution #1: The company’s wheelchair technicians used paper forms for everything they did; surveying customers about their needs, taking down specs or noting repairs delivered. This equated to three different forms over four pages in length. Each day field technicians filled out the forms and turned them in. Then they were formally entered/rekeyed at the end of every day. This was a time consuming effort with frequent errors and inaccuracies that had to be found, corrected, and re-entered.

The company was transitioned to a cloud delivered, mobile forms solution. The Pronto Forms Solution delivered by AT&T converted a paper intensive environment into a highly efficient method of capturing data. The forms were automated on iPhones for the field technicians and eliminated all the paperwork and rekeying steps, cutting the previous process time by approximately 75% per form. The information is also available online as soon as the technician fills out the form.

Solution #2: As previously mentioned, this company has two vans on the road constantly making deliveries. But the owner has no visibility as to current vehicle location, if they are on schedule, and if the miles driven are valid.

The TeleNav Vehicle Tracker from AT&T, a vehicle tracking solution involving a box that can be attached to the van and a cloud delivered portal provides visibility of corporate vehicles at all times. This ensures the vehicles whereabouts, if the driver is on schedule, and how far the vehicles have been driven. All this leads to better customer service, better image, and increased safety, security, and business stability.

Solution #3: The owner often needed to send out communication blasts to employees to see if someone could fulfill a particular task when they were short staffed in one department, but the owner and employees were only able to receive messages from customers on a 1:1 basis, slowing communication down. The implementation of AT&T Enterprise Paging allowed the owner to send one message to all employees via a simple text messaging portal and confirm receipt/delivery of messages.

Solution #4: After-hours management of the business was practically non-existent since the company was so small, yet their customers were dependent on their wheelchairs and needed the ability to reach someone in the company immediately.

AT&T Office@Hand, a cloud delivered PBX to the smartphone with a very simple web GUI, provided the customer with the ability to better manage and control after-hours service. It unifies employees in a business-on-one-phone system and includes auto-receptionist, multiple extensions, voicemail, call handling, faxing, and other features. The owner can assign a receptionist, a “sales, technician or repair” department on the fly depending on which employees are available.

The bottom line: The company was able to accomplish with $99 smartphones and asset tracking devices and a monthly software subscription fee of <$500, what would have previously involved buying $800-$1000 PCs , tens of thousands of dollars of enterprise software, a PBX system and an IT person to deploy and manage the software and communications. The difference is startling! Contrast capital and OPEX running into $200,000 vs. a CAPEX of <$1500 and monthly subscription fees of <$500 for the software. Even better, all of this is delivered by one company (AT&T) with a simple monthly bill that includes: Voice charges, data charges and applications charges all as one consolidated bill with one point of contact. This scenario even 3-4 years ago was unimaginable prior to the convergence of the three technology trends. It is the ultimate democratization of technology.

Changing Roles for Everyone In the Value Chain

The trends that we outlined above have profound implications for everyone involved in the technology delivery, evaluation, implementation and support chain. Consider the two examples outlined above. Each of these involved solutions comprised of innovative applications that live in the cloud and are delivered to smartphones or “always on connected devices” and paid for via subscription models.

Consider my own company, AT&T. Many of you are likely surprised that the role AT&T is playing in a rapidly evolving market such as this, and many of you might be skeptical of the need/value /competency of AT&T to play such a role, and rightfully so.

To illustrate my position, I would ask anyone who is curious to conduct a simple experiment. While inside of Apple’s App Store or the Android Market, type in “business application” and stand back as you compile thousands of results. How does a small company determine which application is right for them? How does a small company perform the due diligence to determine which platforms each application will run on, and on which models provided by which service providers? How does a business support, manage and develop to these platforms? Finally, try to find application providers able to provide enterprise billing as opposed to a consumer centric credit card only option.

We came to the conclusion that AT&T needed to adapt to the times by morphing our role to provide solutions to help businesses harness the mobile cloud phenomenon. As a supplier of mobile hardware, virtual private networks and data centers which can serve up mobile applications, we are uniquely qualified to deliver integrated solutions to customers.

But the change from delivering monolithic communication products to a collaborative enterprise partnering with dozens of hardware and software providers is not easy. It requires a significant transformation. First, in our people; hiring and training Mobile Application Consultants, ecosystem managers and vertical specialists. Second, in our process; moving from a product sale architected, managed and supported by AT&T, to a complex solution assembled across many different participants and supported through partnerships. And third, in our assets; from managing a network to a fixed set of devices, to managing a network that connects virtual private mobile application clouds to millions of smartphones, tablets and connected end points.

We felt we had no choice but to make this journey to stay relevant in the brave new world of mobile IT, cloud platforms and connected devices. The AT&T objective is, in effect, to help businesses master the melding of communications and computing together by knitting a series of ecosystem partnerships and providing a platform for other companies to innovate on via hardware and software and services. We believe we can simplify the process of harnessing technology for many business segments and serve as a broad distribution channel for small innovative companies (such as the types of companies showcased in the examples provided earlier) that struggle with brand, distribution and enterprise billing.

Given the far reaching impact of these changes, we believe it is important for all participants in the value chain to rethink their role, assets, people and partnerships for the years to come. Provided below is a quick synopsis of practical implications and considerations for different participants.

Changing Role of the CIO and the Enterprise IT Department

As outlined, in the Advisory Board Article (The Space Race – The Competitive Implications of Next-Generation IT Architecture, Research Summary, The Research Board. June 2010) on the changing role of the CIO, dramatic changes are occurring in the IT department as well. In effect, many companies have gone from having IT departments that DO things (own and drive projects) to an IT department that MANAGES things (potentially working with outside service providers).

This change has an influence on the balance of power between IT departments and Line-of-Business (LOB) departments. In some cases LOB departments find themselves in the unique situation of no longer requiring the assistance of IT and go directly to an external service provider (supplanting the internal IT department). In these cases, the IT department finds itself in the unique situation of having to compete against other service providers as an alternate provider. Enterprise IT should ask themselves if their highest value is in buying piece parts and spend time integrating these solutions or developing them in-house? Or does it make more sense to turn your department into high value business process analysis groups supplemented by strong architects who can put the various solution providers together?

The answer for each company will vary, but there is little doubt that a journey towards the latter is necessary. This may warrant changing hiring profiles to shift from maintenance and integration talent to personnel with strong architecture, business analysis and skills in user interfaces and experiences.

1) Software Providers: Consider how software is going to be delivered in the future. Do you stick with shrink wrapped software or begin delivering software over the cloud? Should you do that yourself or partner with others to do that? Who should the partners be? Should the cloud be private or public? Once again, there is no one-size-fits-all answer, for the larger companies such as SAP, it may make sense to build out their own cloud as well as partner with service providers like AT&T. For the smaller companies, they need to also consider the value of distribution, brand, billing and support services in addition to just the cost/capital to build out the cloud.

2) Hardware Suppliers: The success of the iPhone and iPad, tightly integrated mobile platforms and hardware, has every hardware manufacturer wondering if they need to also provide an end-to-end controlled experience. HP has clearly chosen to go down that path with the purchase of Palm/WebOS. Dell on the other hand has bet on a loose coupling with Android and Windows Phone 7. Nokia on the other hand has tightly coupled itself to Windows Phone 7 while Samsung and HTC continue to play across both. How far do hardware manufacturers go down the route of content/application services? How far into systems integration and services do they extend without alienating their downstream channels? How does the entire PC ecosystem transition the set of support, management and application services from the WINTEL era to the post PC, multi-OS environment? These are important issues that the established hardware ecosystem is dealing with even now.

3) Systems Integrators: As hardware and software players forward integrate, is it enough to ally with purely software providers to build “practices” or does it make more sense to ally with new emerging or established service providers? Is there a way for Systems Integrators to move upstream and focus on complex custom application development and service/change management (which most service providers will have little appetite for) and leave the simpler pre-packaged and configured applications to be delivered directly by software providers and/or service providers?

4) Service Providers: Does one move up the value chain and become an integrated supplier of cloud, application and mobile computing service or do you strip away complexity and focus purely on providing bandwidth? What is the set of systems integration and software relationship needed to accomplish this? What is the set of cloud/network APIs that will need to be opened up to truly build a platform on which an ecosystem can build and thrive on and act as a pull through for the infrastructure services? Again, as with all other players in the value chain, the answer will be different depending on the scale, scope and ambitions of the service provider.

Whichever path the companies in the value chain pick, they must all remember the familiar dictum of “adapt or die”. The list of companies throughout many different industries that were unable to adapt to changes in innovation is long. Consider some companies that were considered “unsinkable”: One invented the instant film camera (among many other camera-based devices) that was on the market from 1948 through 2008, or the computer company that employed over 33,000 and had revenues of over $3B in the 1980s, or the airline that was a cultural icon of the 20^th century and shaped the international airline industry… All utterly dominated their respective markets for extended periods of time, then failed to either recognize change, or adjust to it, and ended up perishing.

The current force of technology change is powerful enough that if Mary Meeker from Morgan Stanley is to be believed, we are in the middle of a significant evolution in computing. She calls it the “5^th wave” (Figure 8).

Figure 8: The 5^th Wave of Computing (Source: Morgan Stanley).

One can debate whether it is the 3^rd, 4^th or 5^th wave, but the historical shift in market position and innovation that have accompanied every such wave, one thing we can all agree upon is that the only constant will be change itself. I hope that companies will seize upon this opportunity to unleash an era that we will look back on as the ultimate democratization of computing and connectivity.

At this time of uncertainty, it is edifying to remember a quote from the 35^th President of the United States:

Change is the law of life. And those who look only to the past or present are certain to miss the future.
- John F. Kennedy

Mobile Breakfast Series – Dallas – LTE & Beyond: The future of mobile networks April 3, 2013

Posted by chetan in : 4G, 4th Wave, LTE, Mobile Breakfast Series, US Wireless Market, Wireless Value Chain, Worldwide Wireless Market , add a comment

We are pleased to announce Mobile Breakfast Series is coming to Dallas for the first time. Below are some details about the program:

Mobile Breakfast Series - Excellent Speakers. Invaluable Insights. Peerless Networking.

Mobile Breakfast Series is 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 everyone who is passionate about mobile. We dive into the most important issues and opportunities in front of our industry with the executives who are making things happen.

Date: June 25^th, 2013

Time: 7:30-11am. 7:30am – Registration, 8:30am – Discussion Begins, 10:00am - Networking

Venue: Tower Club, 1601 Elm Street, Thanksgiving Tower, 48th Floor, Dallas, TX 75201

Registration is open now.

Topic: LTE and Beyond – The future of mobile networks

US is leading the globe in LTE deployment. In fact, most of the cutting-edge engineering with mobile networks is happening here with all major operators deploying LTE. What’s next for mobile networks? How will they evolve over the course of the next decade? Will we be able to keep ahead of the insatiable consumer demand for more? We will have an in-depth discussion with our distinguished speakers.

Fireside Chat:

Kris Rinne, Senior Vice President – Network Technologies, AT&T Labs

Vish Nandlall, Chief Technology Officer & Head of Strategy, Ericsson

Chetan Sharma, President, Chetan Sharma Consulting (moderator)

Kris Rinne, SVP – Network Technologies, AT&T Labs

Kris Rinne is responsible for network architecture, service platforms, radio access roadmap and initial implementation, wireless device requirements and certification, network platforms, network performance analysis, and industry standards development at AT&T. Previously, Rinne served as Cingular’s chief technology officer with similar responsibilities. She earlier served as vice president—Technology and Product Realization, responsible for new product development from a technology standpoint, handset certification, and infrastructure vendor coordination. Prior to joining Cingular, she was vice president—Technology Strategy for SBC Wireless, responsible for new product development and network operations support. She has worked for Southwestern Bell Mobile Systems as managing director—Operations. In 2011, Kris was named as “The Most Influential Woman in Wireless” by Fierce Wireless and was a member of the Global Telecom Business Power 100 list of the most powerful telecom executives.

Vish Nandlall, CTO and Head of Strategy, Ericsson

Vish Nandlall is Head of Strategy, Marketing and Chief Technology Officer for Ericsson’s North American region. He is responsible for identifying Ericsson’s long-term vision, defining the overall company strategy, and driving business value creation for Ericsson’s customers in North America. Nandlall joined Ericsson in 2010, most recently serving as Chief Technical Officer for the company’s AT&T Customer Unit. He previously served as CTO of Extreme Networks and CTO and distinguished member of technical staff for Nortel Carrier Networks. Nandlall has led architecture and standards direction for product portfolios ranging from GSM, CDMA, WiMAX, LTE, metro DWDM, carrier routing and switching, and carrier VoIP portfolios. His recent areas of research include M2M, augmented reality, and mobile virtualization.

US Mobile Market Update Q4 2012 and full year 2012 March 13, 2013

Posted by chetan in : 3G, 4G, 4th Wave, AORTA, Chetan Sharma Consulting, Intellectual Property, Mobile Cloud Computing, Mobile Commerce, Mobile Future Forward, Patent Strategy, Smart Phones, US Wireless Market, Wireless Value Chain, Worldwide Wireless Market , add a comment

http://www.chetansharma.com/usmarketupdateq42012.htm

Summary

The US mobile data market grew 3% Q/Q and 15% Y/Y to cross $20B for the first time in Q412. Data is now almost 44% 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 2012, the market ended up with $79 Billion in data revenues much higher than any other market. The overall mobile services revenue were $182 Billion. For the year 2013, we are expecting $90 Billion in mobile data service revenues for the US market.

For the year, the market added 9 million new connections, a decline of 56% from 2012. The postpaid category suffered a 97% decline despite Verizon and AT&T collectively adding 6.3M postpaid subs. Sprint and T-Mobile collectively lost over 3.3M postpaid subs in 2012.

The last year T-Mobile had Y/Y positive postpaid net-adds growth, George Bush was still the president, Facebook was in diapers, and Pinterest wasn’t even born yet. T-Mobile suffered its tenth straight quarter of postpaid declines. Cumulatively, in the last fifteen quarters, while Verizon and AT&T have added 15M and 8M postpaid subs respectively, Sprint and T-Mobile have lost approximately 4.7M each. Once Nextel is sunsetted for good (it is down to 2.1M subs), we can expect a pick-up of net-postpaid subs at Sprint.

2012 saw a couple of block-buster operator M&As that took many in the industry by surprise. T-Mobile found a soul mate in MetroPCS while Softbank showed up at the altar for Sprint. T-Mobile is adopting the challenger role while Sprint that of a disruptor.

As we mentioned in our previous update, smartphones are now past the 50% mark in the US and continue to sell at a brisk pace accounting for over 90% of the devices sold in Q4 2012. Apple led the smartphone sales amongst the top 4 operators with 51% share for the year. While the US penetration of smartphones is over 50% as we reported last year, the 50% of the sub base is concentrated in only 30% of the households thus leaving plenty of growth left in the marketplace.

In terms of Y/Y growth, Connected Devices segment grew 12%, Wholesale 9%, Prepaid 6%, and Postpaid was flat. The connected devices segment only grew 1% in Q4 2012 Q/Q.

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.

Race for the 3^rd ecosystem

2013 might help define the 3^rd ecosystem or at least separate wannabes from the true contenders. While iOS and Android duel out on the top (with iOS ahead in the US market), there is fight for the distant #3. Windows made a grand entry in Q4 but the sales have disappointed. Blackberry is hoping its Q/Z10s will do the trick and help revive its fortune or at least boost the asking price.

Last quarter, Microsoft and its partners launched a worldwide campaign for a chance to compete. It went from a dominant position to virtually zilch coinciding with the remarkable ascend of iOS and Android. To make any device sell – one needs good and competitive device, distribution channel and marketing muscle, and brand loyalty. I think Windows 8 is genuinely good, is different, and for the first time can stand with its peers (obviously it needs to build a robust apps portfolio and a stronger developer ecosystem).

In the past, while operators, OEMs, and Microsoft announced significant advertising spend, it had almost negligible impact on sales. The actual $ amount spend was tepid, operators didn’t want to be guinea pigs just to prop up a third ecosystem. With Windows 8, things might get better. We can see many more awareness campaigns, more OEMs are launching some quality devices, and operators are warming up to the idea as well. The brand loyalty index for Microsoft Mobile is fairly low and it will take a heavy lift and a few billion dollars of advertising spend to move the needle. The good news is that the devices are shipping at all price points.

Microsoft also made a splash with the first computing device in its history – Surface. Both got a mixed reception from the market. In the US, Nokia is selling 80% of the windows volume making the future of the two companies inextricably tied together. Can the windows ecosystem thrive without Samsung’s support?

Additionally, there has been movement with other OSs like Firefox, Tizen, Jolla, and Ubuntu.

Apple’s dominated 2012 – what’s next?

For 2012, Apple dominated the device sales accounting for 51% of the smartphone sales amongst the top four mobile operators. In Q4, its share rose to 59% of the sales on the back of a successful iPhone 5 launch. AT&T sold a record 8.6M units followed by Verizon’s 6.2M. For the year, AT&T sold a record 21.3M iPhones. So, while globally, Android dominates iOS more than 2:1, the US subsidy model has helped Apple keep its lead from Android. But, will it last? Enough ink has been spilt to answer that question. Undoubtedly, Samsung and others have caught up Apple on device specs and ease of use, even created new categories that Apple didn’t foresee, but, Apple is still the player to beat in 2013. Apple has clearly exposed its Achilles heel – software and services. It will take some heavy lifting to gain back confidence and momentum.

Samsung’s rise

The rise of Samsung and its domination of the Android ecosystem was clearly one of the most captivating stories of 2012. Samsung is making more revenue from Android than rest of the ecosystem put together. Samsung is firing on all cylinders, works better with its distribution partners, and has the bank balance to fight toe-to-toe for its share of the market. It is also in the unique position of having good perch in all the three major screens – mobile, laptops, and TV. But, software and services is also a weak spot for the company. How quickly it beefs up its offerings and how ambitious it is in providing end-to-end solutions will determine its competitiveness in the next 24 months.

Despite setbacks in the IP battles, 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 2012. However, Apple dominates both the smartphone 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, 95% of the profits in the tablet segment go to Apple with the remaining ecosystem fighting for the crumbs.

The Fourth Wave has arrived – the shift towards services

If you attended the AT&T developer summit and Verizon keynote at CES this January, you might have noticed the 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 4^th wave revenues in their financials. We will have more discussion about how things are shaping on the fourth wave in future research papers.

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 years.

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 mobile related.

We will have a more detailed analysis of the patent landscape of the mobile industry later this month.

The vanishing Tier-2s

The so called Tier-2s in the US market are practically done. For the year 2012, the top 4 Tier-2 operators suffered a drastic 77% decline in net-adds. Combined they added a measly 366K subscriptions. One of the reasons is that the tier-1s are now squarely focused on the prepaid market as a growth engine. Sprint has had a long history in the segment with brands like Boost and Virgin. T-Mobile’s has retooled itself to go after the prepaid and wholesale opportunities. Additionally, the top 2 have also been launching attractive plans for the prepaid segment. That’s why the top 4 added ten times the prepaid subs compared to the next 4 operators. With Metro gone and Clearwire on the blocks, we expect the Tier-2s to lose their relevancy in the market.

Operator M&A – The Rule of Three Strikes Back

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.

Surface, mini, and the tablet market

Apple launched the iPad mini in 2012 for some of the same principles that Microsoft launched Surface. It is better to be cannibalized by self than by the enemy. Microsoft saw the notebook market shrink and needed a product to stem the bleeding while Apple saw Amazon and Google attack the bottom tier with a different model that poses a credible threat. Tablet market is indeed fundamentally altering computing in many ways. The changing landscape of computing also has impact on the ecosystem and the application development environment. Developers flock to platform reach, ease of access to the marketplace, and the basic economics of a viable business model. Windows as a percentage of computing platforms is shrinking drastically which threats not only the platform but also Microsoft’s other software franchises. Surface is classic blocking and tackling to provide a jolt to the shifting ecosystem. Surface RT was an expected disaster but Surface Pro will see takers in the corporate world. With iPad mini, Apple is attempting to lock the mid-top tier of the tablet market and daring its competitors to just play in the bottom tier that leaves no profit on the hardware and revenue stream from services for a very select few.

2012 – US Highlights and Milestones

2012 provided enough drama and suspense for the year, good enough for a hit Spielberg flick. Here were some of the highlights from the US market:

· Samsung went past Nokia to become the world’s biggest OEM by unit volume

· Qualcomm eclipsed Intel in market cap marking another milestone in the progression of the mobile ecosystem.

· Verizon sold 29M smartphones (with half of them being LTE) and AT&T sold 10.2M in Q4 – all US records.

· Shared data plans were introduced by Verizon and AT&T which have been viewed by the consumers favorably.

· The focus of operator metrics is changing from ARPU to ARPA to AMPA.

· After dealing with the AT&T-T-Mobile merger in 2011, the regulators were back to work with the T-Mobile-MetroPCS and Softbank-Sprint mergers.

· Verizon and AT&T Wireless became the top two mobile operators globally by mobile data revenues.

· US market saw its first decline in both messaging revenues and volumes.

· Smartphones penetration eclipsed the 50% mark.

· Over 42M tablets were sold in the US with more than half being iPads. Globally, Apple went past 100M iPads in cumulative sales making it the fastest computing platform.

· mCommerce started to eclipse eCommerce for some companies.

· Amazon made a splash with its Kindle line of tablets, the sales have been steady. Google’s Nexus devices also got good traction.

· The average number of connected devices per household was over five.

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 4^th 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 10^th, hope you can join us. Details to come.

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 2012 and full year 2012 US wireless data market is:

Service Revenues

The US Wireless data service revenues grew 3% Q/Q and 17% Y/Y to over $20B in Q4 2012 becoming the first country to have a $20B 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 69% 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 Q4 2012. Sprint and T-Mobile maintained their #5 and #9 rank in the top 10 mobile data operators list for Q4 2012.
For the year, Verizon aggregated an astonishing $28.2 Billion haul from mobile data with AT&T close behind at almost $26 Billion. The mobile data business for the US was around $1 Billion a decade ago.

ARPU

The Overall ARPU declined by $0.15. Average voice ARPU declined by $0.64 while the average data ARPU grew by $0.48 or 2% Q/Q.
The average industry percentage contribution of data to overall ARPU is now at the 44% mark in Q4 2012 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 60% mark).

Subscribers

The US operators added 2.3M postpaid subs and approximately 3M total. It was the lowest net-adds Q4 quarter in the US mobile history (barring the early days of tepid growth)
T-Mobile’s postpaid woes continued for the tenth straight quarter.
Verizon led the market with 2.2 M net-adds accounting for 73% of the market’s net-adds. It was followed by AT&T at 1.1M, and T-Mobile at 61K. Nextel continues to drag Sprint’s postpaid additions. Sprint is expecting the transition from Nextel to Sprint to be complete in the next few months.
For the last three years, at AT&T, the connected device growth had exceeded that in the postpaid segment. In Q4 12, postpaid share increased significantly as the connected device growth slowed primarily due to shared data plans and tablet users becoming postpaid users.

Applications and Services

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.
The cloud and security segments have also gained significant traction with incumbents as well as startups launching new initiatives and technologies.
Q4 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.

Handsets

Smartphones continued to be sold at a brisk pace accounting to almost 84% of the devices sold in Q4 2012.
iPhone dominated smartphone sales for Q4 as well as the full year of 2012. In Q4, iPhone accounted for 59% of the total smartphone sales at the top four operators. For the year, its tally was over 51%.
At the end of 2012, Samsung now leads 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 in Q4 2012 but the sales in the US market were disappointing for just over 1M in unit sales for the full year.
Apple’s iPhone sales almost doubled in Q4 from Q3 but the company faces significant innovation and perception challenges as it prepares for its product launches in 2013.
AT&T continues to dominate the connected devices segment with over 47% market share.
Verizon continues to sell more LTE smartphones as its LTE sub tally rose to 21.6M 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 50% of the iPhones in the US.

Mobile Data Growth

The smartphone data consumption at some operators is averaging close to 1 GB/mo. Some devices are averaging close to 2 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 manage margins/bit.

Intellectual Property/Patents

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.

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 2013. The next Global Wireless Data Market update will be issued in Apr 2013.

Disclaimer: Some of the companies mentioned in this research note are our clients.

Mobile World Congress 2013 Recap March 6, 2013

Posted by chetan in : 4G, AORTA, Chetan Sharma Consulting, European Wireless Market, LTE, Mobile World Congress, US Wireless Market, Wireless Value Chain, Worldwide Wireless Market , 6 comments

“Welcome to Spain, Thank you for your business,” remarked the immigration officer and thus started my yearly pilgrimage to the grand slam of mobile – The Mobile World Congress 2013. It is truly a global event with participants from virtually all countries looking to do business, learn a thing or two, and ponder over what the year will bring forth. The show moved to a new venue which made the logistics work much better for attendees and exhibitors but the venue lost its charm and character. We used this opportunity to feel the pulse of the industry and understand where things are headed. This note summarizes our observations from the show.

While there was no blockbuster announcements or products that will knock your socks off, several interesting trends emerged that will keep the industry exciting to watch in 2013.

The perennial search for the #3 ecosystem continues: Windows sales have disappointed thus far, Blackberry has launched new devices but hasn’t quite hit the mark. So, while consumers seem perfectly happy with iOS and Android, industry’s desire to have a third robust ecosystem is palpable. The biggest announcement in that regard was from Firefox OS and in a matter of 12 months, it has not only forged a strong alliance with operators, it is actually getting ready to ship phones. It is going to be targeting the low-end of the market which is a smart strategy but a lot depends on the range of price points of the devices and how quickly it can attract the developer ecosystem. Given that Android device price points are hovering around $50 and it is a mature ecosystem with great developer reach and support, it will be challenging to convince consumers to go the Firefox route. However, if the price points are attractive enough, with the distribution power of some key operators, we could see some early traction. Ubuntu, Jolla, and Tizen were also vying for attention.

LTE everywhere: LTE deployment is growing at a very fast pace. The US market is ahead of the curve with almost national footprint from Verizon followed by substantial coverage from the remaining three operators. Elsewhere, operators are gearing for deployment once some of the spectrum issues/auctions are sorted out.

The 4^th Wave has arrived: Last year, we put forth a framework for future mobile industry revenues in our 4^th wave paper. Since then, the framework has been embraced by many leading operators around the globe. It was good to hear operators talking more about services rather than data plans. Several areas were discussed by the leading tier 1 operators such as health, retail, education, cloud, M2M, automobile, enterprise, security, connected living, home security, commerce, identity and privacy, big data and analytics. Operators who are able to steer their giant organizations to focus on services will be able to survive the commoditization of access. We will have more say on the subject later this year.

Yo OTT, luego existo: which is Spanish for “I OTT, therefore I am” To be a player in the digital world, one has to be an OTT provider for communications and beyond. The interesting dichotomy of the communications OTT business is that very few will survive. The end state of a majority of them (if not all) is either an M&A with a telco or an Internet player or they run out of cash. The new breed of OTTs has forced the lumbering giants to think different about their customers and their markets.

Mobile Broadband, Cloud, and Apps: The troika of broadband network access, the cloud infrastructure and the applications are creating a sea change in the enterprise, especially the SMB segment. It is also changing how developers see the enterprise segment as the opportunity migrates from windows to iOS and Android. We conducted some in-depth research in the space and will have more to share later this year. Our Mobile Breakfast Series later this month will be dealing with the topic of Cloud and SDN in more detail.

Redefining Monopoly: The mobile and internet worlds have collided but the regulatory regimes haven’t changed. European operators seemed to indicate that it is time to reassess what a monopoly really means and the rules should apply to all layers of the ecosystem stack and that means devices and OSs as well.

Device Launches: All major OEMs are following the Apple playbook as far as the device announcements are concerned. To garner media attention, it is best to announce the “hero” devices away from major shows. Just like CES earlier this year, MWC lacked any big device announcements. Nokia announced mid-low tier devices to expand its portfolio that will help it in unit sales. ZTE, Huawei, LG, Asus, NEC, Sony, HTC, HP, Asus, Acer, Lenovo all had new devices to display but media’s eyes are set on Samsung’s Galaxy release later this month.

Local OEMs: Traditional OEMs are facing some healthy competition from new entrants in local markets. Players like Fly and Yotaphone in Russia are giving the veterans a run for their money. By both innovating with new features but also by customizing the devices for the local market (e.g. bigger battery that last 3 days), they are creating their own niche. After gaining good market share in Russia, Fly is expanding into other markets.

Connected Cars: When the biggest operator by revenue announces a deal with the biggest car manufacturer, people take notice. GM and AT&T announced LTE cars by 2015 which will pretty much force the entire auto industry to provide broadband connectivity in a hurry. However, the auto industry has misplaced expectations on apps and any incremental revenue they might be able to harness from them.

Samsung Knox, Blackberry – can you hear me now: Android is probably the most insecure mobile platform out there. Blackberry has long been the gold standard, iOS has improved, Windows has security features built in but security has always been a step-child of Android. Samsung’s Knox announcement elevates Samsung’s role in the mobile enterprise and to some extent takes over some of the development capability of Android that are squarely aimed at Blackberry. The container security feature set with MDM integration is well thought out and opens up the mobile enterprise market for Samsung especially in North America and Western Europe.

Spectrum and Regulations: While spectrum was a universal issue with the operators, more is better, European operators were particularly vocal about the state of the regulatory affairs on the continent. Regulators, they complained, are killing the industry by cutting of revenue opportunities, are fostering too much competition, too much taxation, and too involved in the operations of the operators. This is leading to declining revenues and turmoil at the operators. There might be some unintended consequences of weakening operators and regulators will have to grapple with some interesting questions that a free market economy will pose in the coming days.

TU Go – Take your phone number everywhere: In our opinion, Telefonica has done the best job of dealing with the digital world in putting forth an org structure that can crank out applications and services at Internet speed. TU Go is a new service (launched in UK) that allows users to take their phone number to any supported device and use it for calling and texting – number in the cloud at its best.

NFC is dead, Long Live NFC: Vodafone CEO’s frank admission that he doesn’t expect to make much money from NFC gave the audience a bit of a pause. Several NFC initiatives have floundered without clear goals or vision. Instead of working together, the industry has remained fragmented and thus the lack of scale has hampered progress. For too long, the industry has focused on payments but the opportunity lies in the engagement with the customer. For better or for worse, the financial industry has sequestered its commission for the foreseeable future. We saw some clever NFC implementations to drive consumer engagement and commerce in retail environments, primarily in Europe.

Consolidation looms: The question that is on everyone’s mind but was hardly discussed at the show was the coming onslaught of consolidation at virtually all layers of the ecosystem.

Developing Markets: Connecting the next billion was a recurring theme. The smartphone penetration in the developing world is in the single digits. More than that, introducing consumers to a computing platform for the first time is an exciting opportunity. Creating services that are tailored to the local environment remains an opportunity that can have a profound impact on society. Our own work with the UN/ITU has shown the transformative role of mobile in almost every walk of life. The device unit growth is coming from the developing markets and as they get connected, the world becomes flatter, and the competitive dynamics in a globalizing world will create for some interesting policy and political battles.

M2M and Internet of Things: As we wrote in our book “Wireless Data Services” back in 2004, the connectivity is becoming pervasive. The module costs are coming down fast and the desire to measure and track every number that is important in our lives is creating a massive opportunity. However, privacy, battery life, environment, security remain key issues that need to be tackled.

Identity as a business opportunity: In a digital world where access to information and resources depend on verification of your identity, the guards and keepers of the identity information have a big role to play. As such, “identity” management is emerging as an opportunity that can be monetized. In the online world, Facebook has become the dominant way to integrate apps and services. In the mobile world, operators can play a significant role in authentication and verification. Will the two worlds collide? Fasten your seat belts.

The Post PC world: As an experiment, for the MWC trip, I carried just the Nexus 7 tablet and an iPhone. I felt liberated. In the past, for day trips, I have relied just on iPad/iPhone for taking care of my computing needs. For this trip, I wanted something that I can carry in jacket pocket. Nexus was good enough for taking simple notes, email, browser and even some phone calls. I could easily switch back-and-forth between the tablet and the phone, and the combined battery life lasted the whole day.

The Miscellaneous:

· Google’s absence from the show puzzled many

· The enthusiasm for RCS/Joyn seems to have subsided as reality sets in

· Nokia is broadening the reach of its HERE platform to other operating systems

· AT&T/Ericsson showed WebRTC demo

· Facebook announced messaging partnerships with operators in developing countries

· Small cells remained a hot topic though seen more of a compliment for the macro network

· Signaling traffic continues to grow at a faster pace than the data traffic as more LTE devices come on the network

· Qualcomm launched RF360 solution to deal with frequency band fragmentation which is serious problem for LTE roaming

· Yotaphone with its dual screen (front and back) and NEC Medias with its stacked up screens had something fresh to offer in the devices space when 99% of the devices look the same

· Virtualization is the new black in mobile networks

Best booth: Ericsson’s networked world theme was well thought-out and provided a unique exploratory view of the opportunities and technology evolution. A close second – Connected City.

Best party: There won’t be an MWC without the bevy of parties every night. Qualcomm again stole the show with the jam-packed confluence of the mobile elite.

US Mobile Data Market Update Q3 2012 November 12, 2012

Posted by chetan in : 3G, 4G, AORTA, ARPU, Applications, Infrastructure, LTE, M&A, Mergers and Acquisitions, Messaging, Mobile Advertising, Mobile Applications, Mobile Cloud Computing, Mobile Commerce, Mobile Ecosystem, Mobile Future Forward, Mobile OEMs, Mobile Operators, Mobile Payments, Mobile Traffic, Privacy, Security, US Wireless Market, Wireless Value Chain, Worldwide Wireless Market , 1 comment so far

US Mobile Data Market Update Q3 2012

http://www.chetansharma.com/usmarketupdateq32012.htm

Summary

The US mobile data market grew 3% Q/Q and 17% Y/Y to reach $19.9B in Q3 2012. Data is now almost 43% 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.

Largely due to the strong postpaid performance by Verizon, the US operators added a net of 2.4M new subscribers. Sprint and T-Mobile saw further postpaid declines. For T-Mobile, Q3 marked the nine straight quarters of postpaid losses.

The quarter also saw a couple of block-buster operator M&As that took many in the industry by surprise. T-Mobile found a soul mate in MetroPCS while Softbank showed up at the altar for Sprint. Once the mergers are executed, Sprint is likely to emerge as the stronger of the two.

The two horse OS race got a new participant entry last month – Windows 8. Microsoft and its partners launched a worldwide campaign for a chance to compete. Microsoft also made a splash with the first computing device in its history – Surface. Both got a mixed reception from the market. We will find out how consumers will react in the Q4 numbers. Of all the OEMs, Q4 will be the most critical for Nokia who is running out of runway in its turnaround effort.

Despite setbacks in the IP battles, 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 Q3 2012. However, Apple dominates both the smartphone 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, 95% 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.

Amazon hasn’t been shy about its ambitions in the mobile space. While the world awaits an Amazon smartphone, the company launched a slew of tablets to compete primarily with Google though its eyes are on Apple. Apple also launched iPad mini a mid-tier tablet to ward of threats coming from the bottom tier of the market.

As we mentioned it in our last update, smartphones are now past the 50% mark in the US and continue to sell at a brisk pace accounting for over 75% of the devices sold in Q3 2012.

While the US penetration of smartphones is over 50% as we reported last quarter, the 50% of the sub base is concentrated in only 30% of the households thus leaving plenty of growth left in the marketplace.

In terms of Y/Y growth, Connected Devices segment grew 19%, Prepaid 10%, Wholesale 6%, and Postpaid was flat. The connected devices segment picked up some growth after two straight quarters of sub-5% performance growth (Q/Q).

Postpaid Doldrums and evolution of metrics – ARPU to ARPA to AMPA

The US market has added roughly 400K postpaid subs in the last two quarters. Verizon has added 2.4M, AT&T 400K, and Sprint and T-Mobile have lost a million each. Clearly, Verizon’s performance is far superior to its competitor and its relentless focus on postpaid has yielded significant benefits. Typically, the postpaid ARPU is roughly 2-3 times that of a prepaid subscriber. So, while other operators have been adding prepaid subs, the improvement to the bottom line has been tepid especially for Sprint and T-Mobile. Sprint’s losses have been primarily due to the bleeding of the Nextel customers. The iDEN network should turn off sometime next year and the continuous loss of overall postpaid subs might stop. T-Mobile faces a deeper challenge. Its net-revenue has declined in every quarter since Q4 2008, which is 15 straight quarters of revenue decline. In fact, its current revenue levels is at the Q2 2006 levels – that was six years ago. Though the company has done a terrific job upgrading the network to HSPA+ and doing blocking and tackling until it upgrades to LTE to come at par with its peers, the continuous bleeding of the postpaid subs needs a new strategy. Metro PCS helps gain new subs and spectrum but doesn’t help with postpaid. In fact, one can expect that the churn will rise as consumers migrate from Metro to T-Mobile. 2013 will be a critical transition year for the company as it tries to compete with its larger competitors. Just being a “value” provider is the race to the bottom.

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. New types of plans also evolved the decades-old operator metric of ARPU to ARPA (Average Revenue Per Account) given that we are seeing a strong influx of multiple devices per individual/household. Verizon was first to transition and we expect others might introduce new matrices to measure progress and performance. AMPA (Average Margin Per Account) will also become an important metric in the coming days, first internally, and then for the markets.

Messaging Decline

Most western markets have seen the net revenue in the messaging segment decline. The US market has resisted the decline thus far. In Q3 2012, for the first time, there was a decline in both the total number of messages as well as the total messaging revenue in the market. It might be early to say if the decline has begun or the market segment will sputter along before the decline takes place. As we had outlined in our fourth wave paper, once the market segment reaches the 70-90% penetration mark, the decline begins and we might be seeing the start of the decline in messaging revenue. The decline is primarily due to the rise in IP messaging and operators have been slow to evolve their strategies in the segment.

Operator’s Dilemma (And Opportunity): The Fourth Wave

In our paper “Operator’s Dilemma (and opportunity): The Fourth Wave” earlier this year, 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 skillset and strategic approach that the past three curves. We are starting to see operators becoming more focused and aggressive. It is being widely adopted in the operator community around the world and some operators have started to break out the 4^th wave revenues in their financials. We will have more discussion about how things are shaping up in future research papers.

AT&T has been better prepared in the US market and has embraced the ride on the fourth curve. It is investing in the areas of Digital Life, Mobile Premise Solutions, Mobile Payments, and Connected Vehicles. We discussed the subject at length in our recently concluded annual thought-leadership summit – Mobile Future Forward.

Operator M&A – The Rule of Three Strikes Back

Just when you thought the prospects of any major operator M&A slowed down due to the impending US election, T-Mobile announced its acquisition of Metro PCS giving it more spectrum, access to public markets, a good chunk of subscriber base to become a more competitive number 4. Sprint and Softbank followed the announcement with an absolutely brilliant maneuver. Sun Tzu would have been proud. It provides Sprint access to capital, economies of scale, and becomes a much stronger number 3, and a global telecom player with scale and ambition. 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.

Connected Devices

In Q3 2012, we released some research around connected devices. If we just look at the active connected devices which can connect to the Internet directly either by wireless or wired means, either using cellular or WLAN, the total number of connected devices in the globe just crossed the 10 billion mark which means that the connected device to human ratio is now 1.3.

70% of the connected devices use some form of wireless connection.
In the US, roughly 80% of the devices use some form of wireless connection.
For the US Household survey, we asked 1014 HHs about the number of connected devices in their households.
The average number of devices/HH was 5.
Over 6% of the HHs had 15 or more devices.
Splitting the respondents by gender, the results were about the same.
Splitting the respondents by age group, the 65+ age demographics had the highest number of devices/HH followed by the 18-24 age group.
The Northeast region of the US had the highest number of devices/HH.
Suburban HH had the highest number of devices/HH.

More details available here.

Device ecosystem

Windows 8 arrival – Sept was a big month in Microsoft’s attempt to regain its lost mobile decade. It went from a dominant position to virtually zilch coinciding with the remarkable ascend of iOS and Android. To make any device sell – one needs good and competitive device, distribution channel and marketing muscle, and brand loyalty. I think Windows 8 is genuinely good, is different, and for the first time can stand with its peers (obviously it needs to build a robust apps portfolio and a stronger developer ecosystem).

However, Nokia, once propped at every Windows Phone rally isn’t getting any special love from Microsoft anymore (in public) and it has become one of the many OEMs on the conveyer belt. Its ability to differentiate itself enough in Q4 will decide its 2013.

Last week, Qualcomm eclipsed Intel in market cap marking another milestone in the progression of the mobile ecosystem.

Surface, mini, and the tablet market

Apple launched the iPad mini for some of the same principles that Microsoft launched Surface. It is better to be cannibalized by self than by the enemy. Microsoft saw the notebook market shrink and needed a product to stem the bleeding while Apple saw Amazon and Google attack the bottom tier with a different model that poses a credible threat. Tablet market is indeed fundamentally altering computing in many ways. The changing landscape of computing also has impact on the ecosystem and the application development environment. Developers flock to platform reach, ease of access to the marketplace, and the basic economics of a viable business model. Windows a percentage of computing platform is shrinking which threats not only the platform but also Microsoft’s other software franchises. Surface is classic blocking and tackling to provide a jolt to the shifting ecosystem. With iPad mini, Apple is attempting to lock the mid-top tier of the tablet market and daring its competitors to just play in the bottom tier that leaves no profit on the hardware and revenue stream from services for a very select few.

Apple is getting a lot of grief for its maps app. While the strategic decision to take control of a key application was spot on, it faltered on communications. The half-baked endeavor was nowhere close to being the “best mapping app.”

Infrastructure segment faces a tough road ahead

The infrastructure segment of the wireless industry is facing turbulent and interesting times. The business model for many vendors hasn’t evolved much in the last few years and some of the disruptive forces are bound to have a deep impact on the segment. ALU is facing serious headwinds and will need to figure out its strategic options going forward. Ericsson’s margins are under pressure but more interestingly its services and support revenue exceeded its hardware revenue for the first time. Huawei and ZTE reported decline in revenues but they are making gains in the infrastructure markets outside US and in handsets in the US market. Until Premier Xi Jinping and President Obama sort out their geopolitical differences, the Chinese vendors remain shutout of the US infrastructure market.

What to expect in the coming months?

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 Q3 2012 US wireless data market is:

Service Revenues

· The US Wireless data service revenues grew 3% Q/Q and 17% Y/Y to $19.9B in Q3 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 69% 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 Q3 2012. Sprint and T-Mobile maintained their #5 and #9 rank in the top 10 mobile data operators list for Q3 2012.

ARPU

The Overall ARPU declined by $0.15. Average voice ARPU declined by $0.58 while the average data ARPU grew by $0.43 or 2% Q/Q.
The average industry percentage contribution of data to overall ARPU is now at the 43% mark in Q3 2012 and is likely to exceed the 50% mark early next year. All the top three US operators are around the 45% mark with Verizon leading the trio. (For reference, all three major Japanese operators are now over the 60% mark).

Subscribers

The US operators added 400K postpaid subs and over 2.4M total. It was the lowest net-adds quarter in the US mobile history (barring the early days of tepid growth)
T-Mobile’s postpaid woes continued for the ninth straight quarter.
Verizon led the market with 1.7M net-adds followed by AT&T at 678K, and T-Mobile at 160K. Sprint returned to the negative net-add territory after nine straight quarters of positive growth.
For the twelfth straight quarter, AT&T reported more net-adds from connected devices than postpaid subs.

Applications and Services

Q3 2012 data suggests that the messaging revenues in the US market might have peaked. For the first time both the overall messaging volume and the revenues declined Q/Q. The task to prolong the access revenue curve and investment in the fourth curve has become all the more urgent.
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.
Q3 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 almost 80% of the devices sold in Q3 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 renewed its entry into the battlefield with Windows 8 last quarter.
Apple’s iPhone sales improved marginally in Q3 but the OEM was more plagued by the supply-chain constraints than demand.
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 46% market share.
Verizon continues to sell more LTE smartphones as its LTE sub tally rose to 15M 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. Verizon reported that 35% 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 48% of the iPhones in the US.

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 900 MB/mo. Some devices are averaging close to 2 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.
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.

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 Feb 2013. The next Global Wireless Data Market update will be issued in Mar 2013.

Disclaimer: Some of the companies mentioned in this research note are our clients.

Mobile Breakfast Series Recap – Atlanta – Connected Devices, Cloud, and Consumer June 24, 2012

Posted by chetan in : 3G, 4G, AORTA, ARPU, Applications, Connected Devices, European Wireless Market, Mobile Advertising, Mobile Applications, Mobile Breakfast Series, Mobile Cloud Computing, Mobile Commerce, Mobile Content, Mobile Devices, Mobile Ecosystem, Mobile Future Forward, US Wireless Market, Wireless Value Chain, Worldwide Wireless Market , 2 comments

We started doing Mobile Breakfast Series in Seattle back in 2009 and after hosting10 straight events, it was time to expand the wings and explore other cities. The first stop in this journey was Atlanta and we worked closely with our partners at “Wireless Technology Forum” to make it a successful event last friday. I also had the good fortune of participating in WTF’s event the night before. Both events focused on Connected Devices and their impact on the consumer, the ecosystem and the value-chains thus making it a “connected week” in Atlanta.

As I mentioned, the night before the event, I had the opportunity to present and moderate a panel on Connected Devices with Glenn Lurie, President of Emerging Enterprises at AT&T and Jeff Smith, CTO at Numerex. Both are movers and shakers in the space and it was such a pleasure meeting with many WTF members and interacting with the top-notch panelists. The event was recorded and is available on WTF’s Youtube Channel.

We hosted the Atlanta Mobile Breakfast Series Event in Atlanta at the Commerce Club of Atlanta which has beautiful views of the Atlanta area.

There is an old Chinese saying, “When the wind of change blows, some build walls others build windmills.” Our industry is going through tremendous change; it won’t be an exaggeration if I say that the tectonic plates are moving and moving fast. The motion is being forced both by the economic conditions but also the technology and business progress. I have been around the industry long enough but it still amazes me – the stuff that’s in the pipeline and how quickly consumers absorb it.

The topic of our discussion was Connected Devices, the Cloud, and the Consumer. With connected devices, I am referring to the broad availability of devices that are connected to data networks – so they include smartphones, tablets, connected auto but also wellness devices like fitbit, energy meters, dog collars, medical devices, etc. as of last year, the subscription penetration was at 6B, next year, we will have more connections than people on this planet. In another 5-7 years, we might touch 20 Billion sensors on the planet. So you can see the growth is going to be astronomical.

Another phenomenon is that of cloud. If a startup mentions Cloud in their presentation to a VC, the valuation doubles, you say mobile, and it quadruples. I don’t know how many of you are a fan of Mark Weisier, the Xerox Parc researcher who pioneered what became “always on, always connected” tagline of pervasive computing. It was more than 20 years ago, we finally are seeing that with the help of broadband networks, amazing devices, and open business models, information is truly available at the fingertips.

The third leg of our discussion was the consumer – their appetite for new and the latest is creating this tremendous opportunity that is shaping their behavior and expectations.

We had an awesome panel to discuss things in detail. First I discussed the topic with David Christopher, Chief Marketing Officer at AT&T Mobility. As most of you might be aware, AT&T is leading not only the US but the globe in their efforts to bring connected solutions to the market. I work around the world with top operators, and I can tell you there is no exciting place in mobile right now than right here in the US of A. US is leading in innovation, technology, and business model. We had lost touch after 1G and US truly teaching rest of the world how to do 4G right. David has a terrific background – a product and operationally driven CMO at one of the world’s biggest mobile operator and it was a delight to have him on the panel.

I have known both Biju Nair and Louis Gump for sometime – several decades of mobile expertise. Louis is with CNN, has been running their mobile efforts which are top-notch. He is a recognized leader in the mobile advertising space and given that CNN’s properties span across multiple screens, he has really great insights as to how consumers behave across n-screens.

Biju is a hard core technologist, has been working at solutions that make Louis’ stuff work across networks and devices. Many of you might not know but Synchronoss where Biju is the Chief Strategy Officer and Products EVP, powers online activation at AT&T. If you bought the iPhone over the last few years at AT&T, there is a good chance your order was processed by Synchronoss.

Highlights from the discussion below:

Many in the industry expected AT&T to take a hit after the iPhone exclusivity ended but AT&T continued to perform better than Verizon and others with devices. David has been the person leading the charge to ensure AT&T maintains its competitiveness. AT&T did that by a) conveying the overall value proposition of an iPhone on the AT&T network b) build out the Android portfolio and c) conveying crisply the benefits of being an iPhone on the AT&T network (talk and text at the same time, etc.)
Consumers understand that 4G is faster than 3G but necessarily understand (beyond the techie crowd) the benefits of LTE.
AT&T is a big supporter of Windows ecosystem. It is good to have more choice for the consumers. While the initial version of Surface is WiFi only, the hope are high for Windows 8. Having a viable third ecosystem for mobile is important for the mobile industry.
Microsoft has done a good job with the design of the OS but have been poor on the opening up of the API front. Developers find the closed ecosystem to be stifling. Unless Microsoft remedies that, interest in the platform might be limited.
It is RIM’s battle to lose. They have good software, loyal users, security framework, email is the best but have been asleep on the wheel for a while. They can turn things around though the probability of that happening are fairly low at this point.
AT&T is studying data share plans and how consumers might react to them. It is a new paradigm in the evolution of mobile data plans and services.
CNN has been doing mobile for a long time but was surprised by the pick up of the tablets. The reach is highest on the browser for them but the engagement is much higher on apps.
Cloud is essentially Client-Server from the years past but applied to new use cases that brings together user experience new and different ways. The trifecta of devices, broadband networks, and content is enabling new services.
Privacy and Security of cloud services is of paramount importance. There is a view that the industry needs to self-regulate and come up with some better solutions quickly.
HTML5 is an important step for the industry but it is clearly not a panacea. It will have a role in the ecosystem but won’t obliterate the need for apps. The holy wars to continue.
There is some conflict between the cloud data usage and data tier plans but WiFi (US consumers have access to WiFi 80% of the time) and smarter configuration to manage data have helped.
Mobile advertising only 1% of the overall mix but mobile has 10% usage so a tremendous growth opportunity (yep, we said that back in 2007).
APIs are open but monetization is still challenging. The first task is to get developers understand the benefits and find ways to enhance the user experience.
Toll free data plans is not a new concept. Remember Sugar Mama from Virgin Mobile from years ago? Still experimental. Content providers like CNN are willing to engage if there is some value exchange that yields to revenue which can be shared. Some interesting opportunities with prepaid.
To some extent there is more ARPU innovation in the developing countries like India which are borne out of necessity – like the Kissan program in India.
In terms of what’s next, virtually every industry is going to be disrupted. Tremendous change on the horizon however a lot will depend on the battery innovation in the coming days and months.

The team at Chetan Sharma Consulting really enjoyed taking the Breakfast Series to Atlanta. My thanks to the terrific team at WTF for their support and to the Atlanta Mobile Community for making the event so successful. Finally, the event wouldn’t have been possible without the support of our series partner – Synchronoss.

As you might be aware, our fall mobile executive summit – Mobile Future Forward is going to be on Sept 10th. Registration is open. We are likely to sell out so grab your tickets early.

Next Stop – London for our first venture across the pond. On June 29th, we host the discussion on Operator/OTT – The way forward with Telefonica, Orange, Rebtel, and Horizons Ventures. Read Frank Meehan’s pre-event interview about the topic here.

Operators and OTT - The Way Forward - London

Operator traditional revenue streams are under threat esp. voice and messaging. Access margins will continue to stay under pressure. OTT players are coming in fast and furious and it is not just the big ones like Google but also players like Whatsapp, Voxer, Viber and others. How do operators play in the new landscape – lessen the decline of their traditional revenues while investing in new areas that improve their overall margins and revenues. Do they play the role of an enabler, a utility player, or become the OTT player themselves? In a software-driven world, how do they stay nimble? On the flip side, what are some things that operators can provide to the OTT players that make them successful, take them to the market quickly and maintain a long-term healthy and mutually-beneficial partnership? Operators still generate 70% of the global mobile industry revenues, so they are an important part of the chain but how do they ensure they have an equally relevant share in the profits. The panel will discuss how operators and OTT players think about the challenges and the opportunities, the competition and the coopetition.

Announcing Mobile Future Forward 2012 June 13, 2012

Posted by chetan in : 4G, AORTA, Connected Devices, Mobile Applications, Mobile Future Forward, Mobile Operators, US Wireless Market, Wireless Value Chain, Worldwide Wireless Market , add a comment

Greetings,

I hope you are enjoying the advent of summer.

We have been working steadily on our fall mobile executive summit – Mobile Future Forward and I am very pleased to announce the preliminary program. We will provide an update as we continue to refine the program and announce more speakers. As you know, our programs are deep in content and high on participant caliber. Each year we strive to bring together some of the leading thinkers and doers from around the world to brainstorm the future of mobile. As we like to call it – it is a mobile boot camp with the brightest brains in mobile.

I am delighted to be partnering with some of the leading players in the ecosystem: Intel, Ericsson, and Synchronoss.

Renee James, Senior Vice President of Software and Services at Intel will be giving an opening keynote. Renee is leading the charge that is making Intel a software powerhouse. It will be great to get her perspective how the trends are shaping up-and-down the innovation stack.

Dr. Vish Nandlall, CTO of Ericsson will be leading a fascinating panel discussion with some terrific industry leaders – Mobile in 2020: the last 10 years. I have had a chance to interact with him in the past and he will be a great person to help us visualize the back from the future journey.

As you can see below, we have an outstanding group of executives who are responsible for changing the industry every day. Their insights will be invaluable. The Mobile Future Forward team, our esteemed partners, our fantastic speakers and our engaged community are really looking forward to Sept 10^th.

Confirmed Speakers

· Steve Elfman, President, Sprint

· Glenn Lurie, President, AT&T

· Renee James, SVP, Software and Services Group, Intel

· Wim Sweldens, President, Alcatel-Lucent Wireless

· Michael Bayle, SVP and GM, ESPN Mobile

· Martin Fichter, President, HTC

· Stephen Bye, CTO, Sprint

· Bobby Morrison, President, Verizon Wireless

· Stephen David, former CIO, Proctor & Gamble

.. More to come

· Mung Ki Woo, Head of Mobile, Mastercard Worldwide

· Biju Nair, EVP and Chief Strategy Officer, Synchronoss

· Hank Skorny, VP/GM, Intel

· Jack Kennedy, EVP, News Corp Digital Media

· Marianne Marck, VP – Engineering, Starbucks

· Tim Chang, Partner, Mayfield

· Vish Nandlall, CTO and EVP, Ericsson

· Carlos Domingo, President and CEO, Telefonica R&D

· Kevin Packingham, SVP – Product Innovation, Samsung

Topic Discussions

· Looking back from Mobile 2020 – the last 10 years

· The fight for developers – Apps, APIs, and Dollars

· Will Privacy get in the way of mobile growth?

· PostPC era and the tablets – commerce, engagement, and consumption

· Quantified Self. Quantified Enterprise – how to benefit from big data?

· Gamification of Everything – How to reinvent business models and revenue streams

· When will Mobile Commerce eclipse Ecommerce? And How?

· Mobile Broadband – LTE is here and now. What’s Next?

· Mobile Competitive Policy – Balancing competitiveness, consumer interests, policy, and innovation

· nScreen Connected Consumer – Expectations, Solution roadmap, and Revenue flows

· Operators vs. OTT – Competition, Co-opetition, and the new landscape. Measuring the seismic shifts.

· Big (Mobile) Data – Collection, Management and Use of Data

· Mobile Cloud Computing – Innovation, Competition, and Business Models

· Mobile CIO Prism – Disruption in the enterprise. Opportunities for growth and cost reductions

· Managing networking growth in the Yottabyte Era – strategies to tame signaling and data tsunamis

· Mobile Platforms and Ecosystems – The Cycles and the Eternal Debate

· Mobile Security – BYOD, Hacking, Protecting, and Monetization

· Emerging Markets, Emerging Opportunities

· Battle for the Home – Devices, Apps, Networks

· Retail channel transformation – how are we going to shop and who makes money?

I hope you will join us in what is shaping up to be an exceptional gathering of the mobile minds. Registration is open now. Early bird will expire June 22^nd.

Thanks.

Kind regards,

Chetan Sharma

New Research: US Mobile Data Market Update Q1 2012 May 21, 2012

Posted by chetan in : 3G, 4G, AORTA, Connected Devices, Infrastructure, Mobile Breakfast Series, Mobile Cloud Computing, Mobile Commerce, Mobile Ecosystem, Mobile Future Forward, US Wireless Market, Wireless Value Chain, Worldwide Wireless Market , add a comment

US Mobile Data Market Update Q1 2012

http://www.chetansharma.com/USmarketupdateQ12012.htm

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Summary

The US mobile data market grew 6% Q/Q and 21% Y/Y to reach $18.7B in Q1 2012. Data is now over 40% of the US mobile industry service revenue. For the year 2012, we are forecasting that mobile data revenues in the US market will reach $80 billion.

For the first time in the history of the industry, the US operators had a net decline in postpaid subs. The top 7 operators lost a combined 52K postpaid subs. In overall net-adds, Sprint bested both of its bigger rivals for the first time since Q1 2002. That was exactly a decade ago when Cingular and Nextel brands were still around, before Google IPO and before Zuckerberg enrolled into Harvard. In fact, Sprint is the only US operator that has added more than 1 million subs every quarter since Q4 2010. However, most of these net-adds are coming from prepaid and wholesale segments. If we look at the net-adds over the last 4 quarters, AT&T comes out on top by a distance. In terms of postpaid net-adds only, Verizon is the clear leader during the same time period.

In terms of Y/Y growth, Connected Devices segment grew 23%, Prepaid 15%, Wholesale 10%, and Postpaid 1%. AT&T, Sprint, Sprint, and Verizon are number one respectively in these categories.

One-third of US consumers don’t use landline phones. The wireless only US population went past 100M subs in Q1 2012. Mobile will continue to increase its share of the household IT budget and thus improving the overall revenue picture. However, there will be fierce battle for the prized postpaid subs that have been slowly migrating to prepaid as a result of the economic doldrums. It is quite possible, they will come back but predicting the reverse migration is tough.

Q1 2012 will also be remembered for Samsung’s ascend to the top of the hill ending Nokia’s 14 year run. In terms of unit sales, it dominates the overall unit shipments and also the more lucrative smartphone segment. However, Apple dominates both the device revenues and more importantly just crushes the competition on device profits. It has only 8% of the global unit shipment share but over 70% profit share.

Apple has the complete stronghold on the supply chain and has sucked out the oxygen from the OEM world. Samsung for its part has done a credible job at keeping pace and in being competitive. As expected, the Chinese OEMs – ZTE and Huawei (and some new ones that you will hear about in the next few quarters) are coming on strong from the bottom. This means, the players caught in the middle face perilous times.

AT&T edged past NTT DoCoMo to become number two in global mobile data revenues rankings for the first time. Now top positions in the global rankings are occupied by the US operators.

Smartphone sales continued at a brisk pace accounting for almost 70% of the devices sold in Q1 2012.

Operator and OTT – The way forward

We are at a critical juncture of the industry evolution. The OTT phenomenon is shifting the tectonic plates at a rapid pace. What seemed like a minor irritant only a few quarters back is become a nuisance virus that is eating away the core. Some operators have gone into panic mode while others have stepped back, assessed the situation, embraced it, and will try to exploit the opportunity. The truth of the matter is that the two biggest apps – voice and messaging didn’t really evolve a period of two decades. When the last big invention was interoperability and that too a decade ago, you know things are ripe for disruption. Thanks to the availability of always-on IP networks, new and nimble players are pushing the boundaries of what’s possible. It is not that some of these concepts haven’t been around for a while. RCS has been around for the last 5 years and this year there has been some tangible progress. However, while the world waits for interop and wide availability, startups can offer similar and in most cases, better services now. They can iterate rapidly and reach scale at much faster pace. We are in software-defined world after all. Smarter operators are launching their own OTT services while nodding at the standards implementations.

It is such a critical topic for the industry that we are devoting two Mobile Breakfast Series events to this topic. The first in Seattle on June 7^th with AT&T, T-Mobile, Groupon, Ivycorp, and Sidecar and the second in London on June 29^th with Telefonica, Orange, Rebtel, and Horizons Ventures. We will also be delving deep into the subject at our annual mobile brainstorming summit – Mobile Future Forward on Sept 10^th in Seattle.

Mobile First to Mobile Only

Couple of years, the realization in the industry set in that mobile is going to really dominate the world. Senior executives like Eric Schmidt at Google started to preach the gospel. 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 last month, 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.

Postpaid Doldrums

For the first time in the history of the industry, the US operators had a net decline in postpaid subs. This is because of the shift to prepaid in recent times as well as the increased competition for the last few potential postpaid subs. 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 was at 43% as of Q1 2012 so the significant opportunities are in the upgrades and non-data to data conversion. Family data plans (see below) will help in bolstering data revenues as well. Multiple devices/consumer will increase the sub penetration which is at 110%.

Family data plans

We have been big advocates of family data plans for the last 2 years and they are finally coming to the US market in the next few months if not weeks. Like gravity, it’s inevitable. Consumers want simplicity and common sense. Family data plans doesn’t necessarily mean that all family members will be forced onto a single data plan but rather the consumers given the opportunity to combine data usage under the same umbrella if they wanted to. If all in the family are heavy data users, initially, some of the data tiers might not make sense but for the vast majority, there are always going to be devices or family members who don’t need a separate full-fledged data usage plan.

When I talked to CNBC earlier this year (Jan), I said that there is a 90%+ probability that the family data plans will be introduced in the US market in 2012. I discussed this more with Bloomberg andUSA Today last week. Verizon and AT&T have been preparing the media and the consumers for this eventuality. Once one operator opens the door, expect rest to follow. Our Atlanta Mobile Breakfast Series will touch upon this topic during the discussion on Connected Devices, the Cloud, and the Consumer (with AT&T, Synchronoss, and CNN).

Mobile Data Growth – The Gigabyte Generation

The smartphone data consumption at some operators in the US is averaging close to 800 MB/mo. As we move into the 1GB range along with the family data plans getting introduced shortly, you can expect the data tiers to get bigger both in GBs and $. 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. As new devices and new network technology roll-outs continued in 2012, the data traffic will grow at the expected pace. The signaling traffic is growing at even a faster pace, 3 times in some cases. Stay tuned for our research paper in the Yottabyte paper series on the topic later this year.

Platform wars

Now that Google’s Motorola deal is approved in China and Facebook’s stellar IPO is behind us, we are going to witness a contentious platform battle between the fab five. Google is preparing to get deeper into handset business while Amazon and Facebook are tinkering with their own handsets. Microsoft is banking on the Lumia success and the release of Windows 8 and its impact on the ecosystem will be closely monitored. Samsung is putting some resources behind Tizen to hedge its bets in case things go south with its current partnerships. The platform narrative is still being defined by Apple which has the commanding mindshare of the developers, operators, and the profits. Follow the money and the puzzle unravels in front of your eyes.

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.

Market Consolidation

The AT&T-T-Mobile merger might not have gone through but that doesn’t stop 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. However, in an election year, there is an uneasy uncertainty that is gripping the market. 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.

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. 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 Q1 2012 US wireless data market is:

Service Revenues

The US Wireless data service revenues grew 6% Q/Q and 21% Y/Y to $18.7B in Q1 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 maintained its #1 ranking in Q1 2012. AT&T also got ahead of NTT DoCoMo to occupy the number two spot in global mobile data revenues ranking. Sprint and T-Mobile maintained their #5 and #9 rank in the top 10 mobile data operators list for Q1 2012.

ARPU

The Overall ARPU increased by $0.54. Average voice ARPU declined by $0.41 while the average data ARPU grew by $0.96 or 5% Q/Q.
The average industry percentage contribution of data to overall ARPU exceeded the 40% mark in Q1 2012 and is likely to exceed the 50% mark 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 at the 60% mark, with Softbank at 65%).

Subscribers

For the first time in the history of the US mobile industry, the postpaid net-adds were negative. While one data point doesn’t make a trend, we are approaching the peak of the curve where new traditional postpaid subscribers will be hard to find. It is possible that the newly minted prepaid subs might return to postpaid subscriptions. The shift is correlated to the economic woes. Majority of the new subscribers will come from connected devices as we have been saying for the last couple of years.
In the last 11 quarters, T-Mobile has been able to add postpaid subscribers in only one quarter which was back in Q2 2010.
At the end of Q1 2012, the mobile penetration in the US stood at approximately 110%.
Sprint had the most net-adds at just over 1 million though most of them were in the prepaid and wholesale category. T-Mobile recovered from massive defections last quarter to add 187K new subs in Q1 2012.
For the tenth straight quarter, AT&T reported more net-adds from connected devices than postpaid subs.
AT&T now accounts for 48% of connected devices in the US (w/ cellular subscription of some sort).
Rebounding from the failed AT&T merger, Deutsche Telekom announced its investment in the US arm and laid out some aggressive LTE launch plans. T-Mobile will launch its LTE network in 2013 in its attempt to catch-up with its stronger rivals.

Applications and Services

While many of its brethren are seeing messaging volume declines, messaging in the US market grew by 6% YOY and 1% Q/Q. US consumers are now sending messages at the rate of 687 messages/sub/mo. 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.
Q1 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.

Handsets

Smartphones continued to be sold at a brisk pace accounting for almost 70% of the devices sold in Q1 2012. Operators are averaging 80% of their postpaid sales as smartphones with Android dominating though iPhone leads in revenue and mindshare.
Nokia lost its 14 year old top ranking to Samsung which slowly and steadily gnawed its rivals marketshare. 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 in 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.
Apple had another monster quarter and with iPhone 5 around the corner, it is all set to dominate the remainder of the calendar year.
US continues to sell roughly 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 added another 2.9M LTE subscribers making it the leading LTE operator in the world. AT&T’s LTE rollouts are gathering steam and Sprint plans to offer LTE in 2012. 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. T-Mobile is still waiting for its date with Apple even though it has started to order the attire.

Mobile Data Growth

The smartphone data consumption at some operators is averaging close to 800 MB/mo. As we move into 1GB range along with the family data plans getting introduced shortly, you can expect the data tiers to get bigger both in GBs and $.
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 3^rd edition of our “Managing Growth and Profits in the Yottabyte Era”research out later this year.

Global Update

Race to a billion – China became the first nation to go past a billion subscriptions. See our detailed analysis of the Chinese and Indian mobile market.
For more details, please see our Global Mobile Wireless Market Update released in April 2012.

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 Aug 2012. The next Global Wireless Data Market update will be issued in Nov 2012.

Disclaimer: Some of the companies mentioned in this paper are our clients.

CTIA Wireless 2012 Recap May 14, 2012

Posted by chetan in : 3G, 4G, AORTA, CTIA, Carriers, European Wireless Market, Infrastructure Providers, Mobile Breakfast Series, Mobile Future Forward, Mobile Operators, Worldwide Wireless Market , add a comment

CTIA Wireless 2012 Recap

http://www.chetansharma.com/ctiawireless2012.htm

CTIA returned to New Orleans after many years and it was great to see the city revitalized and ready to host the wireless show. Overall there were no big announcements, no blockbuster deals, no zingers from speakers that made the headlines. However, it was good to take the pulse of the industry. We met with several prominent industry executives, long-time colleagues, and new entrepreneurs. This note presents the summary of my observations from the show.

Mobile Web and Apps – I had the opportunity to chair the Mobile Web and Apps event and kick off the proceedings with an opening keynote on the State of the Mobile Industry. It was based on our recent global market update that we released last week. In fact, many CEOs and speakers including FCC Chairman Genachowski frequently referenced from the research throughout the show. Wireless Week did a nice cover story based on the talk. There was good discussion and debate about what’s working and what’s not, how developers try to create demand and monetize eyeballs, the issues of security and privacy. Mastercard announced its payment developer APIs program. In fact, the show had the presence of all the major credit card companies. Payments, wallet, and commerce were the big talking point.

Operators vs. OTT – The theme of Mobile World Congress continued at CTIA with the topic dominating in both open forums as well as behind closed doors. While most of the ink has been focused on how OTT players are killing operator revenue streams, there is the untold story of operator collaboration with the OTTs. I wrote a piece on the topic for Synergy magazine “Mobile Operators and OTTs: Building a win-win.” The manner in which operators respond to the OTT opportunity/threat will end up defining their future in the years to come. Some operators like TeliaSonera have reacted by throwing their hands and just charging extra for OTT services while others like Telefonica are launching innovative services. We have looked at this topic in-depth for many years and have some more new research coming out in the next few weeks. Stay tuned.

The challenge for some of the operators is in stark display. While T-Mobile’s Bobsled app garnered (95% users non-TMO customers) 1 million users, Viber announced the 70 million milestone. To be a relevant app, one needs scale. Operators have the advantage of providing better call quality. The call quality on many mobile VoIP services is subpar and enterprise customers (and consumers) will pay a premium for better call quality.

Digital Life and New Revenue Streams – In the US, AT&T dominates the connected devices spaces. Indeed in terms of rolling out new services, it is a step ahead of the competition. AT&T has been showing the Digital Life concepts at Mobile World Congress and at CTIA they announced the trial and actual product availability in 2013. This clearly bodes well for the industry for there are many adjacent industries where operators can play an important role. Other operators should pay close attention. We will be discussing the Connected Devices opportunities in detail at our Atlanta Mobile Breakfast Series Event on June 22^nd with AT&T, Synchronoss, and CNN.

Traffic Growth and Signaling storm – As we have mentioned in our various research papers and research updates, mobile traffic is roughly doubling YOY in most major markets including the US. While data traffic hogs the headlines, signaling is becoming a menace to network management esp. Android which tends to be more inefficient in handling network resources. We will have a more in-depth discussion of these topics in our upcoming Yottabyte research paper.

TMO Acquisition – Last year, AT&T’s proposed acquisition of T-Mobile rocked the industry and kept the regulators busy for better part of 2011. While there were no blockbuster announcements, T-Mobile’s acquisition of MetroPCS along with Nokia and RIM’s long-term prospects remained popular water cooler topics.

Nokia’s revival – Nokia has a lot to prove. Its future is riding on the success of the Lumia series of devices in 2012. Though it hasn’t exactly set things on fire, the sales are actually doing fine. It is amongst the top selling devices at AT&T and is showing stickiness. However, Nokia is getting crushed in other markets, so the net impact on overall cash position can be significant if it is not able to arrest the downfall in the next 3-4 quarters.

Small Cells – A couple of years ago, small cells and HetNets were just talking point. Now, operators are weaving them into their execution plans as they lay out their 4G networks. Given that mobile data growth is going to stay front and center for the foreseeable future, expect to hear about small cells and HetNets for some time to come.

TMO $4B network deal – Generally, the network deals of this size takes many quarters to iron out. T-Mobile moved fairly quickly to iron out its LTE rollout plans and its vendors. Not surprisingly, the spoils of the deal went to Ericsson and NSN. In light of the collapse of LightSquared, this deal might provide NSN a lifeline to continue operations for a few more years.

Mobile Wallets and Mobile Payments – While 2012 will not be the year of mobile payments; it certainly is the year of mobile wallets launches and lots of them. Every financial institution worthy of its salt has launched a wallet. We are just going through the early turbulence cycle of this new segment. However, the opening up of the payment APIs from the financial industry is leading to some compelling experiences and use cases.

NFC was absent – The talk of NFC as a payment solution was noticeably muted. We have always said that NFC will have more impact from other solutions than payment.

Verizon – LTE – Competing on LTE, the fight to build the fastest and biggest LTE network is on. Verizon has an early formidable lead but in 2013 rivals will start to catch-up.

Messaging innovation – As I mentioned to the NY Times and discussed it in our annual global mobile update, messaging revenue has started to decline in some countries. Some operators in Europe are in a state of panic. Chaos creates new opportunities. While operators have just given up on fighting the OTT war, others are gearing with new apps and services of their own (TU Me from Telefonica, Bobsled from T-Mobile, On from Orange). Several startups are also helping the operators innovate on the messaging front. SMS was invented in the early nineties but operators didn’t really take messaging to the next level for the last two decades. I met with a number of companies which are doing some interesting work on the messaging side – like ZipWhip, Maxx Wireless, OpenMarket, and others. Some of these companies are still in the stealth mode and expect to make some waves in the coming months. We will be taking this topic head-on in our Mobile Breakfast Series in Seattle (w/ AT&T, Groupon) and London (w/ Telefonica, Orange, Horizons Venture, Rebtel)

Sprint Guardian, and other apps – in line with generating more revenue form other apps, Sprint guardian was launched with Safely and the service is seeing pretty good traction in the early days and might be able to increase the lifetime value of the customer. Other US operators have similar services available on their network as well. Operators will have to invest heavily in VAS ecosystem and services to arrest the declining revenue in other segments.

FCC, Spectrum and Regulations – FCC continued to make its case for more spectrum via incentive auction. With a change of guard expected next year, it will be interesting to see how some of these efforts pan out. FCC should create parallel incentive programs like a $1B prize for tangibly solving the spectrum crisis w/o the need of new spectrum.

Absence of large players – The lack of any major announcements was only rivaled by the absence of the former CTIA heavyweights like Samsung, Alcatel-Lucent, Nokia, Motorola, and Microsoft. Others had fairly low-key presence.

Regulations – Regulations lag the technology industry progress and it is getting to the point that they might end up hindering growth esp. related to communication, privacy and monetization of network assets. It is time to consider bringing all communication, and data privacy rules under the same umbrella so both the telecom and Internet players are guided by the same set of principles.

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 Nov 2012.

Disclaimer: Some of the companies mentioned in this paper are our clients.

Global Mobile Market Update 2012 (Annual Edition) April 30, 2012

Posted by chetan in : 3G, 4G, AORTA, BRIC, European Wireless Market, Indian Wireless Market, Japan Wireless Market, Mobile Breakfast Series, Mobile Future Forward, Mobile Operators, Mobile Patents, Mobile Payments, Patent Strategy, US Wireless Market, VoIP, Wireless Value Chain, Worldwide Wireless Market , 6 comments

http://www.chetansharma.com/GlobalMobileMarketUpdate2012.htm

Global Mobile Market Update

State of the Global Mobile Union - 2012

Total Global Mobile Revenues to hit $1.5 Trillion in 2012, over 2% of Global GDP

– Top 10 operators control 42% of the global data mobile revenues

Mobile Services Revenue exceeded $1 Trillion for the first time in 2011

– The number of mobile operators with > $1 Billion in yearly data revenues will touch 50 in 2012

Total Global Mobile Data Revenues went past $300 Billion in 2011

– Non-messaging data now owns 53% of the global mobile data revenues

Mobile Operator Profits have more than doubled over the last 10 years.

– However, the wealth is not divided evenly. Asia’s share has tripled at the expense of Europe whose profit share has declined by 50%

Total Global Subscriptions to exceed 7 Billion in early 2013

– China exceeds 1 Billion, India 950 Million. Subscriber growth is in Asia, Revenue growth is in Asia+North America

China and India represent 27% of subscriptions but only 12% of the global service revenues

– US represents only 6% of the subscriptions but 21% of the global service revenues, 26% of the data revenues, and 27% of the global CAPEX

Mobile Devices are now exceeding traditional computers in unit sales + revenue

– 70% of the device sales in the US are now smartphones. Device Replacement cycle is shrinking

Samsung and Apple now account for 50% of the smartphone unit share and 90% of the profit share

– Difficult environment for other OEMs esp. when ZTE and Huawei are coming strong from the bottom. It will be difficult for pure play device OEMs to survive long-term

Tablets (iPads) has created a new computing paradigm that is having a significant impact on commerce, content consumption, and developer investments

– Apple will continue to dominate the segment and iOS will be the leading OS for the segment. Amazon, ZTE, Huawei, to chip away at the sub-$200 tier.

Mobile Broadband (4G) is being deployed at a faster rate than previous generations, first time data is leading the charge

– Over 1.5 Billion broadband connections by 2012

Global Mobile Apps revenue has completely (and irreversibly) tilted to off-deck

– The decline is directly proportional to the increase in smartphone penetration by region

All major markets are consolidating with the top 3 players at 85% of the market

– Regulators will have to be more prudent and proactive about managing competitiveness and growth

Mobile data traffic 2x YOY in most markets. Mobile Data will be 95% of the global mobile traffic by 2015

– Many countries are facing spectrum exhaust in the next 2-3 years (in certain markets)

Mobile Signaling takes up 2x the resources as Mobile Data Traffic

– Signaling traffic is growing faster than the data traffic on broadband networks

Connected device segment is growing at the fastest pace in the western markets

– Operators will have to quickly adapt their strategies to stay relevant in this segment

Several multi-billion dollar opportunity segments are emerging

– Mobile Advertising, Mobile Commerce, Mobile Wellness, Mobile Games, and Mobile Cloud Computing to name a few

Mobile Ecosystem has become very dynamic and unpredictable

– The 5 Platform Amigos – Apple, Google, Amazon, Microsoft, and Facebook dominate though the first two have the real power

Mobile Operator Revenue is under pressure from OTT Players

– OTT Share of the Global Mobile Revenues increased to 4%

OTT players forcing operators to up their game

– Operators are partnering, launching their own OTT apps, increasing tariffs to manage the margins

Intellectual Property has become a key component of long-term product strategy

– 21% of all patents granted in US are mobile related. Top 20 control 1/3^rd of the overall mobile patent pool

Mobile Patent Rankings: US – IBM, Microsoft, Nokia. Europe – Alcatel-Lucent, Nokia, Samsung. Overall – Nokia, Samsung, Alcatel-Lucent

– OEMs – Nokia, Samsung, Sony. Service Providers – AT&T, NTT DoCoMo, Sprint

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

– Majority (by a good margin) of the consumer interactions with brands will be on mobile

Mobile has become the single most important digital channel for engaging consumers and it shows

– In the US, mobile revenues were > all Ecommerce And > Music, ISP, Hollywood, and Cable revenues combined

We have entered the mobile 3.0 era where “data” is all that matters and it disrupts the value chains

– Data will drive majority of the network growth, Contextual data will drive majority of the VAS growth

There will be more changes in the next 10 years than in the previous 100

– The value chains will keep disrupting every 12-18 months by the new players and business models. Several verticals are already getting redefined e.g. retail, health, education, etc.

The Big Picture

The global mobile industry is the most vibrant and fastest growing industry. We expect the total revenue in the industry to touch approximately $1.5 Trillion in 2012 with mobile data representing 28% of the mix. Mobile data services revenue stood at 33%. Global Mobile Data revenues eclipsed $300 Billion for the first time in 2011. It is also the first year in which non-messaging data revenues will make up the majority of the overall global data revenues at 53%.

By the end of 2011, the global subscriptions exceeded 6 Billion. The first 1 billion took over 20 years and this last one took only 15 months. The primary growth drivers are India and China which are cumulatively adding 75M new subs every quarter. China became the first country to eclipse the 1 billion mark in March 2012. India is likely to arrive at the milestone by early 2013.

Smartphones are driving tremendous growth around the globe. Amongst the major markets, US leads with 69% sales. The global figure stands at approximately 32%. Some operators expect 90-95% of their device sales to be smartphones in 2012. In terms of the actual smartphone penetration, we expect the US market to eclipse the 50% mark in 2012.

China leads in the number of subs but US dominates in both total and data revenue. A number of emerging nations are now in top 10 – Brazil, India, Russia, Indonesia, Pakistan, Mexico while once dominant – Korea, UK, Italy, Germany have dropped off or slipped in rankings.

Global Mobile Data Growth

Japan continues to be the leader in mobile data with NTT DoCoMo, KDDI, and Softbank Japan ahead of the pack in terms of mobile data revenue and data as a % of total ARPU. Country average is now at 60%.

Next, Australia and the US have made good inroads in the last two years. In fact, if we look at the overall data revenue, US is much further ahead than any other nation due to the size of the market.

While India has the highest subscriber growth rate in the world right now, the revenue generating opportunity remain down right anemic compared to other major markets with average dropping down to $2.50 in overall ARPU. Even with significant subscriber base, there is going to be a general lack of opportunity in the market for the next couple of years relative to other markets.

Devices – Changing Landscape

Apple has had the tablet space to itself. Thus far the response from the competitors has been tepid esp. on the pricing dimension. Apple has had such a mastery over the supply-chain and months ahead of the competition that by the time they figure out details, Apple already locks up the pricing advantage for the cycle. OEMs try to catch-up on the features but can’t do on the margins. OEMs can grow the pie by bringing products at a better price points that helps attract different demographics to the mix. Microsoft can make good inroads into the space with its Win8 tablet release in 2012 but it will be again in a catch-up mode as the iOS ecosystem will be even more robust by then. The cheaper Android tablets will do well in the market. As expected, tablets will pretty much eliminate the need for netbooks and are starting to eat into the desktop/laptop revenue.

Apple and Samsung are strong on the top. Huawei and ZTE are coming up strong from the bottom. The middle tier players will have a tough time going forward.

It will be difficult for pureplay device OEMs to survive long-term.

Nokia and RIM are under severe market scrutiny as investors and developers leave in droves. Lack of product planning and execution has left their market share in disarray. Nokia’s valuation has been cut into half. Nokia’s release of N9 shows the engineering and creative design depth but a lot is riding on the first generation of Nokia Windows Phones (Lumia). While the market hasn’t shown much appetite for Windows phone thus far, a good family of devices might be able to slow the loss trajectory and position the combined team for the up-for-grabs 3^rd spot in the ecosystem. Given that the computing is shifting to mobile devices, we can expect some of the weaker desktop/laptop players will exit the industry.

Majority of the tablet use is in the WiFi mode because the primary use case is indoors and WiFi gives a better (and cheaper) user experience. However, of the users who use cellular, the churn is low. Once operators start to roll out user-friendly family data plans across multiple devices, we can expect the cellular activation go higher (e.g. Rogers, Vodafone Spain) but will still be dominated by WiFi overall.

Mobile VAS and OTT – The Big Picture

• The traditional operator revenue streams of

– Voice – declining and under threat from VoIP

– Messaging – flattening/declining and under threat from IP messaging

– Access – rising but margins are shrinking fast

– VAS – declining in proportion to the growth of smartphones

• Operators are fighting back with

– Voice – launching their own VoIP apps e.g. Bobsled from T-Mobile, partnering with VoIP players e.g. Skype integration, charging for VoIP apps e.g. TeliaSonera €6/month

– Messaging – launching their own IP messaging apps e.g. Huddle from AT&T, partnering with IP messaging players e.g. Whatsapp partnership

– Access – Tiering

– VAS – launch their own VAS apps and industry vertical apps and services

Managing Mobile Data Traffic and Profits

As a result of the data tsunami, there are two types of opportunities that are being created, one that take advantage of the data being generated in a way that enhances the user experience and provides value and the other in technologies that help manage the traffic data that will continue to grow exponentially.

To be able to stay ahead of the demand, significant planning needs to go in to deal with the bits and bytes that are already exploding. New technical and business solutions will be needed to manage the growth and profit from the services. Relying on only one solution won’t be an effective strategy to manage rising data demand. A holistic approach to managing data traffic is needed and our analysis shows that the cost structure can be reduced by more than half if a suite of solutions are deployed vs. a single dimensional approach and thus bringing the hockey stick curves of data cost more in line with the revenues and thus preserving the margins.

The decision making process within the operator organizations will need to be streamlined as well. Operators should also consider creating a senior post which focuses on both the cost side and the solution side so they can devise and institute a sustainable long-term policy and keep the margins healthy.

Mobile Intellectual Property

• The IP tussles are playing out as expected

• Players with strong IP portfolios will be able to command better negotiating positions, new revenue streams, competitive positioning over the long-term

• On average mobile companies file patents 1.7 times more in the US vs. Europe

• Mobile Patent Leaders in US: IBM, Microsoft, Nokia

• Mobile Patent Leaders in Europe: Alcatel-Lucent, Nokia, Samsung

• Mobile Patent Leaders in Infrastructure: Samsung, Alcatel-Lucent, Ericsson

• Mobile Patent Leaders in Devices: Nokia, Samsung, Sony

• Mobile Patent Leaders in Service Providers: AT&T, NTT DoCoMo, Sprint

• Top 20 control 1/3^rd of the total mobile communications patent pool

Mobile Competitive Dynamics

The Rule of Three is evident in all major markets. While the percentage market share might vary, on an average, the top 3 control 93% of the market in an given nation. It doesn’t matter if the market is defined by “controlled regulation” like in China, Korea, and Japan or if it is “open market” driven in markets such as the US, UK, and India. Eventually, only top 3 operators control the majority of the market. There are niches that others occupy but they are largely irrelevant to the overall structure and functioning of the mobile market.

Markets such as US and India experienced similar competitive environment in their hyper-growth phase. For the US, this phase was in the nineties-mid-2000s while India has been experiencing the similar environment in the last 3-4 years. In both cases, at the start there are 5-6 players with no more than 25% market share but higher than 10% of the mix but gradually the market forces enable consolidation. Over a period of 18 years, US is settling into a “top 3” operator market. India’s brutal price wars are going to trigger the consolidation in the next 12-24 months and will eventually settle into a structure similar to other markets.

The competitive equilibrium point in the mobile industry seems to when the market shares of the top 3 are 46%:29%:18% respectively with the remaining 7% being allocated to the niche operators. To achieve some semblance of equilibrium in the market the top operator shouldn’t have more than 50% of the market share and the number three player shouldn’t have less than 20%. This helps create enough balance in the market to derive maximum value for the consumer.

Mobile operators will face some hard choices in developing and protecting the role they want to play in a given region and the ecosystem at-large. The strategy they choose will have a direct impact on the expected EBITDA margins, investment required over the long-haul, how investors view them, and on the competitive landscape of the country. Given, the fast pace of globalization, new rules and trends might emerge over the course of this decade that further define “communications” and “computing” as we know.

Key Industry Micro-Milestones

Apple captures 70% of mobile device profits – defies gravity, obliterates competition
Apple mobile appstore downloads exceed 25 Billion, 100 Million on Mac – can you spell domination
Samsung ends Nokia’s 14 year reign as the device king – brutal execution
Android 300M activations – Juggernaut
Paypal does $7B in mobile transaction volume
Square does $5B in commerce transaction volume
Google > $5B in mobile revenues
Microsoft revenues from Android > Windows Mobile
Pandora’s 70% usage is on mobile, Twitter’s 60% of the usage is on mobile – heading towards a mobile-dominant world
Facebook Instagram Acquisition $1B – Mobile only acquisition to beef up mobile strategy
Angry Birds approaches a billion downloads
ESPN does 3.1 billion minutes on mobile in 3/12 – Mobile is where the action is
Skype traffic over 150 billion minutes – OTT pressure
KPN messaging volumes decline 15% YOY – OTT pressure
Mobile Security threats grow 7x in last two years, Android threats up 3000% – Mobile IS IT
Cisco BYOD ratio – 70% (up 52% in 2011) - BYOD is creating new opportunities for vendors
US data traffic over 130 quadrillion bytes/month in 2011 – Data traffic 2X YOY, welcome to the yottabyte era
Fandango sells quarter of its ticket on mobile – commerce is happening
Expedia does > $1B in mobile commerce – see above
Microsoft Nokia Multi-Billion partnership – It takes two to tango
Lightsquared fails – Keep your friends close, enemies closer
Google Motorola $12.5B – IP becomes key to strategy
Nortel Patent acquisition $4.5B – IP becomes key to strategy
AT&T/T-Mobile Failure – DOJ/FCC put down the gavel
40% of Kenya’s GDP comes from mobile money – impact of mobile is pervasive
Millennial Media IPO at $2B – first public market validation of the mobile advertising space
HP gives up on Palm – Competition forces Corporate Schizophrenia

What to expect in 2H 2012

• More Tiering, faster pace of change of plans. More options, family data plans

• Cost reduction is as important as revenue generation. More players will align their value-chains and cost structures

• Facebook IPO is probably going to be the single biggest event in the technology industry in the next few months.

• Radios will start connecting the digital world with the physical world with significant disruption opportunity

• Mobile Payment Networks will remain intact for the near future as the ecosystem largely focuses on building value on top of the existing exchange platforms

• The intersection of Social, Location, Identity, and Gaming is creating new opportunities

• With connectivity becoming pervasive, mobile will fundamentally start to alter the legacy infrastructure – retail, health, education, energy, computing, travel, entertainment

• Significant tablet adoption in the enterprise directly impacting the traditional computer manufacturers

• Both HTML5 and Apps will continue to grow, the relevancy to any given application will depend on the reach and economics requirements. HTML5 is not going to replace Apps.

• Mobile data growth will double again in 2012. Significant opportunities in managed and understanding of mobile data growth

• Regulators will need to evolve to keep up with the trend to keep their nation globally competitive

• More IP scuffles before licensing settlements

• Consolidation of weaker players, more global M&A

• Significant progress in emerging areas like mHealth, mPayments will come from the developing world while the western countries get mired in regulatory and legacy mess

• Several players face challenging times ahead and 2012 will be critical in their turn around sojourn.

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 Patents Landscape – An In-depth Quantitative Analysis April 17, 2012

Posted by chetan in : 3G, 4G, AORTA, European Wireless Market, Infrastructure Providers, Intellectual Property, Mobile Advertising, Mobile Applications, Mobile OEMs, Mobile Operators, Mobile Patents, US Wireless Market, Wireless Value Chain, Worldwide Wireless Market , add a comment

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

Introduction

In April 2012, in its report on Intellectual Property, the US Patent Office (USPTO) concluded that the entire US economy relies on some form of IP, because virtually every industry either produces or uses it. The foreword of the report said,

“Innovation protected by IP rights is key to creating new jobs and growing exports. Innovation has a positive pervasive effect on the entire economy, and its benefits flow both upstream and downstream to every sector of the U.S. economy. Intellectual property is not just the final product of workers and companies—every job in some way, produces, supplies, consumes or relies on innovation, creativity, and commercial distinctiveness. Protecting our ideas and IP promotes innovative, open, and competitive markets, and helps ensure that the U.S. private sector remains America’s innovation engine.”

Intellectual property has been an integral part of the economic engine of the western world for many decades if not centuries. Over the past two decades, nations and corporations have competed on the creation, funding, execution, and protection of the new ideas. Increasingly, the role of mobile devices, networks, and applications has become an important component of the growth story worldwide.

To say that the mobile devices have become the remote control of our lives would be an understatement. Mobile phones stay attached to us almost 24 hours a day. From waking us up in the morning to keeping us connected and entertained, from speeding up a commerce transaction to being a trusted advisor; mobile is fundamentally changed how we as consumers behave and how societies and cultures evolve over time. As a result, there has been a big influx of investment and innovation over the last decade. This surge of activity has also translated into increased number of patent filings in the two major jurisdictions of US and Europe. Even the developing countries like China and India have seen a significant increase in patent activity in the country. In fact, in terms of filings, China’s share of the global patent grants has increased from 0.8% in 1996 to 15% in 2010 placing it third behind Japan and the US and well ahead of Korea and Europe.

According to the US Patent Office (USPTO), in 2011, the number of applications reached over 535,000 growing by almost 54% from a decade ago. Similarly, the number of patents granted grew 35% to 224,505 by the end of 2011. The numbers of foreign filings are now in the majority for both the applications filed as well as the patents granted. In Europe, similar trends were observed where the EPO (European Patent Office) patent grants increased by 46%.

The number of mobile related patents that were granted by the USPTO and the EPO increased significantly over the course of last decade. The US market saw a 390% increase while the European market saw a 173% increase in mobile related patent grants.

Another interesting fact is that as of Q1 2012, over 21% of the patents granted by the USPTO now are mobile related. This grew from around 2% in 1991 and 5% in 2011. In Europe, roughly 9% of the patents granted are related to mobile.

Chetan Sharma Consulting analyzed almost 7 million patents granted by the USPTO and EPO over the last two decades to understand how mobile has become a key enabler for all technology companies. Furthermore, we looked at patent granted to the top 65 technology companies who are active in the mobile space to understand their relative strengths and weaknesses in the mobile patent landscape. In a first of its kind study, the paper presents and discusses these findings in more detail.

Read the full paper

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.

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.

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.

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.

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.

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

Connected Universe, Monetizing Opportunities

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 $17.6B 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 the operator channel is not a necessary distribution channel. 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 3^rd edition of our “Managing Growth and Profits in the Yottabyte Era” research out early next year.

Global Update

Race to a billion – China became the first nation (ok, there aren’t that many who are going to touch the billion mark) to go past a billion subscriptions. See our detailed analysis of the Chinese and Indian mobile market.
For more details, please see our Global Mobile Wireless Market Update released in July 2011. The next global update will be released in April 2012.

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 2^nd 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 7^th, 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.

Mobile Internet 3.0: How Operators Can Become Service Innovators and Drive Profitability February 23, 2012

Posted by chetan in : 3G, 4G, ARPU, BRIC, Carriers, China, Connected Devices, Devices, Enterprise Mobility, European Wireless Market, Mobile Cloud Computing, Mobile Health, Security, Smart Phones, US Wireless Market, Wi-Fi, Wireless Value Chain, Worldwide Wireless Market , 1 comment so far

Mobile Internet 3.0

How Operators Can Become Service Innovators and Drive Profitability

Sponsored by Juniper Networks

Download PDF

The mobile ecosystem is going through significant shifts in consumer behavior, the value-chain alignment, and the strategies required in managing the profitability of the service business. Operators around the world are experiencing tremendous mobile data growth. While the mobile data revenues are increasing, the margins are decreasing for many operators. As the percentage of the smartphones on the network increases, the data business is primarily becoming an access business which is difficult to sustain over the long-haul.

Additionally, it is becoming clear that the long-term value will be in the portfolio of value-added services (VAS). As we slowly migrate into the Mobile Internet 3.0 world where mobile data becomes the primary source of service revenues, operators have a fundamental choice to make – either learn to live with the utility business that pushes the margins downwards by 30-50% or selectively compete and/or collaborate with the OTT (over the top) players where they can offer compelling solutions and packages to their customer base and beyond.

Operators who are fully able to grasp the changes occurring in the ecosystem and are willing to refocus will position themselves for higher profitability in the coming years.

A fundamental rethink of the network and the business models is required. Rather than leaving all the VAS business to others, operators should look at ways to launch new services, to micro-segmented consumer base, to enable APIs and services that the developer ecosystem can build on, and to look at the core network to enable incremental revenue streams.

The pace at which the new services are launched needs to accelerate and the marginal cost of the introduction needs to go down significantly. By architecting the “network as a platform,” operators will have more flexibility in deploying an open and programmable network that not only provides operational efficiencies and insights but also paves the way for new generation of services such as mobile cloud, mobile security, health care, and identity management.

The paper looks at the global trends in mobile data and the need for new approaches to operator services that can help increase the mobile data margins and help operators play a more decisive and enabling role in the mobile ecosystem. The paper provides an operator blueprint for succeeding in the Mobile Internet 3.0 era by discussing the operating principles and the long tail of VAS. Several strategies and application areas are analyzed that can help operators in building a viable VAS strategy and sustainable profit streams.

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.

A Tale of Two Mobile Markets – China and India February 22, 2012

Posted by chetan in : 3G, 4G, AORTA, Applications, BRIC, China, IP, Indian Wireless Market, Intellectual Property, International Trade, US Wireless Market, Wireless Value Chain, Worldwide Wireless Market , add a comment

http://chetansharma.com/ATaleofTwoMobileMarketsChinaIndia.htm

Next weekend, on March 3^rd around noon China Standard Time to be precise, China will sign up its one billionth mobile subscription. India in the meantime, crossed the 900 million subscription mark in Feb. Roughly an year ago, India was adding subscribers at historically record pace of approximately 20 million subscriptions per month (that translates into a new Australian market every month) while China continued at its steady pace of 8-12 million net-adds per month. In Q1 2011, data indicated India might actually edge out China to reach the first billion landmark. Then, the market collapsed due to the intense competition, the pervasive corruption, and the accounting gimmicks.

In 2011, the global GDP growth was 2.7% according to the World Bank. While the OECD countries saw only modest gains (1.7%), China (9.1%) and India (6.5%) accounted for a good percentage of the global growth. Buoyed by the rising disposable income, the middle class in the two biggest countries are spending more than ever before.

All of the top 6 global operators by subscriptions are from China and India. Collectively, they account for 27% of the global mobile subscriptions and 12% of the global service revenues. In 2011, India added 141 million subscriptions while China netted 133 million.

Having worked in both of these markets over the last decade, I have always seen China and India as two of the most dynamic mobile markets in the world. They might seem similar on surface but are quite different underneath. Both represent vast human resources and the biggest middle class with buying power. However, their competitive landscape is vastly different. On our Competitive Index (CI) scale of global markets, they are on the extreme ends of the revenue and subscriber concentration indices. China is one of the least competitive mobile markets and India is by far the most competitive mobile market in the world.

In China, China Mobile monopolizes the market with over 66% of the market. Regulators are trying to boost the other two operators China Unicom and China Telecom but have a lot of work left on their plate. India on the other hand is a hot cauldron of intense competition, too much competition if you ask the operators. There are 5 operators with roughly 100 million or more subscriptions with the Bharti Airtel at number 1 but with less than 20% market share.

China’s mobile journey began in the early nineties with the Ministry of Post and Telecommunications providing the telecom services as China Telecom. In 1994, under pressure, China Unicom was introduced to the market but was largely a failure. Later in 1999, China Telecom was split into three businesses with China Mobile becoming the mobile arm. Recently, when the 3G licenses were granted, market was segmented into its current form with China Mobile still leading the pack by a good distance.

China’s overall growth for the past decade has been pretty steady staying between 8-12 million net-adds per month. Remarkably, the ARPU has stayed fairly consistent at around $10. Data revenue started growing significantly in the last 3-4 years. China Mobile has been the number one operator by the number of subscriptions, the total revenue, and the market cap for many years now (it is more valuable than Google). In data revenues, China Mobile has consistently ranked in the top 5 for the last 5 years.

India started its mobile journey late towards the end of the last decade but after a series of market reforms and introduction of new players like Reliance in early 2000s, market caught fire. The lack of landline infrastructure, the declining $/min costs aided by the burgeoning middle class meant the market was ripe for explosive expansion. In 2005, India was roughly 300 million subscriptions behind China but its per month net-adds has been inching up steadily and by Q2 2007, India caught up with China in net-adds.

While China’s mobile market growth continued at a steady pace, the Indian market leaped into high gear, breaking records month-after-month and came tantalizingly close to China in Q2 2011 with only 55 million separating the two at the time. However, by then, the market retreat had already started. As we outlined in our Competition and Evolution of Mobile Markets research paper last year, the market composition and the intense competitive landscape was unsustainable. The cost to acquire a new subscriber started to become unbearably high. The rapid customer acquisition at any cost started to have a significant impact on operator profitability.

Also, the heavy burden of regulatory levies meant that the regulatory charges are approximately 20-25% in India whereas in China they are negligible. This meant, virtually all the operators started veering towards the dangerous negative margin territory in 2011-12. Additionally, the pervasive corruption reared its ugly head and a number of key players got caught up in the spectrum auction scandal. The bottom line is that the market is going to stay in the state of “mess” for the next few quarters as it tries to clean things up and plan the next phase of growth and momentum. It can take solace from the fact that the open free market and legal framework is still attractive to the mobile ecosystem. The fact that Vodafone won the $2 billion tax case should inspire confidence in the market.

Not surprisingly, the intense competition had a significant toll on the overall ARPU in India. While China’s ARPU stayed constant at $10 for much of the decade and its data % increased to 27% in 2011, India’s ARPU plummeted from $11 in 2005 to $3 in 2011. Players like Reliance boast a subscriber base of 150 million but the ARPU is < $2 leading to a meager 3.7% profit margin. However, many of the Indian operators are a part of the big conglomerates so it is easier to absorb and hide the declining financials. Regulators must realize that the industry can stay healthy only if its players remain financially viable. One has to look at mobile growth holistically. They must abolish outdates policies, rationalize the exorbitant levies, liberalize the market further and outline long-term spectrum policy without delay.

It is fairly easy to be fooled and seduced by the large numbers. However, these markets are not for the faint hearted. After the pleasantries are over, the unsuspecting and the unprepared will get chewed and spat out in no time. The feeble IP regimes make it even more problematic. But, it is 37% of humanity we are talking about. Markets are still attractive but one needs a strategic focus, strong local partners, and iron clad teeth to take a bite of these markets. Even established players can exhibit extreme naiveté in understanding the rules of the game.

Regulators in both markets face key decisions on a number of vectors – 4G spectrum, competition, FDI, IP, broadband plan, and policies on a number of fronts. Both countries have similar long-term goals but are inefficient in terms of regulations and capital allocation (they are not unique in this respect, even more advanced markets like the US have their share of quirks in the regulatory framework) needed for the next phase of market and revenue growth.

India is likely to cross its billionth mark by early 2013. The market will go through significant restructuring and self-correction over the course of next two years. China will look to expand its 3G and 4G markets and bring broadband to the masses. The smartphone and data usage is on the rise laying the foundation for the future transformation.

China has been the bolder of the two. By deft coordination and shrewd strategy, the likes of Huawei and ZTE have shaken its western rivals in their boots while protecting its local turf. India has been content with the services business though it is starting to ramp up its manufacturing and R&D capabilities. Indian operators have had better success at spreading their wings, investing in foreign markets and collaborating with foreign operators. China is somewhat closed but disciplined. India is mostly open but waffling.

In the last ten years, China has become the 2^nd largest economy in the world behind the US while India will edge past Japan to become #3. Given that mobile will have a central role in the ICT evolution of global markets particularly in the developing nations, what happens in the mobile markets of China and India will influence rest of the world. (I just finished up a project for UN in this area, more to come).

So, congratulations to China for the significant milestone and to India for its tremendous growth.

The future of mobile data applications and services in China and India is extremely bright albeit tortuous.

Tighten your seatbelts and enjoy the journey.

Your comments are always welcome.

Thanks

Chetan

2012 Mobile Industry Predictions Survey January 3, 2012

Posted by chetan in : 3G, 4G, AORTA, ARPU, Applications, BRIC, CTIA, Carnival of Mobilists, Carriers, Connected Devices, Disruption, Enterprise Mobility, European Wireless Market, IP Strategy, Indian Wireless Market, Infrastructure, Intellectual Property, Japan Wireless Market, Location Based Services, M&A, Mergers and Acquisitions, Messaging, Microsoft Mobile, Middleware, Mobile Advertising, Mobile Applications, Mobile Breakfast Series, Mobile Cloud Computing, Mobile Commerce, Mobile Content, Mobile Ecosystem, Mobile Entertainment, Mobile Future, Mobile Future Forward, Mobile Gaming, Mobile Payments, Mobile Search, Mobile Traffic, Networks, Patent Strategies, Privacy, Smart Phones, Speaking Engagements, Speech Recognition, US Wireless Market, Wi-Fi, Wireless Value Chain, Worldwide Wireless Market , 12 comments

2012 Mobile Industry Predictions Survey

http://www.chetansharma.com/MobilePredictions2012.htm

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First things first. From all of us at Chetan Sharma Consulting, we wish you and yours a very happy, healthy, and prosperous 2012. My thanks to all who participated in our 2012 Mobile Predictions Annual Survey. It gives our community an insider’s view of trends.

2011 was a terrific year for the mobile industry. With all its ups and down, consumers embraced devices, applications, services, and technology with more gusto than ever before. In the waning hours of 2011, we crossed the 6 billion subscriptions milestone. While the first billion took 19 years, this last billion only took 15 months.

Smartphones are selling like hot cakes. We estimate that by the end of Q4 2011, over 60% of the devices sold in the US were smartphones and over 30% of the global sales were for the evolved brethren of the primordial featurephones. Sparked by insatiable consumer demand for mobile data, LTE and HSPA+ networks are sprouting all over the planet with US leading the charge for broadband deployment.

Our annual survey is a way for us to engage our community on the trends for the next year. We put some of the pressing questions to our colleagues and industry leaders. We are able to glean some valuable insights from their choices and comments, some tangible shifts, and get a sense of what’s to come. Executives, developers, and insiders (n=150) from leading mobile companies and startups from across the value chain and around the world participated to help see what 2012 might bring to keep us on our toes. What makes this survey unique is that it draws upon the collective wisdom of folks who are at the center of the mobile evolution.

Fifteen names were randomly drawn for the limited edition of the Mobile Future Forward 2011 book. The winners are:

Tor Bjorn Minde, Head of Ericsson Labs, Ericsson
Sunder Somasundaram, Industry Solutions Practice Director, AT&T
C. Enrique Ortiz, Mobile Technologist, About Mobility
Russell Buckley, CMO, Eagle Eye
Marianne Marck, VP – Engineering, Starbucks
John Foster, President, ZED USA
Angel Luis Saez, Sr. Director, Orange Spain
Dilip Mistry, Senior Director, Microsoft Asia
Phyllis Reuther, Advanced Analytics Lab, Sprint
Gene Keenan, VP of Mobile, Isobar
Elizabeth Day, Director of Finance, Trilogy International
Alan Cole, Research Staff Member, IBM T.J. Watson Research Center
X J Wang, VP – GM China, Vesta Corp
Michelle Lee, Director, SK Telecom
Hemant Chandak, Sr. Analyst, Cisco Systems

Thanks again to everyone who contributed. We will be calling on you again next year. It has been a terrific year for us at Chetan Sharma Consulting and we are looking forward to an engaging and productive 2012.

Be well, do good work, and stay in touch.

Thanks and with warm wishes,

Your feedback is always welcome.

Thanks

Chetan Sharma

Now onto the 2012 Mobile Industry Predictions Survey Results.

1. What was most newsworthy in Mobile 2011?

Android had a spectacular rise in 2011 around the globe. Android OEMs collectively shipped the most number of devices and while margins shrank, they were able to put a united front to iOS. 2011 will always be remembered for the passing away of the industry transformer Steve Jobs. His work directly or indirectly touched billions of souls around the planet, many times over – something rarest of human beings are able to achieve in their life time. Regulatory tussles and significant increase in IP disputes also occupied the headlines. Amazon announced its intention for the mobile space with the launch of Kindle Fire.

2. What will be the biggest mobile stories of 2012?

As we look towards 2012, our panel voted for the continued growth of mobile data as the biggest story followed by Amazon’s entry into the mobile space. Some key questions for the year are: Will Microsoft/Nokia devices will make any meaningful progress? Will RIM survive the year? How does Google manage the fragmentation, decline in margins (for the OEMs), and the IP issues? Will any high-profile security and privacy mishaps lead to more regulatory entanglements? Facebook IPO and its mobile ambitions? How do operators manage the data demand? Which M&As will capture industry’s attention? Will Apple continue to dominate on both smartphone and tablet front? What does Apple do with mobile payments? and much more. Clearly, it is going to be a terrific year.

3. Who will be the most open player in the mobile ecosystem in 2012?

File this in the “perception is reality” folder. Despite all the criticism, Google has maintained its strong position as the most open player in the mobile industry.

4. What applications will define 4G?

Still looking for a killer-4G app? Video, cloud computing, and access will continue to drive 4G demand and growth.

5. What will be the breakthrough category in mobile in 2012?

For a second year in a row, the panel voted for mobile payments and mobile commerce as the top two category that will find their voice. Mobile advertising has become mainstream so it lost its ranking in the top 3.

6. What will be the most popular consumer mobile applications in 2012?

Apps preferences vary by regions depending on a whole range of factors. Messaging and Commerce are the top two categories for the developing world while consumers in the developed nations are likely to gravitate towards commerce and location based services.

7. Which will be the most dominant (unit sales) tablet platform in 2 years?

iOS and Android will dominate the tablet landscape for the next 24 months. A late entry by Windows 8 tablets could make a dent but don’t count on it.

8. Who will make the biggest mobile acquisition in 2012?

2011 had its fair share of block-buster acquisitions, some successful while others were not. Our panel expects Microsoft and Google to continue making the biggest acquisitions.

9. How will the "Apps vs. Mobile Web" debate shape up in 2012?

It seems like the pendulum is swinging towards the mobile web though hybrid solutions are likely to stay with us for a long time.

10. Who will define the mobile payment/commerce space?

The financial companies safely locked in the mobile payments space and while the value chain is fairly complicated and definition confusion abounds, the likes of Visa, Operators and Google will continue to drive the payments/commerce space.

11. Which solutions will gain the most traction for managing mobile data broadband consumption?

Managing data growth and margins drives all strategies at mobile operators these days which in turns drives the value chain. 4G, tiered pricing, and mobile offload continue to be the top solutions if one has the spectrum that is.

12. Which category will generate the most mobile data revenue in 2012?

Messaging, access, apps, and advertising are the four broad categories that drive mobile data revenues around the world. The developing markets rely on messaging while the developed markets are increasingly looking to access as their dominant form of revenue generation.

13. What will help mobile cloud computing gain traction in 2012?

Mobile cloud computing will continue to be defined by enterprise, storage, and media needs.

14. Which enterprise segment will mobile impact the most?

Best buy is becoming the next Circuit City. Other retailers will follow unless they can successful reinvent themselves. Health is more regulatory driven so the progress will be slow though it is ripe for a complete overhaul and developing nations are moving much faster in this space.

15. What will be the dominant revenue model for apps in 2012?

In-app revenue model made good strides in 2011 but the combination of the various available revenue models will be the norm for most application developers.

16. What mode of mobile payments will get traction in North America and Western Europe in 2012?

2011 was the year to set the ground work for growth in the mobile payments space. Given the investment and focus, we are likely to see more movement and consumer involvement in 2012 with proximity based solutions and commerce of physical goods on mobile.

17. What will be the most successful non-mobile-phone category in 2012?

Tablets dominate. Period.

18. Which of the following are likely to happen in the near future?

The is a significant shift in computing taking place right in front of our eyes wherein tablets are replacing laptops and even desktops in the enterprise. European operators have been experiencing tough times while some of the Asian operators are flush with cash, they might make their move in 2012 though regulatory hurdles might prove to be an issue. 33% of the nations will have elections in 2012, maybe which will move mobile voting to the forefront in some nations. Our panel thought there is a better chance of humans discovering water on another planet than rise of another significant mobile OS.

19. Which areas will feel the most impact from Regulators in 2012?

Net-neutrality and market competitiveness will keep the regulators busy in 2012.

20. Who was the mobile person of the year?

Clearly, Steve Jobs was an easy choice but who will replace him 2012? Jeff Bezos has an early lead followed by Andy Rubin and Mark Zuckerberg. Angry Birds representing the developer community will be in for another terrific year. Other honorable mentions were Tim Cook, Paul Jacobs, Sanjiv Ahuja, Dan Hesse, and Glenn Lurie.

A lot to look forward to in the New Year. My thanks to all who participated and we hope you found it useful as you embark on your journey for a successful 2012.

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 2012. The next Global Wireless Data Market update will be issued in Apr 2012.

Disclaimer: Some of the companies mentioned in this survey are our clients.

Mobile Breakfast Series – Mobile 2012: Trends and Opportunities December 15, 2011

Posted by chetan in : 3G, 4G, AORTA, ARPU, Connected Devices, Enterprise Mobility, European Wireless Market, Patent Strategies, Patent Strategy, Privacy, US Wireless Market, Wi-Fi, WiMax, Wireless Value Chain, Worldwide Wireless Market , 1 comment so far

We held our 8th Mobile Breakfast Series event earlier today. As is the tradition, we delved into discussing the trends and opportunities for the coming year. As usual it was a sold out crowd with terrific panelists representing different parts of the value chain.

2011 has been a fascinating year – with all the mergers, sky rocketing data growth especially in the US market. 2011 will also be remembered for the passing away of Steve Jobs, the man who helped change the global mobile industry over the course of the last four years. Locally, lots happening – Microsoft/Nokia alliance is launching new devices, Amazon has entered the mobile space with both feet, mobile gaming remains hot, and on a broader scale, we are going through the process of mobilification of everything.

Mark Anderson, CEO of Strategic News Service. I have known Mark for over 15 years now as one of the early subscribers to his wonderful newsletter. My good friend and coauthor Joe Herzog introduce me to Mark and since then I have been influenced by his writing. If you follow my blog, the name AORTA or Always On Real Time Access was coined by Mark in the late nineties and he generously allowed me to use it. Mark has also been writing about the carry-along-PC aka tablets for sometime and won the bet with bet with Michael Dell on the growth of this sector. He just finished off his annual predictions for 2012, so we had a lot to talk about.

Laura Marriott is CEO of Neomedia which is doing some pioneering work in the mobile barcode/mobile marketing space. But she is more famous for her work at the Mobile Marketing Association where she helped grow the industry and the association to make it a thriving enterprise.

Satya Mallya is Director at Orange. For those of you don’t know Orange is one of the top European Operators but he is based in the silicon valley working on some cool projects. He has been in the telecom space for almost 20 years working at Bell Labs, Octel and two startups

Brian Fling is CEO of pinchZoom a mobile agency that helps big brands like BBC, Paypal, Delta and others understand mobile design and development. He is passionate about mobile user experience, has spoken and written extensively about the subject.

Jay Emmet is GM OpenMarket, SVP, Amdocs and knows the messaging, commerce space on the back of his hand. Very successful stints at mblox, ATG and others. Knows the operator world really well and has been straddling both the on-deck/off-deck world for a long time.

We touched on a range of subjects from IP to platforms, from privacy/security to mobile commerce and payments, from Microsoft to Amazon .. and so on and so forth. Below is the summary of the discussion:

While the economy in various regions has been shambles, the tech industry has been largely protected, especially, the mobile industry. We are lucky to be working in space. Amen!
As far as the mobile platforms are concerned, there are only two that matter – iOS and Android with iOS still having a strong upper hand. Android is plagued with IP issues and OEMs are starting to have second thoughts about the cost and risks of supporting Android in the long-term. All this is of course very fluid and will depend on the outcome of a number of IP cases in courts.
Microsoft has made some progress with Nokia but as recent shuffling indicates, all is not good and there is going to be considerable work needed in the coming days to get alliance working in sync and work a thriving ecosystem long-term.
Siri has just changed the game at some many levels. Consumers now expect more from their devices and players are scrambling to deliver.
This year began with the debate of apps vs. mobile web. Mobile Apps have fundamentally changed the mobile UI and design paradigm. Consumers don’t want to just browse a page on their devices, they want great user experiences all of which can’t be delivered on mobile web. Apps stay quite a bit ahead of the game.
There is systematic IP theft and cyberattacks going on and western nations and companies are finally waking up to do something substantial. However, it is going to be a long journey to get it right.
Many small companies have built good, attractive IP portfolios in mobile and given the investment and invention, they should be allowed to maximize the value of their IP.
Amazon’s entry has changed the game. It has already become the number two in tablets and more to come. It will impact retail, advertising, and many other segments of the consumer economy.
Over the last 20 years, capacity has been an issue every year but this time around, the capacity constraints are significant. While the services and consumption have gotten much better in orders of magnitude, the prices have largely stayed the same. To build capital-intensive networks, operators will have to find ways to increase data revenues.
Operator channel is still a viable channel for the developers especially the ones who are looking for broader international reach.
Mobile Security on smartphones remains a worrying concern and is an opportunity area for entrepreneurs.
Mobile Privacy is a complicated issue. Many businesses are actually based on exploiting the privacy not protecting it so the business models are at odds with the privacy mantra and regulations. Something has to give. More regulations to come.
QR codes and NFC will live in harmony for sometime.
There are currently no clear winners in the mobile payments space. It is likely to stay very fragmented and is likely to become even more so over the coming days before any leaders emerge. Payments remains the most complicated ecosystem with many players involved and success stories will depend on the use-case scenarios.
Cloud offers a differentiating opportunity for the operators and compete effectively with some of the OTT players.
Many industry verticals are getting transformed by mobile. Big brands are aggressively pursuing mobile as a key strategic project. Health, Retail – opportunities abound.
While traditional messaging is getting impacted by IP messaging, the decline is not universal and operators are reacting with new business models and technology initiatives.
2012 will be another great year for mobile. Fasten your seat belts.

It was a joy to moderate this terrific panel that kept audience glued to their seats till the very end. Thanks all for coming. We have some terrific events planned for 2012, Stay Tuned.

Until then, Wish you and yours a very happy and stress-free holiday season and enormously successful and prosperous 2012.

And don’t forget to fill out our Annual Mobile Predictions Survey for 2012. There are prizes for 10 lucky winners.

ps. As I mentioned in the opening, WA state dept has a wonderful program to help startup with their travel to Mobile World Congress in Barcelona next year. Details here. Startups should check it out.

US Wireless Data Market Update Q3 2011 December 12, 2011

Posted by chetan in : 3G, 4G, AORTA, Applications, CTIA, Carnival of Mobilists, Carriers, European Wireless Market, Indian Wireless Market, Japan Wireless Market, Location Based Services, Mobile Breakfast Series, Mobile Cloud Computing, Mobile Commerce, Mobile Content, Mobile Ecosystem, Mobile Event, Mobile Future, Mobile Future Forward, Mobile Payments, Mobile Search, Mobile Traffic, US Wireless Market, Unified Messaging, Wi-Fi, WiMax, Wireless Value Chain, Worldwide Wireless Market , 5 comments

http://www.chetansharma.com/usmobileupdateQ32011.htm

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Summary

The US mobile market continued its blistering pace of growth and ecosystem restructuring. While China and India lay claim to the fastest growing markets on the planet, the many of the meaningful and impactful trends are originating out of the US market with software at the epicenter of creation, growth, change, evolution, and destruction.

The US wireless data market grew 5% Q/Q and 21% Y/Y to reach $17B in mobile data service revenues in Q3 2011 and is on course to increase Y/Y by 22% to $67B in 2011.

As predicted, Samsung overtook Apple as the leading smartphone OEM. However, Apple will continue to dominate profit share for the foreseeable future.

Smartphones continued to be sold at a brisk pace accounting for 57% of the devices sold in Q3 2011. Operators are averaging 70% of their postpaid sales as smartphones with Android dominating though iPhone leads in mindshare. The featurephone as a device species is on the verge of extinction.

Mobile Ecosystem Complexity

As expected, Amazon entered the mobile tablet space with a killer value proposition - $200 for a tablet, something the market sorely needed. While other OEMs tried to compete with Apple on performance (and have been retreating from the market one by one), Amazon is entering the battle on its own turf – a hardware platform built on Android with a slew of services to underwrite the device discount. Incumbent OEMs just can’t compete with that strategy without a complete rethink of their product strategy. What happens when Amazon’s strategy migrates to handsets? While Kindle Fire is not a serious threat to Apple iPad, and the current version has a lot of deficiencies, Amazon has carved out a nice market for itself that will continue to grow in the coming days. In some sense, with its tight integration of commerce, cloud, and advertising, it has out-maneuvered even Google.

Amazon’s impact will be felt by many others in 2012 as its strategy becomes more apparent. Retailers will be facing the brunt of the wave that Amazon represents i.e. etailers supplanting physical retailers. Don’t be surprised if Amazon purses Apple like stores to showcase its merchandize and puts a dagger at the heart of retail.

Google has done a masterful job of shepherding Android through the turbulent platform waters and make it the dominant mobile platform in terms of shipments.

Microsoft and Nokia finally introduced the Windows devices and it has at least given them a fighting chance in 2012, though a far more competitive offering would be needed to make any significant market share or revenue share inroads. Microsoft’s Xbox/Kinect integration remains its best card for 2012.

In a severe case of corporate schizophrenia, HP first launched webOS devices, then backed away, then thought of re-launching only to give it away to open source. Similarly, RIM faces critical test in 2012 and all its hopes are pinned on the new OS that is expected to come to the market sometime next year.

Mobile is changing the way we spend

It is very clear that mobile will be at the center of the human evolution for years to come. Mobile collapses time and distance and as such impacts every facet of our lives. While we have come to know the mobile phone as a communications device, their role in our daily lives has been expanding. From checking emails, paying for tickets, sending money transfers, taking pictures of your kids, watching soccer World Cup live, checking commodity pricing, to emergency response to mHealth (mobile Health), mobile devices have become an essential tool to help us navigate our day.

Mobile also plays a key role in how we go about the most basic transaction in a given day that keeps the economy humming – spend. We discussed this and more in the paper “How Mobile Will Change The Way We Spend” that was released last quarter.

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 Q3 2011 US wireless data market is:

Service Revenues

The US Wireless data service revenues grew 5% Q/Q and 21% Y/Y to $17B in Q3 2011. The mobile data services revenues for the US market are on track to reach $67B in 2011.
Verizon and AT&T had a good mobile data quarter accounting for 62% of the increase in data revenues in Q3 2011.
For the quarter, AT&T and Verizon accounted for 69% of the market data services revenues and 62% of the subscription base.
Verizon maintained its #1 ranking again just edging past NTT DoCoMo who came in at number two with $5.95B in data revenues for the quarter. AT&T maintained its #3 position with $5.6B in data revenues. Sprint and T-Mobile maintained their #6 and #8 rank in the top 10 mobile data operators list for Q3 2011.

ARPU

The Overall ARPU increased by $0.31. Average voice ARPU declined by $0.49 while the average data ARPU grew by $0.80 or 4% Q/Q.
The average industry percentage contribution of data to overall ARPU was 37.6% in Q3 2011 and is likely to exceed 40% by Q1 2012. As expected, Verizon became the first US operator to eclipse the 40% mark with AT&T and Sprint close behind. (for reference, all three major Japanese operators are now above the 50% mark).
The top three operators were neck-and-neck in data ARPU each recording a 39%+ performance. T-Mobile ended the quarter exceeding the 30% mark for the first time.
We expect data revenues to exceed voice revenues in the US market in early 2013.

Subscribers

Helped by the growth in connected devices, the overall net-adds increased by 4.9M with Verizon accounting for almost 50% of the growth.
For the eight 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 43% of the connected device share of the market. The connected device segment growth slowed down to 8% Q/Q and is still up 32% Y/Y.
Sprint added more than a million subscriptions while T-Mobile added 126k.

Applications and Services

After unseating Philippines as the king of TXT messaging last quarter, US TXT messaging continues to grow albeit at a slower pace. Philippines is seeing a sharp decline in per user messaging due to IP messaging. Some of the European operators are also experiencing the pain of declining SMS usage. 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 the Philippines market 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.
Q3 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 57% of the devices sold in Q3 2011. Operators are averaging 70% 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.
As predicted in the last update, Samsung overtook Apple in smartphone sales and is unlikely to relinquish the title despite a blockbuster iPhone 4S launch in Q4.
37% of all smartphones sold globally in Q3 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.
In the vertical vs. horizontal platform battle, the ecosystem is shifting towards horizontal domination in the near-term (units sold) while a majority of the profits reside in the vertical column.
87% of the tablets use WiFi only (some have inactivated cellular chipset) meaning the operator channel is not a necessary distribution channel. Operators who start to bundle multiple devices by single data plans and data buckets are going to see a better yield in this category. As expected, Verizon announced family data plans for 2012. Other operators will quickly follow or may even preempt Verizon.
Verizon added another 1.4M 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.
iPhone finally arrived at Sprint. Sales of iPhone 4S have been brisk which is likely to make it the top selling device for the most important quarter of the year.

Mobile Data Growth

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 3^rd edition of our “Managing Growth and Profits in the Yottabyte Era”research out early next year.

Global Update

Race to a billion – India’s net-addition rate declined significantly in Q3 2011 while China kept its current pace. We expect that China will be the first country to exceed 1 Billion subscriptions by mid-2012. For India, the event will now occur in 2013.
For more details, please see our Global Mobile Wireless Market Update released in July 2011.

Mobile Future Forward

Our annual mobile thought-leadership summit - Mobile Future Forward was a grand success. Our thanks to all those who attended as well as to the speakers, sponsors, and well-wishers for making it happen. Planning for 2012 summit are underway and we will keep you posted as plans develop.

More information at http://www.mobilefutureforward.com

Mobile Predictions Survey 2012

As is the tradition, we are running our annual Mobile Predictions Survey for 2012. Will appreciate your input in understanding the trends and news stories that will make 2012 another big year in mobile. Winners of the survey get our fabulous limited edition Mobile Future Forward 2011 book that contains 19 essays from the global leaders in the mobile industry. (Mobile Predictions Survey Results for 2011 here)

Your feedback is always welcome.

Thanks.

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 Feb 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.

older posts »

Always On Real-Time Access

New Research Paper: The ABCs of SMB Transformation: Apps, Broadband, and the Cloud May 6, 2013

Introduction

Abhi Ingle – The Mobile Cloud Connected Enterprise

Mobile Breakfast Series – Dallas – LTE & Beyond: The future of mobile networks April 3, 2013

US Mobile Market Update Q4 2012 and full year 2012 March 13, 2013

Mobile World Congress 2013 Recap March 6, 2013

US Mobile Data Market Update Q3 2012 November 12, 2012

Mobile Breakfast Series Recap – Atlanta – Connected Devices, Cloud, and Consumer June 24, 2012

Announcing Mobile Future Forward 2012 June 13, 2012

New Research: US Mobile Data Market Update Q1 2012 May 21, 2012

CTIA Wireless 2012 Recap May 14, 2012

Global Mobile Market Update 2012 (Annual Edition) April 30, 2012

Mobile Patents Landscape – An In-depth Quantitative Analysis April 17, 2012

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

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

Mobile World Congress 2012 Recap March 6, 2012

Mobile Internet 3.0: How Operators Can Become Service Innovators and Drive Profitability February 23, 2012

A Tale of Two Mobile Markets – China and India February 22, 2012

2012 Mobile Industry Predictions Survey January 3, 2012

Mobile Breakfast Series – Mobile 2012: Trends and Opportunities December 15, 2011

US Wireless Data Market Update Q3 2011 December 12, 2011

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Always On Real-Time Access

New Research Paper: The ABCs of SMB Transformation: Apps, Broadband, and the Cloud May 6, 2013

Introduction

Abhi Ingle – The Mobile Cloud Connected Enterprise

Mobile Breakfast Series – Dallas – LTE & Beyond: The future of mobile networks April 3, 2013

US Mobile Market Update Q4 2012 and full year 2012 March 13, 2013

Mobile World Congress 2013 Recap March 6, 2013

US Mobile Data Market Update Q3 2012 November 12, 2012

Mobile Breakfast Series Recap – Atlanta – Connected Devices, Cloud, and Consumer June 24, 2012

Announcing Mobile Future Forward 2012 June 13, 2012

New Research: US Mobile Data Market Update Q1 2012 May 21, 2012

CTIA Wireless 2012 Recap May 14, 2012

Global Mobile Market Update 2012 (Annual Edition) April 30, 2012

Mobile Patents Landscape – An In-depth Quantitative Analysis April 17, 2012

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

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

Mobile World Congress 2012 Recap March 6, 2012

Mobile Internet 3.0: How Operators Can Become Service Innovators and Drive Profitability February 23, 2012

A Tale of Two Mobile Markets – China and India February 22, 2012

2012 Mobile Industry Predictions Survey January 3, 2012

Mobile Breakfast Series – Mobile 2012: Trends and Opportunities December 15, 2011

US Wireless Data Market Update Q3 2011 December 12, 2011

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