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US Mobile Market Update Q1 2016 May 30, 2016

Posted by chetan in : 4G,4th Wave,5G,Chetan Sharma Consulting,Connected Intelligence Era,European Wireless Market,Internet of Things,Mobile Future Forward,Technology Cycles,The Golden Age of Mobile,US Wireless Market,Wireless Value Chain,Worldwide Wireless Market , add a comment

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Highlights of the US Mobile Market Q1 2016

· Mobile data revenues increased by 17% YoY and now contribute 73% of the overall service revenues.

· QoQ, the service revenues declined again for the third straight quarter.

· The overall ARPU dropped below $40 for the first time.

· The Capex is likely to contract for a third year in a row given that most of the LTE networks are built out and there is pressure to preserve the margins.

· Device revenues declined sharply as consumers are upgrading at a slower pace than before and new device launches haven’t really motivated consumers to upgrade.

· EBITDA and Net Income saw double digit gains indicating operators are running a much tighter ship than before.

· Churn is at historic lows. Despite all the commotion in the market, fewer customers are churning each quarter.

· US will cross 400M in subscriptions in 2016.

· The data prices remained pretty stable throughout Q1.

· Mobile data traffic grew again with per sub smartphone consumption going past 4.0 GB/user/mo however, overall data traffic is expected to slow down in 2016.

· In the first 4-5 months of Binge-on, T-Mobile users chomped away over enough PBs of data for free to account for almost entire data traffic for the operator in 2013. T-Mobile experienced a net traffic reduction of 10-15% but given that consumers are consuming 3x than before, overall traffic is likely to rise again.

· AT&T continues to add more connected cars than rest of the operators combined. The operator is optimizing its business around profits. One side-effect of this has been a decline in postpaid phone net-adds for the sixth straight quarter.

· Verizon’s IoT/Telematics accounted for $195M in Q1 and is likely to cross the $1B mark in 2016 making US the hotbed for Connected Intelligence activities, growth, and continued experimentation.

· Apple again dominated the device market with over 39% revenue share, 74% profits share however it saw its quarterly YoY growth saw a decline for the first time in 13 years. The law of large numbers is starting to catch-up. Apple needs a new market narrative and/or another blockbuster. Given the pickup in R&D spend, speculators are hoping for the iCar to surface but it could be something as pedestrian as a new iPhone.

· Apple’s services business was greater than Facebook’s Q1 revenue but in context of its $50B quarter, Wall Street doesn’t appreciate the 20% increase in services revenue. Street’s eyes are squarely positioned on the iPhone numbers.

· Intel abandoned its existing wireless efforts leaving its future strategy and its role in the ecosystem a big question mark.

· Android ecosystem revenues and profits improved slightly primarily on the back of Samsung’s quarterly results. Sony, HTC, LG and some other Android players suffered deep losses in Q1.

· Operator tablet net-adds growth declined sharply.

· AT&T and Verizon on average made $17 per sub/mo, T-Mobile stayed into positive territory with $2 profit/sub/mo while Sprint eked out a 20c profit.

We will be doing an in-depth analysis of the future of the mobile industry at our 7th annual mobile executive summit Mobile Future Forward in Sept 2016. Hope you can join us.

Service Revenue Decline, what does 2016 hold in store?

The overall service revenue, postpaid revenue, overall and postpaid ARPU all declined again. After seeing the net-revenue decline for the first time in the history last year, there is a big question if 2016 will repeat itself or not. Q1 pointed downwards albeit only marginally. In general, the net-service revenue decline is not a good sign if it is market induced. In Europe, we saw net-revenue declines but the impact of the economic crisis was a big factor in determining the trajectory. After the economy has improved, we have seen the net revenue in effected countries rise again. In the US, the net-revenue decline is more market induced. The calculation of service revenue is a bit more complicated because device revenues are no longer part of the mix and as customers are weaning off the contracts, we have to adjust the service revenue for this accounting change. Regardless of the accounting distortions, there is continuous pressure on the postpaid revenues which is what is impacting the overall numbers.

Given the competitive state of the market, we might see further service revenue declines in 2016. The reversal might come down to consolidation in the industry in 2017 and beyond. The pressure on the revenues has had a positive impact though – operators are running far tighter ships than before. The net income surged in Q1 2016. Churn is at historical lows.

Spectrum Auction

FCC’s incentive auction will begin at the end of the month. It will be fascinating to see who beyond the usual suspects have aspirations in the mobile auction game.

Microsoft’s Tryst with Mobile

When Microsoft bought Nokia for a tidy sum, a reporter called me and asked, “What do you think?” I responded, “They will have to sell it once they are done realizing it was a mistake.” I have written extensively about the missteps in strategy and tactics that were so apparent from the start. Microsoft backed itself into a corner and had no choice but to buy Nokia and eventually destroy it. One of the highest market cap company disappeared right before our eyes. With market share falling below 1%, Microsoft has pretty much gotten rid of the last remnants of the business. This doesn’t mean Microsoft is out of mobile devices. If you carefully read between the words, Microsoft hasn’t given up and will be back. Its Surface strategy is finally taking shape and yielding better results and the pivot to services was the right call to get Microsoft enmeshed in the complex Connected Intelligence ecosystem. Old habits die hard. Microsoft might be making the same mistake with IoT.

Mobile Data Traffic Growth

In the last quarterly update, we mentioned that the Cisco’s data traffic numbers looked unreasonable for the US market. CTIA’s annual survey results proved the point earlier this week. Cisco will probably adjust its model and correct the numbers in its next update. We expect the US mobile data traffic to grow by 65% in 2016.

Messaging – the Next Big Platform Shift?

The last big platform shift in the computing space was the migration of attention, talent, and dollars from Windows to Android and iOS. The rise of the smartphones mirrored the rapid decline in Microsoft’s hold on the computing platforms. While Android and iOS have served us well, they haven’t evolved much. Despite having sensors and signals, some of the basic things like inter-linking of apps, contextual surfacing of app features and functions, and search remain complex and/or non-existent. The vacuum is being filled by the emergence of messaging as a platform. Messaging is primal. Consumers knew messaging before they knew smartphones. Given the availability of the processing power as well as the smarter software, some of the tasks can be moved to the messaging window is only natural. Asia has been the guiding light in this regard. How messaging emerges and how various players react to this phenomenon will be fascinating to watch in the coming days and months.

What’s next for Apple?

I have been saying for some time that Google has the best AI engine. Try driving in a remote part of the world and use Google Maps and you will see what I mean. The primary reason for this is that Google has been at it the longest with primary dataset on the most number of individuals. Facebook is starting to get there but the AI needs much more work. It will eventually get there. Another player that is sitting on a gold mine is Amazon and that’s why I say that they are most interesting tech company in the industry today.

Every company has at least one Achilles heel. Apple’s is software and services. Apple’s DNA is hardware and services come second. As I have said before, Apple’s problem with the market is more around controlling the narrative. Media and critics have been pretty hot and heavy about the future prospects of Apple. No doubt Apple has a weakness in software as has been apparent for many years but it has a very strong hold on brand loyalty of customers and a rock solid ecosystem of a billion+ consumers around the globe. Guess what, they also have an excellent stream of data on how consumers use devices, what apps they buy, what they surf and where do they go to but the way use it is quite different. I won’t count Apple out by any stretch. In fact, if one studies the acquisitions they have made over the last couple of years and connect the dots, some cool innovations could be released with the iPhone once the company figures out how to do it at scale.

However, as we have said in our Connected Intelligence thesis as well as Fourth Wave series of papers, services is where the action is going to be over the next decade or two. Apple, Facebook, Google, and Amazon are all well positioned to take advantage. How they execute against their strategy will determine who comes out ahead on the other side.

AI is as good as the datasets it has to train on. Neural networks of yesterday have become the AI algorithms of today just like M2M transformed into IoT. New buzzwords are like a necessary evil to keep the tech industry going. Apple has plenty of data, it just hasn’t started using it in a tangible way. You know who else has enormous amount of useful data? Mobile Operators – well, that’s a story for another day.

IoT Revenue Streams and what it means for the ecosystem

Service provider IoT revenue passed the important $1B mark back in 2013. So far it is tracking the growth of the early days of mobile data. However, they are different curves influenced by different factors. Mobile data was relatively an easier curve to climb as the revenues went up as more data handsets came online. The sales, business case, and ROI was straight forward. IoT is a bit more complicated as it across multiple vertical areas and it is not just about the data network, it is about the complete solution. The sales cycle and execution strategy is different and requires patience and resilience.

We will be doing an in-depth analysis of opportunities at the intersection of 5G and IoT at our upcoming Mobile Breakfast Series on June 7th.

Android vs. iOS: The fight for profit continues

Amongst the prominent Android OEMs, HTC, Sony, and LG, all lost money in their device business in Q1 2016. This again highlights the difficulty in differentiating on an open platform. Some of these players might give up on their handset business in 2016. Apple again dominated with 74% of the profit share and 39% of the revenue share with only 15% of the market share. Samsung’s revenues and profitability improved but it continues to face challenges both on the top and bottom end of the spectrum.

4th Wave Revenues

5 years ago, we put forth the theory of 4th wave to explain the upcoming changes in the mobile ecosystem. For the most part, the industry changes and tribulations have tracked the 4th wave curves. Last year, voice revenues fell down by 23%, messaging revenues declined by 18%, while data revenues grew by 23%. 4th wave revenues which now dominate the ecosystem now grew by a 60% YoY. We will have more analysis of the state of the 4th wave ecosystem later in the year.

Regulations for the new age

Some of the regulations in the communications space are over a 100-year-old. Communications itself has drastically changed though the principle of transferring the bits from point A to B remains the same. T-Mobile reported that 54%+ of its voice calls are on VoLTE. IP messaging is many times the SMS global volume. Gradually, almost all voice and messaging will be on the IP layer – voice and messaging will just become apps on the data layer. So pretending and regulating these services as if it were 2000 doesn’t help. An ideal strategy for consideration should be that the IP layer gets regulated for fair pricing, competition, and consumer good while everything on the top of the IP layer gets regulated on a “same service, same rules” principle. The interconnection between apps to deliver services like connection to PSTN, E911, etc. can be addressed by fair market pricing principles. VR is going to become the next communication platform; IP messaging the next application development and commerce platform. To keep the regulatory regime simple and in with the times, by focusing on the access layer, one can guarantee that whatever takes place on the top has the opportunity to grow as the market desires. Similarly, data rules across all apps and services on top of the IP layer should be the same irrespective of the provider. This market shift is required to make the market more competitive and fair.

Quad Moves

AT&T is integrating its DirectTV acquisition. Verizon acquired AOL, launched Go90 and is looking to acquire Yahoo (who isn’t?). Similar moves are afoot in Europe and other regions. Regular readers won’t be surprised. Video is a key offering for many service providers and by bundling quad plays, operators can further lower the churn. Content will continue to play a big role in how various offerings get bundled. The traditional cable bundle is being pulled apart in favor of more al carte OTT offerings. Media companies will have to figure out how they play in the new converged world. The ones that have been sitting on the sidelines will have to make some moves in the wireless ecosystem to stay relevant in the long-term.

The licensed vs. unlicensed: frenemies

Comcast is expected to launch its WiFi first MVNO with Verizon later this year. Google Fi hasn’t been a roaring success, perhaps it was never designed to be. Given that WiFi is carrying 75-80% of the traffic, it is easy to make the business case for a national WiFi operator. Companies like Republic Wireless have shown that this can be done.

Seeing the success of WiFi, FCC has rightly made more unlicensed spectrum available and it will be interesting to see how the ecosystem around 3.5GHz and other bands develop. This in light of what’s happening in the higher bands of cm and mmwave for 5G deployments. Technologies and business models that take into account benefits and drawbacks of both types of spectrum bands across a different uses cases will win out in the end. Despite advances, WiFi calling still has quality issues so the need for traditional networks is not going away anytime soon.

5G Economics

5G is gaining steam. All the major players have outline their preliminary plans to do trials on 5G (code word for we don’t want to be perceived as being behind). However, there is some real progress being made in short-range ecosystem of 5G. I have been working with many companies and talking to many researchers on this subject. I think what’s lacking from the discussion is the role of economics in 5G – what will be the cost structures, ROI, and the TCOs that will make it worthwhile for the operators to deploy 5G profitably. US is likely to be the key driving force in setting the standards and pushing the trials to deployments even though there is no Olympics as a motivator. But competition sure is.

We expect to explore this issue in more detail in the coming months. Our Mobile Future Forward Summit in Sept will tackle the questions in-depth with some seasoned experts.

Our paper on 5G covers the past, present, and future of the network evolution.

What to expect in the coming months?

2016 has started with a bang. The ecosystem is getting very complex and we need better tools to understand the relative strength of players and strategies. 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 2016 and 2016 US wireless market is:

Service Revenues

· The US mobile data services revenues in Q4 2015 increased 2% QoQ and 17% YoY.

· Verizon and AT&T dominated the quarter accounting for 69% of the mobile data services revenue and had 67% of the subscription base.

· Verizon and AT&T are at #2 & #3 global mobile data revenue ranking respectively in Q1 2016. Sprint and T-Mobile also maintained their rankings in the top 10 global mobile data operators.

ARPU

· The Overall ARPU fell by 1.9%.  

· Data contribution to the overall revenues is now at 73%.

· All operators saw their ARPU decline by with Sprint and Verizon experiencing the sharpest declines.

Subscribers

· The US market increased its net-adds to 5.6M. T-Mobile gained the most and Sprint added the least.

· Tablet netadds declined sharply leading to a decline in big decline in postpaid netadds.

· There were more Car net-adds than there were phone net-adds

· AT&T has approximately 8M connected cars on their network – probably the highest of any mobile operator in the world.

4th Wave Progress

· The number of players making $250M/quarter on mobile continues to increase rapidly and these aren’t your traditional wireless players. For example, Mobile is now contributing 80% (up from 30% in Q1 2013) to Facebook’s quarterly revenues. Even traditional players like Hertz, Sears, and Starbucks are generating meaningful revenues from mobile. There are now dozens of such players and the list is just growing. (for more discussion on the topic please see: “Mobile 4th Wave: Evolution of the Next Trillion Dollars”)

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

· Verizon reported $195 million revenue from IoT and Telematics. At the current run-rate, this will likely be a billion-dollar business by 2016.

· Overall, the IoT business is tracking the early days of the mobile data growth.

Connected Devices

· Connected devices (non-phones) accounted for almost 69% of the net-adds in Q1 2016. This means that while there is a healthy smartphone sales pipeline, it is for the existing subs and as such net-adds for the phone business is tapering off and we can expect that new net-adds will continue to be dominated by the connected devices segment.

Handsets 

· Smartphones continued to be sold at a brisk pace accounting almost 97% of the devices sold in Q1 2016. The feature phone category is practically becoming extinct in the US market.

· The smartphone penetration in the US is now at 84%.

· Verizon continues to sell more LTE smartphones as its LTE sub tally rose to 87M making it the #2 LTE operator behind China Mobile which has more than three times the LTE subs. Other three operators are also deep into their LTE deployments. Verizon reported that 92% of its total data traffic is on the LTE network now, clearly the fastest technology transitions we have seen in the US wireless industry.

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, articles, and at our annual thought-leadership summit – Mobile Future Forward in Sept 2016. The next US Wireless Data Market update will be released in Aug 2016.

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

IoT–Exploring the next big thing in mobile May 1, 2016

Posted by chetan in : 4th Wave,5G,Chetan Sharma Consulting,Mobile Breakfast Series,The Golden Age of Mobile,Wireless Value Chain,Worldwide Wireless Market , add a comment

Internet of Things (IoT) has been hailed as the next big thing in the mobile industry. As connections from objects and things interconnect with existing and new end points, the networked effect can provide tremendous opportunities, reshape existing processes, user experiences, and expectations. But, really, how real is IoT and what will it take to reach the billions of dollars promised. Will it fundamentally alter how we do things? We are starting to see signs of tremendous progress. GE is investing $4B+ into its version of IoT – the industrial Internet and it is making the difference in operations and machine learning. Connected consumer gadgets are enabling us to lead healthier lives, work more efficiently, and manage our time more effectively.

Chetan Sharma Consulting hosted the first Mobile Breakfast Series event of the year in Vancouver and we delved deeply into the subject of IoT and what it means. We talked about the opportunities it represents, the challenges it faces, and the timeline for success. The panel took a look at the fundamental elements of IoT that will be a key layer for the Connected Intelligence Era.

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Shahid Ahmed is a Partner at PwC where he leads the Emerging Technology and IoT Practice. Previously, Shahid was the Managing Director with Accenture, where he had P&L responsibility for North America’s Communications business.  In this role, Shahid helped telecommunications clients build new capabilities, operate more efficiently and drive new growth.  He was also responsible for the Network practice in North America.  During his twenty-year tenure at Accenture, Shahid was involved in creating many practices including the formation of the Wireless Practice and helping to start the Accenture Cisco Business Group. Prior to joining Accenture, Shahid held several management positions at Sprint where he rolled out and expanded Sprint’s cellular services in North America.   Shahid was also responsible for rolling out the first cellular digital packet data (CDPD) capability in the US. Shahid is an active member of several wireless industry groups. He currently serves on multiple Advisory Boards such as the Smart Network Council, Cellular Telecommunication and Internet Association (CTIA), Northwestern University Masters in Engineering Management (MEM) Program and The Coral Group. In February 2011, Shahid was appointed as an Advisor to the Federal Communications Commission (FCC) Technical Advisory Council advising on technology issues facing the United States.  Shahid was chair of the M2M/IoT working group and currently chairs the cyber-security working group.

Rob Tiffany is the Global Technology Lead for the Internet of Things at Microsoft where he’s shipped smartphones and architected + developed many of the world’s largest enterprise mobile, IoT and wireless solutions. Prior to Microsoft, he spent his career as an entrepreneur, executive, strategist and writer of bestselling books on mobile and wireless technologies. A pioneer of the mobile revolution, he drove the development of the mobile app ecosystem and co-founded the world’s first cloud-based, mobile device management company. He started his career in the M2M business in the early days of wireless, bringing unintelligent vending machines to life.

Gonzalo Tudela is CEO and Co-founder of Vandrico Solutions, an enterprise wearables software company based in Vancouver Canada. With a background in Finance and Mining Operations, Gonzalo is an early champion of the positive impact wearable technology will have on large commercial operations. His insights have been featured in publications such as The Globe and Mail, Entrepreneur Magazine and TechCrunch. Gonzalo is a TEDx speaker who regularly presents to business leaders across the world. His expertise has been televised internationally to millions of viewers on the Globo TV network and on CBC. Gonzalo currently leads Vandrico in helping large global organizations use wearable technology as a way to overcome safety and operational challenges.

Rob Chandhok currently serves as President and COO of Helium, which provides a complete Internet of Things platform that makes sense of your things. Prior to Helium, Chandhok served as president of Qualcomm Interactive Platforms and senior vice president of Qualcomm Technologies Inc., where he was responsible for Qualcomm products and strategies that enabled people to benefit from the Internet of Everything, including wearable computing, vision-based computing via the Vuforia augmented reality platform, and the AllJoyn software development framework, an open source project of the AllSeen Alliance. Chandhok has years of practical and product-oriented experience in wireless communications and the Internet. He takes a systems-level approach to innovative communication oriented products, from chips up to applications and user interface. Chandhok holds 36 patents and has 23 published articles.

The highlights of the discussion were:

· Shahid was just back from the big Hannover fair in Germany. He gave a good overview of the emerging movement towards of what is being called Industrial 4.0 essentially a derivative of Connected Intelligence. Industrial nations like Germany and Japan are very worried about staying relevant in the new economy. It’s worth reading the official summary here. US was the showcase country this year so there were plenty of representation from US tech giants like GE, Intel, Microsoft, AT&T, and many others. Even President Obama took time to represent the US interests at the show. The bottom line of the show was that everything is getting connected, really fast, and the change is coming faster than we can think. There were several case studies that highlight this as we will discuss below.

· Rob Chandhok has cut his teeth in the mobile ecosystem with years of experience building technology and ecosystems at Qualcomm and is now shepherding Helium to become a contender in the IoT space. Fresh from raising a $20M round with GV and the likes, Helium is making good progress in that dimension. As he stated on the panel, Helium wants to become Android of the IoT world.

· Rob Tiffany started his career in the M2M space building vending machines that could communicate and help with the operations but as he leaned all too painfully, it is not about the technology but also about the human element that we need to be always cognizant of it.

· Gonzalo’s background is in mining and he is connecting the mining world to IoT and vice-versa and is in the process building out a platform that can be applied to many other use cases but the focus is on how to make things better, safer, workers more productive, operators cheaper and effective, and the ROI a no-brainer.

· While the news headlines are captured by the likes of consumer gadgets and gizmos, almost all of the revenue and profits is in Industrial or Enterprise IoT and that’s where we focused all of our attention.

· At the highest level, the main goals of IoT are one or more of the following: to reduce cost and expense, reduce risk, increase productivity, enhance consumer engagement which results into higher revenue and better profitability, and obviously at the end of the day – increase revenues with new revenue streams or new business models applied to the old businesses or just doing a better job with the existing streams.

· Product companies are turning into services companies. IoT is also enabling new business models. The prominent examples are: Rolls Royce and GE are leasing their jet-engines by the hour rather than selling them so that they can very accurately predict the maintenance windows and maximize usage by reducing downtime costs. It has led to increase in revenue and best margins for the business.

· Many folks in the industry view IoT as dumb endpoints to collect data but clearly there much more to it. Even sending control commands to manipulate the outcomes are a big step forward. However, the clear benefits come when the end-points are smart and are capable of making decisions. In the case of Helium sensors, software can be updated over time. In fact, if the sensor is not software upgradable, you shouldn’t even consider buying the sensor. As such, some of the new low-power networks like Sigfox and Lora are a non-starter in the long-run because they just don’t have the bandwidth to send updates to the end-points efficiently. I think the role of these two networks is similar to that of WiMax. It helped accelerate the LTE evolution. Similarly, SIgfox and Lora spurred the growth of NB-IoT and the ecosystem around it is being built quickly.

· Another great example is from RioTinto – they have dozens of mining operations around the world and operate heavy equipment. With the help of sensors, they are able to operate autonomous vehicles. In fact, RioTinto is the world’s largest owner and operator of autonomous haulage system trucks. By operating autonomously, more material can be moved safely and better yield is delivered.

· In the underground mining operations, Vandrico equips miners with off-the-shelf wearables and the data from the sensors is used to provide specific instructions based on the type of work, location within the mine, and other contextual factors that need to be considered in real-time operators.

· This leads to how the business model should be designed. More and more folks are thinking about value-based pricing. The communication piece in IoT is practically a commodity and so the value is in the outcomes. Gonzalo brainstormed some interesting value propositions that he is thinking about for e.g. pricing based on lives saved or extra production of the mineral (in case gold, copper and other valuable minerals, one can hit the jackpot).

· Microsoft has a number of good framework elements that can be used for IoT like Azure cloud, Analytics, BI, real-time event processing of high volume, etc. With Amazon, Microsoft are the two giants in the IoT cloud space.

· The IoT stack is very fragmented and it will continue to be such for a time before some consolidation takes place.

· Opex of IoT devices/network is generally bigger than the capex.

· Security is of course a big deal in IoT. Some think about it all the time but in general there is a big gap in the industry. Regulators are slow to move as well. Perhaps a big public fiasco will force the industry and the regulators to come up with guidelines and rules that can be enforced. Just because you can encrypt data doesn’t mean you are securing the data from the sensor. The fact that it is emitting data (garage opener) can be captured by nefarious elements. Encrypted data is of no use in such scenarios. So, as an industry, we need to take a much deeper look into how we deal with security and privacy of IoT data and end-points.

· BP provided fitbits to their employees and saw a 44% reduction in sick-days. That’s enormous amount of hours that can change how the business is run. It will also have a ripple effect on the fabric of society – insurance, health care facilities, education, social security, etc. will all be impacted.

· Gaming might provide some interesting business model lessons for IoT.

· In the end, Industrial IoT is about managing business outcomes to impact the basic operating metrics of the company and the ecosystem.

· The threat of cybersecurity looms large and we just don’t have the integration, collective framework to even start tackling the problem. Lots of challenges and opportunities to tackle this.

· There are big differences in expectations of IoT solutions in the developed vs. emerging worlds. Pricing is the biggest variable. As such companies operating in the space had to adjust their pricing models to suit the market and make it more palatable to the markets such as India and China.

· It was kind of reflective of the state of the industry that we didn’t talk much about the mobile operators who dominated the industry until 2010-11 and are slowly becoming less relevant in the 4th wave era (more to come on this). Of course, there are a few operators like AT&T, Verizon, Vodafone, Telefonica, and DT who are quite active in the space not only at the connectivity layer but actually on all layers of the stack. However, their best opportunity might be managing the OSS stack for the Industrial world.

Overall, it was an excellent panel with diverse viewpoints covering a technology evolution that is just getting started. It is exciting to be part of this shift and help shape the conversation which is bound to have a fundamental impact on the global economy. My thanks to our sponsor Optimus Information for their support, all the speakers who traveled great distances to be with us, and to the attendees who took out their morning to be with us. Everyone was glued to the discussion and the time flew by very fast. And we barely were able to scratch the surface. We will continue the dialog in the coming days, months, and years.

Our next opportunity is our Mobile Breakfast Series in Seattle on June 7th where we will add 5G to the mix and explore where are the opportunities at the intersection of 5G and IoT. We will look into what the new world of 5G will look like and how it will impact IoT.

As always, we welcome your input which helps in planning future forums and brainstorm sessions.

Thanks

Chetan Sharma

US Mobile Market Update – 2015 March 9, 2016

Posted by chetan in : 4G,4th Wave,5G,AORTA,Applications,ARPU,Chetan Sharma Consulting,Connected Intelligence Era,IoE,IoT,Mobile 2016,Mobile Breakfast Series,Mobile Ecosystem,Mobile Future Forward,Smart Cities,Smart Phones,The Golden Age of Mobile,US Wireless Market,Wireless Value Chain,Worldwide Wireless Market , add a comment

US Mobile Market Update – 2015

http://www.chetansharma.com/usmarketupdate2015.htm

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Highlights of the US Mobile Market 2015

· The overall mobile market expanded by 18% increase in revenues.

· Mobile data revenues increased by 17% YoY and now contribute 72% of the overall service revenues. In terms of data contribution, US is catching up with Japan which has been a leader in data % since the iMode days.

· For the first time in its history of the US market, the service revenues declined.

· For 2015, the voice revenues declined by 24%, messaging revenues declined by 18%, tablets saw the dip by 18%, handsets saw an increase of 5%, access revenues by 23% and 4th wave services dominated with an increase of 60%.

· The Capex contracted for a second year in a row.

· Device revenues are now 21% of the overall.

· EBITDA and Net Income saw double digit gains indicating operators are running a much tighter ship than before.

· Churn is at historic lows. Despite all the commotion in the market, 7% fewer customers churned in 2015.

· After falling sharply in 2014, the data prices remained pretty stable throughout the year.

· Mobile data traffic grew again with per sub smartphone consumption at 3.9 GB/user/mo (see note below on data traffic)

· In the first 10 weeks of Binge-on, T-Mobile users chomped away 34 PB of data for free or what was the entire year’s worth of data traffic on T-Mobile’s network in 2010. T-Mobile experienced a net traffic reduction of 10-15% but given that consumers are consuming 3x than before, overall traffic will rise again.

· AT&T added 4 million cars to their network. While postpaid business has its challenges, the connected devices business showed significant strength in 2015.

· Verizon’s IoT/Telematics accounted for $690M in 2015 and is likely to cross the $1B mark in 2016 making US the hotbed for Connected Intelligence activities, growth, and continued experimentation.

· Apple again dominated the device market with over 45% revenue share, 81% profits share with only 16%-unit share.

· Android ecosystem revenues grew by 5% but the profits declined by 2%

· There were more tablets added to the network than phones in 2015. Cars outperformed M2M by a good margin.

· T-Mobile edged past Verizon in postpaid netadds, AT&T was ahead in Prepaid, Verizon in Connected devices, Sprint in wholesale, and Verizon overall had the most netadds in 2015.

· AT&T and Verizon on average made $16 per sub/mo, T-Mobile turned into positive territory with $1 profit/sub/mo while Sprint stayed in negative territory with a loss of $0.55 per sub/mo.

· The valuation of Uber surpassed the combined market cap of T-Mobile and Sprint.

What to expect in 2016? Questions for 2016.

· We expect the overall US mobile market to pass the half a trillion-dollar mark in 2016.

· US will cross 400M in subscriptions in 2016.

· After the pause of dropping data prices in 2015, we could see intense price wars in 2016.

· The upcoming auction could be the big story of the year.

· What new 5G test results will be announced and will industry converge on some 5G standards ahead of the 2019 deadline?

· Will Comcast MVNO follow Google-Fi as a niche endeavor or does it have elements to fundamentally impact the market. 2016 will hopefully answer the question about the future of WiFi-first network strategy.

· Will the upcoming eSim integration in devices go far enough to disrupt the market?

· Will IoT gain sufficient steam to justify the forecasts?

· Can Android OEMs turn around the decline in profits in 2016?

· Can iPhone7 boost Apple’s growth numbers in 2016?

· Will the service revenue decline in the US reverse itself or are we seeing the start of the decline in revenues in the industry?

· Autonomous driving was a big story last year; what progress are we going to make in 2016? How will Uber shape the autonomous driving business models?

· AT&T and Verizon have bet big on video. How will the respective strategies pan out in 2016?

· The Apple-FBI is going to be one of the most watched cases in the world. Whichever way the final ruling lands has huge implications for the tech industry and consumers.

We will be doing an in-depth analysis of the future of the mobile industry at our 7th annual mobile executive summit Mobile Future Forward in Sept 2016. Hope you can join us.

Service Revenue Decline, what does 2016 hold in store?

The overall service revenue, postpaid revenue, overall and postpaid ARPU all declined. In general, the net-service revenue decline is not a good sign if it is market induced. In Europe, we saw net-revenue declines but the impact of the economic crisis was a big factor in determining the trajectory. After the economy has improved, we have seen the net revenue in effected countries rise again. In the US, the net-revenue decline is more market induced. The calculation of service revenue is a bit more complicated because device revenues are no longer part of the mix and as customers are weaning off the contracts, we have to adjust the service revenue for this accounting change. If we take the accounting distortion into account, service revenue is still in the positive growth territory but in terms of how operators report service revenues, this was the first year the category saw a decline. Regardless of the accounting distortions, there is continuous pressure on the postpaid revenues which is what is impacting the overall numbers.

Given the competitive state of the market, we might see further service revenue declines in 2016. The reversal might come down to consolidation in the industry in 2017 and beyond. The pressure on the revenues has had a positive impact though – operators are running far tighter ships than before. The net income surged in 2016.

The licensed vs. unlicensed: frenemies

Comcast is expected to launch its WiFi first MVNO with Verizon fairly this year. Google Fi hasn’t been a roaring success, perhaps it was never designed to be. Given that WiFi is carrying 75-80% of the traffic, it is easy to make the business case for a national WiFi operator. Companies like Republic Wireless have shown that this can be done. Keeping aside some of the technical challenges with WiFi, there are two major business challenges with the WiFi strategy. First, even with the rise of WiFi usage, the cellular usage hasn’t slowed down. Cellular data usage is still growing 60-70% YoY. As such, consumers will have to rely on cellular when they are out and about which means the economics comes down to the wholesale rate the MVNO has for cellular. The second big problem is the lack of handset choices. For consumers, handset choice is paramount. They want both iOS and Android devices to go with their data plans. WiFi operators generally have limited handsets. Over time this will change but to have a WiFi network of scale, economics, choice, and pricing are critical. By contract, cellular operators will always have a leg-up on the MVNOs unless access regulations are in place which of course are nowhere in sight.

Seeing the success of WiFi, FCC has rightly made more unlicensed spectrum available and it will be interesting to see how the ecosystem around 3.5GHz and other bands develop. This in light of what’s happening in the higher bands of cm and mmwave for 5G deployments. Technologies and business models that take into account benefits and drawbacks of both types of spectrum bands across a different uses cases will win out in the end. Despite advances, WiFi calling still has quality issues so the need for traditional networks is not going away anytime soon.

M&A 2016

As we mentioned last year, the service provider M&A window for 2016 pretty much closed late 2015 given the upcoming auctions and the presidential cycle.  There might still be some cross border opportunities but for any major transactions, it is better to wait it out to have a reasonable chance of success.

IoT Revenue Streams and what it means for the ecosystem

Service provider IoT revenue passed the important $1B mark back in 2013. So far it is tracking the growth of the early days of mobile data. However, they are different curves influenced by different factors. Mobile data was relatively an easier curve to climb as the revenues went up as more data handsets came online. The sales, business case, and ROI was straight forward. IoT is a bit more complicated as it across multiple vertical areas and it is not just about the data network, it is about the complete solution. The sales cycle and execution strategy is different and requires patience and resilience.

AT&T already had an active IoT developer program. Verizon introduced its ThingSpace platform to the developers last year. It is already selling complete IoT solutions in energy, transportation, security, and several other industry segments. As we mentioned before, Verizon is on track to crack the billion-dollar mark in IoT this year. For trivia buffs, Verizon passed the billion-dollar mark in mobile data revenues back in 2004 which at the time made only 5%of the overall wireless revenues for the operator.

We will be doing an in-depth analysis of the IoT Opportunity at our upcoming Mobile Breakfast Series in April and May.

Mobile data growth – Correcting the Cisco Numbers

Mobile data consumption (cellular) continues to grow as devices and networks continue to improve. There are 13 countries now with at least 1GB/mo/sub consumption. US is amongst the top three. At the end of 2015, the average consumption per sub in the US was at 3.9 GB/mo/sub.

Earlier this quarter, Cisco released its annual VNI report that forecasts data consumption and growth around the world. However, they did something very unusual this time, they pulled back their “factual numbers” by 36% for the US market. Based on our research which is corroborated by the data from the sources, Cisco’s numbers are low. Given that a lot of policy papers use these numbers as an input, we thought it will be worthwhile providing the reasonable estimates for data growth in the US market. These estimates match well with the data growth numbers in the Ericsson report.

Our estimates are that the US data consumption last year was close to 10.9 Exabytes. Ericsson reported approximately 10.5 Exabytes. Cisco adjusted its numbers from 9.2 Exabytes to 6 Exabytes.

Android vs. iOS: The fight for profit continues

Amongst the prominent Android OEMs, HTC, Sony, LG, and Lenovo all lost money in their device business in 2015. This again highlights the difficulty in differentiating on an open platform. Some of these players might give up on their handset business in 2016. Apple again dominated with 81% of the profit share, 45% of the revenue share, with only 16% of the unit share. Samsung’s profitability improved a bit but it continues to face challenges both on the top and bottom end of the spectrum.

4th Wave Revenues

5 years ago, we put forth the theory of 4th wave to explain the upcoming changes in the mobile ecosystem. For the most part, the industry changes and tribulations have tracked the 4th wave curves. Last year, voice revenues fell down by 23%, messaging revenues declined by 18%, while data revenues grew by 23%. 4th wave revenues which now dominate the ecosystem now grew by a 60% YoY. We will have more analysis of the state of the 4th wave ecosystem later in the year.

In its Q4 15 earnings call, Verizon laid out its 3-Tier strategy which is similar to the 4th wave digital strategy we have been working on with many operators around the globe since 2011 (see paper and slides for details). Without moving up the stack, eventually, operators will run out of the data steam that is powering their revenues today.

Regulations for the new age

Some of the regulations in the communications space are over a 100-year-old. Communications itself has drastically changed though the principle of transferring the bits from point A to B remains the same. T-Mobile reported that 50% of its voice calls are are on VoLTE. IP messaging is many times the SMS global volume. Gradually, almost all voice and messaging will be on the IP layer – voice and messaging will just become apps on the data layer. So pretending and regulating these services as if it were 2000 doesn’t help. An ideal strategy for consideration should be that the IP layer gets regulated for fair pricing, competition, and consumer good while everything on the top of the IP layer gets regulated on a “same service, same rules” principle. The interconnection between apps to deliver services like connection to PSTN, E911, etc. can be addressed by fair market pricing principles. VR is going to become the next communication platform; IP messaging the next application development and commerce platform. To keep the regulatory regime simple and in with the times, by focusing on the access layer, one can guarantee that whatever takes place on the top has the opportunity to grow as the market desires. Similarly, data rules across all apps and services on top of the IP layer should be the same irrespective of the provider. This market shift is required to make the market more competitive and fair.

Connected Devices – Resetting the target

The 50B number by 2020 has gotten into the industry lexicon since 2010 when Ericsson first suggested that we are likely to reach this target by the end of the decade. Others picked up the number and either copied it or even went further by suggesting even 75B+ numbers. By the middle of this decade, it looks unlikely, we will hit 50B. Our research shows that we were at approximately 16B last year. It is tall order to make up 34B in 5 years. Given the new evidence and assumptions, Ericsson also revised its estimates down to 28B by 2021 (the 2020 number is just over 25B). 25B+ is still an excellent target and something the industry can be proud of. The 50B number still gets thrown around a lot by vendors and media. We will be better off as an industry if we adjust the forecasts based on ground realities and not unnecessarily hype things.

Apple – what’s next? Mastering the narrative

Apple’s profit in Q4 were the highest recorded in the history of mankind. Let that sink in for a minute. Its $18B in profit on $76B revenue was truly astonishing. Yet, the markets were disappointed. What gives? First, the markets care about growth more than they care about the size of the profits or revenue. If the growth number matches or exceeds the expectations, the stock price responds positively otherwise it moves in the other direction. Second, for the first time since 2003, Apple issued a negative guidance on sales.

The unwritten narrative for Apple’s success has been around the iPhone juggernaut. Now that the high-end market for smartphones is starting to saturate, Apple needs a new narrative that can tie to growth. Apple took a shot at it by releasing some new details around services revenue. In any other company, this would have been received very well. With Apple, expectations of the market are supersized so it is not clear if the pivot towards services will help reshape the basic narrative around Apple’s growth.

Connected Consumer

· On average, each US household spent approximately $3800 on access and devices in 2015.

· Roughly 80% or $3000 of the US household spend went to access of services such as cellular voice, mobile data, cable, landline voice, and broadband internet.

· Roughly 20% or $800 of the US household spend went to devices such as computers, smartphones, feature phones, wearables, tablets, e-readers, connected cars, drones, robots, connected home, and other connected devices.

· 41% of the household access spend went to cellular phones (for voice and data services).

· As a standalone category, mobile data is the biggest category approaching $1000 in yearly household spend.

· In the last 5 years, mobile data spend has risen the most and landline voice has declined the most. Cellular voice spend has also gone down while cable and broadband spend have seen relatively modest uptick.

· In devices, smartphone is by far the biggest spend category. Consumers spend almost 3x on smartphones than they spend on personal computers. Smartphones accounted for more than 50% of the US household connected spend in 2015.

· New categories such as wearables, connected cars, drones/robotics, and connected homes have started to make a tangible impact on consumer spend.

· US consumers spent more on wearables than feature phones in 2015.

· Chetan Sharma Consulting conducted its annual Connected Consumer survey of 1000 US households. The results confirmed the ongoing increase in the number of connected devices/household.

Quad Moves

AT&T is integrating its DirectTV acquisition. Verizon acquired AOL and launched Go90. Similar moves are afoot in Europe and other regions. Regular readers won’t be surprised. Video is a key offering for many service providers and by bundling quad plays, operators can further lower the churn. Content will continue to play a big role in how various offerings get bundled. The traditional cable bundle is being pulled apart in favor of more al carte OTT offerings. Media companies will have to figure out how they play in the new converged world. The ones that have been sitting on the sidelines will have to make some moves in the wireless ecosystem to stay relevant in the long-term.

The Upcoming 5G wars?

5G is gaining steam. All the major players have outline their preliminary plans to do trials on 5G (code word for we don’t want to be perceived as being behind). However, there is some real progress being made in short-range ecosystem of 5G. As I noted, in my MWC note, some of the demos coming out of the labs are exciting. In the US, Verizon’s announcement last year took folks by surprise. By Q1 16, both AT&T and T-Mobile announcement their version of 5G trials. Verizon was out with the first batch of results from its experiments indicating 10Gbps throughput at short-distances. Given the momentum behind cm/mm wave, it is possible that some consensus is built around the spectrum bands by country (and not wait till WRC 19) to get the device ecosystem going.

A lot is still unknown about 5G, specifically, what will be the economics of 5G and the business case for new capex and ROI. We hope to explore this topic in more detail in the coming months.

Our paper on 5G covers the past, present, and future of the network evolution.

What to expect in the coming months?

2015 was a tremendous year for mobile industry thus far as it becomes omnipresence in every industry. We saw some massive moves, astounding acquisitions, and interesting strategic endeavors. The final quarter which is typically the biggest in terms of revenue will lay the foundation for an exciting 2016.

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 2015 and 2015 US wireless market is:

Service Revenues

· The US mobile data services revenues in Q4 2015 increased 3% QoQ and 16% YoY.

· After crossing the $100B in data revenues for two straight years, the US market is set for another excellent mobile data services year though some slowdown has started to occur as predicted by our 4th wave thesis.

· Verizon and AT&T dominated the quarter accounting for 69% of the mobile data services revenue and had 67% of the subscription base.

· Verizon and AT&T are at #2 & #3 global mobile data revenue ranking respectively in Q4 2015. Sprint and T-Mobile also maintained their rankings in the top 10 global mobile data operators.

ARPU

· The Overall ARPU fell by 2.2%. 

· Data contribution to the overall revenues is now at 72%.

· After a minor blip of positive growth in postpaid ARPU by T-Mobile and AT&T earlier this year, all operators saw declines in postpaid ARPU in Q4 with Sprint showing the sharpest decline with 18% change YoY.

Subscribers

· The US market increased its net-adds to 6.7M. AT&T, Verizon, and T-Mobile all added approx. 2M or more subs. Sprint also showed positive net-adds though at a fraction of the top 3.

· Verizon again led in postpaid net-adds though a bulk of the net-adds are coming from tablets.

· AT&T has approximately 7M connected cars on their network – probably the highest of any mobile operator in the world.

4th Wave Progress

· The number of players making $250M/quarter on mobile continues to increase rapidly and these aren’t your traditional wireless players. For example, Mobile is now contributing 80% (up from 30% in Q1 2013) to Facebook’s quarterly revenues. Even traditional players like Hertz, Sears, and Starbucks are generating meaningful revenues from mobile. There are now dozens of such players and the list is just growing. (for more discussion on the topic please see: “Mobile 4th Wave: Evolution of the Next Trillion Dollars”)

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

· Verizon reported $200 million revenue from M2M and Telematics. At the current run-rate, this will be a billion dollar business by 2016. The current annualized run rate is $800M.

Connected Devices

· Connected devices (non-phones) accounted for almost 66% of the net-adds in Q4 2015. This means that while there is a healthy smartphone sales pipeline, it is for the existing subs and as such net-adds for the phone business is tapering off and we can expect that new net-adds will continue to be dominated by the connected devices segment.

Handsets 

· Smartphones continued to be sold at a brisk pace accounting almost 97% of the devices sold in Q4 2015. The feature phone category is practically becoming extinct in the US market.

· The smartphone penetration in the US is now at 83%.

· Verizon continues to sell more LTE smartphones as its LTE sub tally rose to 84M making it the #2 LTE operator behind China Mobile which has more than three times the LTE subs. Other three operators are also deep into their LTE deployments. Verizon reported that 90% of its total data traffic is on the LTE network now, clearly the fastest technology transitions we have seen in the US wireless industry.

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, articles, and our annual thought-leadership summit – Mobile Future Forward. The next US Wireless Data Market update will be released in April 2016.

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

Mobile World Congress 2016 Observations February 29, 2016

Posted by chetan in : 4th Wave,5G,ARPU,Chetan Sharma Consulting,Connected Devices,Connected Intelligence Era,Disruption,Enterprise Mobility,LTE,Mobile 2016,Mobile Breakfast Series,Mobile Future Forward,Mobile World Congress,MWC,NFV,SDN,Technology Cycles,The Golden Age of Mobile,US Wireless Market,Wireless Value Chain,Worldwide Wireless Market , add a comment

Mobile World Congress 2016 Observations

The second of grand slams of mobile events – Mobile World Congress has become the marquee events that helps get the pulse of the industry as to where things are headed for the year. With the attendance topping 100K for the first time, it is a massive undertaking and brings all major players in the ecosystem from all corners of the world. Vegas could learn a thing or two from Barcelona on how to host big events. Some of the major themes were predictable like 5G, IoT, and VR. Others were important but not widely talked about in public settings. This note presents the summary of our observations from the show.

5G – 5G entered industry’s consciousness last year and the activity around the globe has just caught fire since then. Each week there is a new trial announced. Last year, there were more questions about 5G than answers. Some of the questions are starting to get answered now and we are getting clarity on others. However, the specification timeline still stays around 2019 with full standard deployments not before 2020. Given the trial activity and the progress in the labs, there is a good possibility, that there might be some consensus on higher frequency use specifications especially around indoor and dense outdoor networks.

I had a chance to visit with a number of CTOs of major players and these guys are not the ones who give into hyperbole. As an engineer, I left the show quite optimistic about the solutions and technologies that will become part of the 5G portfolio.

Verizon was the first one to announce results from some early tests in the field – 10 Gbps for potential fixed wireless deployments. Nokia and DT both showed sub millisecond radio delay which is quite an achievement. Ericsson showed the power of beamforming to gain really high capacity at short distances. 25-30 Gbps was common in most of the lab setups. SDN/NFV will provide the key underpinning to the 5G architecture but it didn’t surface much in the discussions.

Fundamentally, 5G will be driven by economics not just technology. Europe’s quixotic approach to spectrum auction in 2000s led to a decade long stagnation that left Europe behind. To attain leadership in 5G and on the next wave of technology evolution of Connected Intelligence, policy, technology, and strategy have to work hand-in-hand in a country to gain an upper hand. Some of my thoughts mentioned in the Economist and WSJ.

We will be covering 5G and its implications in future papers and at Mobile Future Forward in Sept.

Gigabit Society – While 5G is still a ways off, work goes on the LTE front. Industry hit a major milestone of a 1B LTE subs. Lot of the 5G enhancements will also be available in 4G being termed as 4.5G, Xtreme LTE, pre5G, 5G ready, and really-really advanced LTE. Infact, many of the features talked about in 5G are going to be available in the 4G evolution path. Qualcomm showcased their X16 chipset capable of reaching 1Gbps by combining 10 100Mbps streams.

4th Wave – In 2011, we put forth the 4th wave theory and 5 years later, we are seeing the 4th wave in full effect. As I mentioned to the Economist and the WSJ, the value is moving to the applications and services layer. Operators who will invest to become “solutions providers” will be better positioned for the future vs. the ones who are purely “access providers.” We are seeing the theory play out in front of our eyes. In 2014, US became the first country where the 4th wave revenues were greater than the access revenues. We expect this to occur in every major market over the course of next few years. Operators such as AT&T, Verizon, Telefonica, DoCoMo, KDDI, and Orange are benefiting from becoming solution providers. The new found revenue speaks for itself (more on this next week in our US Market Update for 2015).

Ericsson – Amazon Cloud Deal – Ericsson and Amazon struck a clever cloud deal that helps mobile operators use the AWS framework while creating a framework to be in compliance with the safe harbor provisions of sovereign nations. Win-Win-Win for sure.

The Ad wars – Instead of innovating, the ad industry as a whole took shortcuts and the end result was the bombardment of useless ads with no frequency control. Consumers are responding by embracing ad-blockers. Operators view this trend as an opportunity to stall the OTTs. Some of it is genuine concern for the consumers who get slapped with ads which consume good portion of their data bucket and deteriorate the experience sometimes to a point of making the browsing completely unusable especially when network conditions are less than favorable. Operator 3 in Europe working with startup Shine is taking the stance to block out the ads inviting the scorn of the ad industry and a peek of curiosity from the regulators. It is unlikely to be an effective strategy. However, it clearly is an opportunity for the ad industry to step up and design new frameworks that are consumer friendly. When we wrote the first mobile advertising book at the dawn of the birth of the modern mobile advertising industry, we had proposed several ideas that use the data to enhance the consumer experience and ecosystem strength but we clearly have a lot of work to do.

Verizon XO investment – Verizon’s XO deal of $1.8B didn’t get much attention but it was a brilliant deal appreciated by the folks who really understand what is going on. Verizon gets a fiber network and more important wireless spectrum (28 and 39 GHz) suited for 5G.

Resurrection of RCS – RCS has been a poster child of inability of operators to work together on a global scale w.r.t applications. The growth of IP messaging is well documented. Not only did operators miss out but Google did as well. Now that messaging is emerging as a new potential commerce and engagement platform, this is an attempt by Google to take a shot at the messaging opportunity. A number of things have to go right for this program to work so the probability is stacked against it.

Facebook TIP – Having shaped the IT infrastructure, Facebook is focusing on influencing the telecom infrastructure stack. The focus is going to commoditize the stack and open source it. Some big names are joining the effort like Nokia, Intel, and DT.

Connecting the next billion takes a back seat – Last year, one of the big theme emerging out of MWC was the focus on connecting the next billion. The talk of 5G drowned out any discussion of connecting the unconnected. The show did discuss using balloons, drones, satellites unlicensed spectrum to lower the cost of access. The unintended consequence of FreeBasics ruling might be a dampening effect on experimenting with alternative business models to support low cost access in emerging markets in the short-term.

Net Neutrality – NN has become an emotionally charged debate. Regulators around the world are grappling with how to understand and regulate through the complex prism of the future. Regulators are rushing to issue their rulings based on the world they saw in the past not the society and how it is going to react to applications and services in the future. Participants are getting bolder in their approach and interpretation of Net Neutrality. T-Mobile’s Binge-On is being watched by operators worldwide and the regulators are trying to understand what it means in their local market.

Regulations for the new age – Some of the regulations in the communications space are over a 100-year-old. Communications itself has drastically changed though the principle of transferring the bits from point A to B remains the same. T-Mobile reported that 50% of its voice calls are are on VoLTE. IP messaging is many times the SMS global volume. Gradually, almost all voice and messaging will be on the IP layer – voice and messaging will just become apps on the data layer. So pretending and regulating these services as if it were 2000 doesn’t help. An ideal strategy for consideration should be that the IP layer gets regulated for fair pricing, competition, and consumer good while everything on the top of the IP layer gets regulated on a “same service, same rules” principle. The interconnection between apps to deliver services like connection to PSTN, E911, etc. can be addressed by fair market pricing principles. VR is going to become the next communication platform; IP messaging the next application development and commerce platform. To keep the regulatory regime simple and in with the times, by focusing on the access layer, one can guarantee that whatever takes place on the top has the opportunity to grow as the market desires. Similarly, data rules across all apps and services on top of the IP layer should be the same irrespective of the provider. This market shift is required to make the market more competitive and fair.

IoT – IoT use cases are becoming more crisp and clear. There is steady growth in how IoT is getting integrated into both industrial and consumer worlds. As expected there are efforts underway to streamline and unfragment the stack. Intel and Qualcomm got together for the larger good of the industry under the Open Connectivity Foundation. We will be taking a deep dive into the IoT world at our upcoming Mobile Breakfast Series event in Vancouver.

eSIM – eSIM is potentially one of the biggest disruptive force our industry has seen in some time. If you connect the dots into the future, it is becoming clear that there is significant tension along the fault lines. Regulators better get ahead of this wave in time.

VRthe next communication platform – The emerging world of VR/AR is quite exciting. The technology is getting there. One of the key 5G use cases is going to be VR as it will require high capacity delivery of bits to the headset. However, VR sales are not going to go through the roof anytime soon. Some of the same things that plagued Google glasses – price, performance, and dorkiness are going to impact the early days of VR (Google’s VR approach is actually more market friendly at this time) but it is exciting to see tech companies tackle a complex computing problem. I am looking forward to new experiences across different domains.

Security, Privacy, and the clash of the titans – Apple vs. FBI case was on the top of the mind of executives. It wasn’t being discussed openly for obvious reasons but it came up in discussions almost every day. It is a complex issue that has to be looked from the perspective of enforcement in international jurisdictions. Operators have been forced to comply with similar requests for years. It will be an interesting battle, something that every tech company, every govt. around the world is paying close attention to.

Handset launches – Samsung launched S7, LG showed G5, Xiaomi announced Mi5, Huawei had its MateBook which probably was the sleekest device at MWC this year. Overall, only incremental improvements while the industry awaits new ideas to surface.

Disruption from 3.5 GHz – When I talked to the White House last year about 5G, I focused on stressing that Bits/s/Hz/Km2/joule/$ will be a key 5G performance consideration. FCC has done well by making the 3.5 Ghz available to the industry. Given that 70-80% of data consumption is indoors, unlicensed WiFi+LTE can be used to provide a much better economics esp. for enterprise customers. Players of various stripes are taking a serious look at it – Ericsson, Lemko, Google, Nokia, and others. Expect more news to come during the first half of the year.

Sigfox/Lora vs. NB-LTE – Sigfox/Lora remind me of WiMax. WiMax is remembered for its role in accelerating LTE deployments. While Sigfox/Lora started the process of creating a network and business model suited for IoT, it forced the 3GPP members to come up with NB-LTE (in a hurry) and with the growing support of the ecosystem behind it, it is hard to see how in the long-run a non-standard approach can win out.

Wearables – It seemed like the hype around consumer wearables has died down at MWC this year. No new concepts. Industry has to get the basics right first. However, there is good progress on the enterprise front where the use cases and requirements are clear. There are a number of companies who are working to make wearables/VR/AR a reality in the enterprise space.

Misc – Selfie security (Mastercard), Gesture user interfaces, Stripe’s Atlas platform, Mobile Connect (2B enabled consumers), AT&T $10B investment to expand globally, Paypal loves NFC after all, Smart Cities, Mobile Commerce initiatives, Media and Telco convergence, Operator data monetization, Alternate connectivity solutions (drones, balloons, lasers, etc.), Digital divide, 1B LTE subs.

Booth of the year: Ericsson by a distance

Party of the year: Siris Capital, Qualcomm

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, articles, and our annual thought-leadership summit – Mobile Future Forward. The next US Wireless Data Market update will be released in March 2016.

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

CES 2016 roundup January 11, 2016

Posted by chetan in : 4th Wave,5G,CES,Chetan Sharma Consulting,Connected Intelligence Era,Internet of Things,IoE,IoT,Mobile 2016,The Golden Age of Mobile,Worldwide Wireless Market , add a comment

CES 2016 roundup

As has been the tradition for the last few years, Cool Toys Association kicked started the year with its annual gadget fest. Ever since the iPhone launch, the industry keeps waiting for a company riding on a unicorn coming from the heavens to surprise us with a technology that we haven’t considered before. However, the romantic notion of someone taking our breath away invariably leaves many disappointed as we get relegated to the incremental improvements of the future. However, CES remains the premier show to lay the foundations of the discussions and debates for the year. Most of the products launched and showcased at the event don’t make it past the show floor but an incredible diversity of devices, applications, services, players, and ideas is on display. Additionally, the deals that are struck away from the limelight makes it one of the most important shows in the tech space.

As usual, I kick-started my CES with the AT&T Dev Summit which provides a good barometer of the initiatives for the year in the operator ecosystem. I also had an opportunity to participate on the WSJ’s panel on innovation to talk about broad industry trends that last beyond 2016. This note provides a summary of our observations from the show.

The Numbers: CTA forecasts the US spending on gadgets to increase 1.6% to $224 Billion in 2016 with smartphones accounting for quarter of that spending. Wearables, drones, robots, and some of the non-traditional devices are starting to appear on the spreadsheet now. As we mentioned in our Connected Consumer Research last year, the spending habits of US consumers are changing. Bulk of spending is still on services like data, internet, and cable with mobile data capturing the most share of the household IT budget.

The march towards Autonomous Intelligence: Each year, we are making incremental progress towards to what seems today a utopian autonomous intelligence state where computers observe anomalies and problems and just fix and address them without human intervention. We have written about this at length in our Connected Intelligence series of papers and will continue to explore the subject in more papers this year. The inevitable emergence of trusted data brokers that help us tie disparate data sources, products, services will be a key development in the coming years.

The current incumbents have a big leg up. In my mind, Google has by far the best machine learning engine. You get a sense of the power of Google’s AI when you travel in remote parts of the world and get a highly accurate representation of human movement – in real-time. It is stunning. Google has better understanding of what’s happening on the ground than any other entity or government in the world.

Facebook has the best repository of emotion movement though the AI engine needs work. Similarly, Amazon knows more about commerce movement than any other player. A number of their products are launched because of this key insight. Apple obviously has good understanding of what their iOS base is doing and while it is smaller than any of the three players mentioned above in their respective areas, in aggregate, it has a potent repository of human behavior and movement. Some mobile operators have technology that can give them insights into some of these trends but their subscriber base is limited and unless they expand beyond their traditional base, they will always be at a disadvantage vis-à-vis the Internet giants.

Intel again gave an excellent keynote of the computing capabilities that are going to enable new interfaces, experiences, devices, and applications. When will computing sense what I am thinking?

Self-driving cars – The biggest headlines at CES this year was for self-driving cars. CES looked like an auto-show. Tesla and Google have forced auto OEMs to dust off their self-driving plans and accelerate their public unveiling because that’s what the cool kids are doing. The notion of self-driving cars has gone from a geek fantasy just a few years ago to the reality on the ground at breathtaking speed. Competition does wonders to the innovation process. The tech to safely deliver a self-driving car is already here. Social-acceptance and regulatory issues will likely to delay the full-blown introduction for sometime.

However, a more interesting development is the marrying of a self-driving fleet with the Uber service model. That’s where a lot of disruption is going to take place. GM’s monstrous $500M investment in Lyft is a defensive bet in that future. Don’t be surprised by some interesting M&A activity in the sector. As, hardware gives way to software domination, new models and players will shift the industry marketecture.

Lot of media companies are busy figuring out how to entertain the consumer with all the new time that will become available in the self-driving cars.

IoT – IoT was a big headline last year, 2016 was just the continuation of what we saw in 2015. Pretty much anything imaginable was connected. Chipset guys are going to stay employed for sometime. The challenge for many new players is still going to be the distribution. Most of the money today is flowing to the system integrators and they can play the role of the segment godfathers of IoT if they play their cards right. Platforms are yet to consolidate around a few accepted technologies and players so we will continue to see the fragmentation and jostling for advantage this year.

Robots – Softbank’s Pepper again stole the show by displaying its humane side. Robots for elderly, kids, and the lonely will become mainstream.

Drones – The drone ecosystem seems to be growing as fast as the self-driving cars (obviously massively different price points). Regulators are more active in understanding what’s going on and how to provide a shape passage to innovation in the space. There are some really interesting use cases both in the consumer and the enterprise space.

Netflix moves – You know what is better than US media domination? Global media domination. Netflix launched its services to pretty much the entire world minus China which remains a closed market for most western services.

3D printing – 3D Printing. Yup, Check!

Connected Home – Connected home has disappointed so far. The pricing is still too high for mainstream adoption and products lack imagination. However, some startups are coming up with both new products that are built from the ground up as well as service models that will get traction. 2016 will continue to be the year of experimentation in the space.

Connected Devices. Unconnected Data – Current set of connected devices are primarily focused on sucking up the data but there hasn’t been much work on connecting the data across devices. If you own an Apple Watch and an iPhone and were having a stroke, Apple watch will duly note that your vitals are deteriorating fast but it will just sit on that data and pray that someone finds you to help out. It has access to a communication tool that could be used to seek immediate help via a call or text but it doesn’t. Data stays unconnected and as such useless in real-life situations. We need more work on the intelligence layer that connects the data and makes it useful. This can be applied to connected devices at home, car, office, city, and pretty much any set of devices and sensors around us.

Smart City – Smart City initiatives are starting to take hold. From governments to industrial players to mobile operator ecosystem, everyone wants a piece of it. Probably, the biggest announcement in the space was from AT&T which is putting together a coalition of the willing to explore the scalable framework for a smart city. Atlanta, Chicago, and Dallas get the first nod. The biggest problem with Smart City is not the tech which is available for most part but the funding and execution. With a majority of the cities in the US in the bankruptcy zone, money is hard to come by. Even if did, cities are notorious for lousy execution and waste of resources. Hopefully, being led by some of the industry players will provide the necessary guidance and new business models to bring many of the big cities into the 21st century. Dubai, Helsinki, Seoul, and Oslo might provide a better inspiration of how to go about making your cities smart. Who wants to live in a dumb city anyway?

Virtual Reality – VR is going mainstream. Will it become the OS for new experiences? By when? What will be the applications and services? Vertical segments? Lot of open questions but we are slowly starting to answer them. Facebook launched its much awaited Oculus, HTC had its Vive and a score of new players emerged on the VR landscape.

IP dilemmas – The federal agents swooped into the CES show floor and took evidence from the booth of Hangzhou First International Trade (maker of the wheeled skateboard) – something that doesn’t happen that often. The pace of introduction of digital products is accelerating at such a pace that it is extremely difficult to protect your IP specially for smaller innovative players. The copycat ecosystem comes so fast that before you know it, you are history. IP tussles used to be the domain of the industry giants but smaller innovators are now getting impacted. The sheer volume of products that use your IP will overwhelm you. But, CES gives a good window into the haves and the have-nots. The federal agencies have their work cut for now.

Samsung – Samsung has studied the history of the mobile industry well. That’s why it is nervous. The fact that they are struggling to maintain their top spot is not surprising, it was expected. in fact, the entire trajectory was very easy to predict. What’s astonishing is that, even after being at the center of the digital explosion with hands into virtually every segment, it hasn’t been able to launch an integrated product strategy. It should have been a leader in IoT but is not. It should have used TV as the home hub to connect everything digital in the house but it hasn’t. it should have led the industry in standards and best practices but it seems confused of its role in the larger ecosystem. In the meantime, Google, Apple, and others are doing circles around them. With a new management team in place, a renewed focus on software, will 2016 be different?

Security & Privacy – Almost every major discussion thread had an underlying question around security and privacy and what can and is being done about it.

Auction – FCC is pretty jazzed about the upcoming spectrum auction. It will be fascinating indeed.

The foldable screen – we have waited for a computing screen that can fold like a newspaper for over 15 years. I first wrote about it in my Wireless Internet book in 2000. We might be still a few years away from full commercialization. Sometimes, these things just take time. A flexible screen could lead to breaking of the rectangular screen mold that is starting to get boring. Full marks to LG for bringing the screen to the market.

Vaporware – There was plenty of hand waving. Some managed to fool the press into feeding into the frenzy like Faraday Future (apparent competitor to Tesla), Ehang flying cars.

Uber in Vegas – Every year, CES attendees to the torture of the Vegas taxis and the highly inefficient system of transportation. For the first time, Uber and Lyft were in action and it definitely help at times. The taxi cabal hates the entry of the new brethren in the market but will learn to live with it.

Next stop, DLD Munich.

Have a great 2016.

Best wishes

The History and the Future of Connected Intelligence September 2, 2015

Posted by chetan in : 4th Wave,Chetan Sharma Consulting,Connected Devices,Connected Intelligence Era,Internet of Things,IoE,IoT,Mobile Future,Mobile Future Forward , add a comment

The History and the Future of Connected Intelligence

A Mobile Future Forward Research Paper

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

Last year we introduced the concept of “Connected Intelligence” and how it is going to shape the next era of computing, communications, and technology. While to some this might seem as something new, folks who have been tinkering on the edges know that this evolution has taken place over more than 200 years. The concept of connectivity and intelligence have been around for decades. Early form of communication between two end points has existed since early 1800s. In fact, intelligence organizations in military and espionage have been using the basic techniques for the last two centuries. Even the industrial folks recognized the need for end-point sensors to communicate data of “things” that are outside the constant purview of humans.

The oil and gas industry has been using basic telemetry for almost half a century. The history of connected intelligence is very long. The present day evolution is the culmination of the several trends of the last two centuries. From the early days of telemetry to significant developments in machine to machine to connecting objects to the internet via Internet of Things have played a critical role in this journey. Along the same lines, the telegraphy, the phone, and the cellular industry have over the same time period changed how bits are transferred from point A to point B. To appreciate where we are going, we need to marvel at the historical achievements of the pioneers of past. In this paper, we will take a look at how the notion of connected intelligence has evolved over the last two centuries and where do we go from here.

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Your feedback is always welcome.

Chetan Sharma

We will be taking a deep dive into the Connected Intelligence Ecosystem and Opportunities in our upcoming summit Mobile Future Forward on Sept 29th.

We will be keeping a close eye on the trends in the wireless data sector in our blog, twitter feeds, future research reports, articles, and our annual thought-leadership summit – Mobile Future Forward. The next US Wireless Data Market update will be released in Nov 2015.

Mobile Future Forward: Uber, CBS, NBC, Veniam join the program August 14, 2015

Posted by chetan in : 4th Wave,Chetan Sharma Consulting,Connected Intelligence Era,Mobile Future Forward , add a comment

Mobile Future Forward means business. We got so many deals done that it is a no brainer to attend again this year – CEO and founder, Mobile Startup

Mobile Future Forward connects a lot of high-level people with very progressive thinking and it is at the cutting edge of how technology is absorbed – MD, Leading Private Equity Firm

Mobile Future Forward is the most intellectual conference – CEO and founder, Connected Watch Company

Dear Friends,

One of the trends I have talked about is the impact of connected intelligence ecosystem on other industries. As we mentioned in our research earlier this year, US became the first country in 2014 when the 4th wave revenues eclipsed the access revenues. The universe on top of the IP layer is expanding faster than ever. We will go deeper into this facet of global growth using specific industry examples. Transportation is one of the categories that has captured the imagination of the ecosystem worldwide. Uber has become synonymous with disruption. The promise of connected cars, autonomous vehicles, and the media consumption when we will have all this time is not science fiction anymore but a tantalizing reality of the near future.

The Media landscape is changing right before our eyes. Consumption is up, distribution is changing, consumer expectations have diversified. Billions of dollars are at stake.

We have some exceptional speakers to help us think through the changes that are upon us:

Robert Gelick, SVP and GM of Digital Platforms at CBS Interactive is tasked with building CBS Interactive Entertainment experiences across multiple platforms.

Sanjay Macwan, SVP and CTO of NBCUniversal Media Labs is looking at advanced technologies that will shape our media experiences.

Sunil Daluvoy, Head of Business Development for Uber Everything is a Google veteran who has worked on new products such as Google Fiber, Wallet, and Adsense.

Dr. João Barros, Founder & CEO, Veniam is a professor in Portugal and a global entrepreneur who is building the networking fabric for the Internet of Moving Things. Extremely fascinating results. This company is going places.

Registration (4th Wave Saver expires next week)

Additionally, here are some of the highlights of what we will be discussing during our annual brainstorm:

5G and the Future of the Network

The 5G discussion is gaining significant momentum at all levels. We will have folks who understand the technology, the standards, and the economics better than most.

· Hossein Moiin, EVP and CTO, Nokia Networks

· Craig Moffett, Partner, MoffettNathanson

· Bob Azzi, Executive Managing Partner, Argylegriffin

Leading the Connected Intelligence Era

At AT&T, Glenn Lurie saw the emergence of the 4th wave before many of his peers (some still don’t see it). Under his stewardship, AT&T has become a trusted partner and leader in many of the emerging areas such as connected car, enterprise services, IoT, digital home, etc. We will explore the opportunities, the learnings and what does it take to prepare a big company for the Connected Intelligence Era.

Connected CIOs

CIOs play a critical role in keeping their company ahead of the curve in terms of tools and technology. We will have CIOs from different industries address the challenges and the solutions needed to prepare the enterprise for the connected age.

· Dr. Tony Yen, MD, CMIO, EvergreenHealth

· Erez Yarkoni, CIO and EVP, Telstra

· Mark Showers, CIO and EVP, Reinsurance Group of America

· Mark Fernandes, Managing Director, Sierra Ventures

Incredible India

India’s tech sector is on fire. It is the fastest growing economy with many terrific unicorns driving excitement and real revenue. We will have the top two companies who will educate us on what’s working in mcommerce in India and why.

· Anand Chandrasekaran, Chief Product Officer, Snapdeal

· Vijay Shekhar Sharma, Founder and CEO, Paytm

Convergence of industries, platforms, and opportunities

The IT and Telecom industries have collided and no one understands this better than Oracle as they work with all of the top 100 IT and Telecom clients around the globe. Hear from the executive who runs the global communications business on what’s changing in the enterprise and the wireless world and why.

· Doug Suriano, SVP and GM, Oracle Communications

We will have discussion around Man and Machine, Industrial IoT, Building blocks of Connected Intelligence, New Platforms and Tools, Security, Robotics, Vertical Industries, and a ton more. We will have startups that will blow your mind, projects from the giants that will surprise you, and technology break-throughs that will inspire you.

What will be the $ flows, where are the early opportunities and successes, what are the use cases? We will tackle them all at Mobile Future Forward on Sept 29th. We welcome you to join us in the discussions and contribute to the collective knowledge of our industry. Give us your one day, and we will give you the next 5 years in mobile.

A number of key industry partnerships and relationships are formed at Mobile Future Forward. Make sure you are not left behind.

We are excited to partner with the industry leaders and thank them for their ongoing support: Ericsson, Neustar, Oracle Communications, and Tata Communications.

· Glenn Lurie, President & CEO, AT&T Mobility

· Dr. Eric Topol, Chief Academic Officer, Scripps Health

· Rima Qureshi, Chief Strategy Officer, Ericsson

· Hank Skorny, SVP – IoT, Neustar

· Raja Rajamannar, CMO, Mastercard

· Sanjiv Ahuja, Chairman, Tillman Global Holdings

· Hossein Moiin, CTO, Nokia Networks

· Craig Moffett, Partner, MoffettNathanson

· Josh Will, SVP – Mobile, Best Buy

· Tim Chang, Managing Partner, Mayfield

· Prof. Shyam Gollakota, University of Washington

· Mark Fernandes, Managing Director, Sierra Ventures

· Erez Yarkoni, CIO and EVP, Telstra

· Mark Showers, CIO and EVP, Reinsurance Group of America

· Doug Suriano, SVP and GM, Oracle Communications

· Vishal Gupta, Chief Products and IoT Officer, Silent Circle

· Marty Cooper, Chairman, Dyna

· Vijay Shekhar Sharma, Founder and CEO, Paytm

· Julie Woods-Moss, CMO, CEO – Nextgen Business, Tata Communications

· Andrew Hopkins, Managing Director – IoT, Accenture

· Lo Toney, Partner – Catalyst Fund, Comcast Ventures

· Robert Gelick, SVP and GM – Digital, CBSInteractive

· Bob Azzi, Executive Managing Partner, Argylegriffin

· Anand Chandrasekaran, Chief Product Officer, Snapdeal

· Dr. Tony Yen, MD, CMIO, EvergreenHealth

· Sunil Daluvoy, Head of Business Development, Uber Everything

· Dr. João Barros, Founder & CEO, Veniam

· Sanjay Macwan, SVP and CTO of NBCUniversal Media Labs

.. more to come

We will be announcing new speakers and partners through the course of the summer and look forward to seeing you in September. If you are interested in partnering, please reach out at info@mobilefutureforward.com.

Thanks.

Chetan Sharma

US Mobile Market Update – Q1 2015 May 18, 2015

Posted by chetan in : 4G,4th Wave,5G,AORTA,ARPU,Chetan Sharma Consulting,Connected Devices,Connected Intelligence Era,IoE,IoT,LTE,Mobile 2015,Mobile Future Forward,Tablets,The Golden Age of Mobile,US Wireless Market,Wearables,Wireless Value Chain,Worldwide Wireless Market , add a comment

US Mobile Market Update – Q1 2015

http://www.chetansharma.com/usmarketupdateq12015.htm

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Summary

The US mobile data services revenue grew 4% Q/Q and 15% Y/Y. The overall services revenue declined 1%. The device revenue for the operators grew by 41% allowed the overall service revenues to grow 5% Y/Y.

We are forecasting that the mobile data service revenues will increase by 22% to $132 Billion in 2015. Verizon will become the first operator to generate more than $50B from data services in 2015.

After acquiring lusacell and Nextel Mexico AT&T became the biggest North American operator with over 136 million subs.

The average mobile data consumption (cellular) is approximately 2.5GB/mo. In the US, it took roughly 20 years to reach the 1GB/user/mo mark. However, the second GB mark has been reached in less than 4 quarters. An entire year’s worth of mobile data traffic in 2007 is now reached in less than 75 hours.

From 2010 to 2013, the data pricing declined by only single digits YoY. However, in 2014, the data pricing has plummeted by 77%. In Q1 2015, the data pricing stayed pretty steady.

The intense competition amongst the operators meant a 6% rise in OPEX QoQ and a 12% decline in CAPEX YoY. The income declined 4% while EBITDA grew modestly at 2%.

Smartphone penetration increased to 76% and roughly 95% of the devices sold now are smartphones.

4th wave services continue to grow at a very past face around the globe. At least 37 companies generated a billion dollar or more from 4th wave services in 2014 – a 311% jump from 2012.

The difference between Sprint and T-Mobile number of subs is just 300K subs now – the narrowest it has ever been. Like we suggested mid-last year, T-Mobile is likely to become the number three operator. This is more or less just a symbolic event with the transfer of bragging rights. Overall, churn was low for all operators in Q1 2015.

T-Mobile accounted for over 40% of the overall net-adds for the year with AT&T and Sprint coming in second at 26%. Verizon slipped to a distant fourth with only 8%.

Operator’s non-phone net-adds were 4 times that of the phone net-adds, highest it has ever been in the history of the industry.

M2M+Connected car is a billion dollar revenue stream for AT&T. M2M+Telematics will become a billion dollar stream for Verizon by 2016.

In our 4th wave series of papers, we had postulated for years that the 4th wave revenues will become bigger than any of the previous curves. This finally happened in 2014 in the US market with the revenues from the 4th wave applications and services built on top of the IP access layer surpassed both voice and data revenues.

Apple Watch – New Interaction Models

Apple is never the first one to introduce a new consumer gadget but it is generally the first to make it work for the market so allies and enemies are all eager for Apple to come in and create awareness. For me, the exciting part wasn’t the watch itself though it clearly the best smartwatch available in the market but the new interaction models it introduced. The reincarnation of Morse code in the language of vibrations and heartbeats. The splitting of screen on two different computers on the body is quite fascinating and has design implications for the developers. It will take time for us (as consumers and developers) to understand and absorb the advantages of such a model. The transmission of signals from the body is enormously powerful in creating the preventive care culture around the globe. The story on wearables is just starting out.

Q1 2015 – 4th wave in action

For a casual observer of the industry, Verizon’s acquisition might have come as a surprise but for the students of the 4th wave, it was normal course of action.  In my talks, I often say that for service providers to compete with the OTTs, they have to become OTTs themselves. One could argue if AOL was the right company for this strategy but large operators are opening up their checkbooks to do cross-domain acquisitions. AOL brings a new billion dollar revenue stream however it doesn’t solve the basic fragmentation problem that operators have. They can’t effectively compete with Google and/or Facebook without covering the entire market. Without domination (in market share) or collaboration, the opportunity will remain small and might even vanish in due time.

As we mentioned earlier this year, globally, 37 companies generated (not valuation) a billion dollar or more in revenue from 4th wave services in 2014 – a 311% jump from 2012.

Unicorns at incumbents

Tech press and the startup world is infatuated with unicorns. The billion dollar is a magical marker that inspires the ecosystem to be in the elite club but what about when a new unicorn stream is created at an incumbent? It rarely makes waves. At a 100+ year old incumbent, even less so. AT&T has been lighting up connected cars faster than any other mobile operator in the world right now. While 3.5M connected cars might not instill excitement, one must consider the replacement cycles of automobiles which is several times that of a smartphone.

Our estimates suggest that the connected car segment will become a billion dollar business for AT&T by 2016. The M2M+Connected Car revenue stream is already a billion dollar business for AT&T. Verizon is also slowly getting there. Their M2M+Telematics revenue stream should reach an annualized revenue stream of over a billion dollars by 2016. Some operators in Europe are also making inroads into the new connected devices revenue streams. Similarly, the likes of Microsoft and Google have created new billion dollar revenue streams in mobile. As a separate entity, these will be decacorns but don’t get appreciated when residing with the parent company.

Google Fi – Google Fiber for Wireless

When Google-Fi was announced, there was plenty of media frenzy around Google going after the operators. Folks who wrote such articles don’t understand the business of either Google or the operators. Google is a brilliant strategist which does some projects to push its strategy in the ecosystem. The goal is generally not a new revenue stream but twisting the value-chain enough to serve its purpose long-term.

However, there are couple of direct and subtle signals that Google did send to the markets. First, there are some technical tricks that Google was able to pull off to make WiFi/Cellular handoffs to work. Second, and perhaps more important is that the control point moved from the network to the device which at scale can be the biggest disruption the mobile industry has ever seen. It is not easy to pull off given the interdependency of OEMs to the operators. But sometime in the future, it is not hard to envision that for every session, the device (and associated cloud infrastructure) initiates the auction amongst the available networks and picks one based on performance, pricing, revenue share, and other parameters. That day is not here yet but service providers should start planning for this scenario.

WiFi-first network has good potential and we will see many of them pop up around the globe but getting scale is the biggest question mark in such endeavors (beyond some technical issues of seamless interop).

One should also remember that while WiFi usage in the US is 3x that of cellular usage, the use of WiFi hasn’t really slowed down the cellular data growth one bit. They both are growing at approximately 100% Y/Y.

Post-PC – Apple has no peer

There are has been a lot of debate around the PC and Post-PC worlds. Apple has benefited from the transition to the Post-PC universe like no other company. Its Post-PC revenue in Q1 was four times the Post-PC revenue of Google, Microsoft, Facebook, and Amazon combined. Largely due to the iPhone, Apple has been able to carve out a dominant space on the current wave of computing.

Service provider M&A

When Comcast initially announced the merger with Time Warner, it looked like a slam dunk but it was swiftly rebuffed by the regulators. This sets up an interesting 18 months for the US market. Unless there is a change in power (democrats to republicans), the big mergers in the same domain are off the table. So, how do existing behemoths grow? They start to look overseas (e.g. AT&T acquiring Mexican operators), look sideways (e.g. AT&T acquiring DirectTV) or look upwards (e.g. Verizon acquiring AOL). There are still a number of questions posed to the likes Comcast, Time Warner, Dish, T-Mobile and Sprint. Will this finally force Comcast to be a more active mobile player by acquiring one of the two smaller operators? Will the regulators allow such a move? Is Sprint back in the equation? How anxious is Deutsche Telecom to offload its US assets? How will Dish use its spectrum assets? We might see all these questions answered in the next 18 months or not.

Net-Neutrality and Zero-Rating Debates

In the tech world few things ignite the discussion with religious fervor as the net-neutrality debates. From Washington DC to New Delhi, from Brussels to Santiago, net-neutrality and zero-rating have inflamed passions. Most of the times those fighting on either sides have no clue about the issues at hand and what are they fighting for. Ask a protester on the street about the intricacies of net-neutrality and you will get blank looks or confused answers. Both issues boil down to “transparency” and “control” – who gets to decide what and what are they going to disclose. The answer to many of these debates is fairly simple – ensure there is enough competition and put the (granular) “control” and the “responsibility” in the hands of the customer for e.g. they should decide which apps should make it into the “Zero Rating” club for them. The problem goes away at least in principle.

The Upcoming 5G wars?

I started my career when 1G was all the rage. My first 4G project was back in 2002. By some measures, we are already behind on the 5G discussions. In general, it takes 7-10 years before the standards are finalized and then the network technology lasts for approximately 20 years before a market moves onto the next generation of technology. US led in the growth of 1G (AMPS, TACS) followed by Europe on 2G (GSM, CDMA). Japan took the leadership role with 3G (WCDMA, EVDO) and US wrestled it back on 4G (LTE). Japan and EU are determined to lead on 5G and have been making very public statements and R&D investments about their ambitions on 5G. Japan of course has a very clear goal of having 5G by Tokyo Olympics in 2020. Am sure some operator(s) somewhere will jump the gun and start calling LTE-A+ as 5G around 2017-18 or sooner. You can expect a lot of activities both in public and private on 5G as companies and governments try to figure out a way to claim the 5G leadership mantle.

We have summarized our thoughts on 5G in this paper – 5G: The past, present, and future of the mobile industry evolution. I have been giving a number of talks on 5G in North America and Europe and many of these will be made public in due course.

What to expect in the coming months?

2014 was a tremendous year for the mobile as it becomes omnipresence in every industry. We saw some massive moves, astounding acquisitions, and interesting strategic endeavors. 2015 promises to be an exciting year for the industry as well.

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.

The next 10 years will generate almost 1000 Trillion dollars in global GDP, which is 60% more than the last 10 years. What will be significant is how the “Connected Intelligence” built using networks, sensors, and software is going to transform every industry, every nation. We will covering the future of the mobile industry in-depth at our Mobile Future Forward summit this fall on Sept 29th.

Against this backdrop, the analysis of the Q1 2015 US wireless data market is:

Service Revenues

· The US mobile data services revenues in Q1 2015 increased 3% and reached $30B.

· After crossing the $100B in data revenues last year, the US market is set for explosive growth and is likely to cross $130B in data revenues in 2015.

· Verizon and AT&T dominated the quarter accounting for 70% of the mobile data services revenue and had 68% of the subscription base.

· Verizon and AT&T are at #2 & #3 global mobile data revenue ranking respectively in Q1 2015. Sprint and T-Mobile also maintained their rankings in the top 10 global mobile data operators.

ARPU

· The Overall ARPU fell by 2.71%. 

· Data contribution to the overall revenues is now at 62%.

· The postpaid ARPU continues to decline for all operators with all but Verizon suffering double digit YoY losses.

Subscribers

· The US market had 4.6M net-adds. Probably for the first time, Verizon finished last in terms of net-adds for the quarter. T-Mobile led with 1.8M net-adds mostly postpaid.

· T-Mobile added almost as many postpaid subs as rest of the three operators combined.

· Connected devices (excluding tablets) had the best net-add performance followed by tablets.

· T-Mobile led in the phone category while remaining three operators added more than 1M non-phone customers.

Shared Data Plans

· Shared data plans launched by Verizon and AT&T have been quite successful. The attachment rates have increased tremendously over the course of 2013-14 with more consumers opting for cellular tablets and connected devices. 70% of postpaid accounts at AT&T are now on shared plans.

· Some more granular data plans for tablets have also spurred interest as the cellular broadband is becoming available on demand vs. expensive on premise Wi-Fi solutions.

· 50% of AT&T’s postpaid accounts are on 10GB+ plans.

4th Wave Progress

· The number of players making $250M/quarter on mobile continues to increase rapidly and these aren’t your traditional wireless players. For example, Mobile is now contributing 70% (up from 30% in Q1 2013) to Facebook’s quarterly revenues. Latest addition to the club is Twitter which is now doing 89% in mobile (of the total advertising revenue) up from 60% in 2013. Even traditional players like Hertz, Sears, and Starbucks are generating meaningful revenues from mobile. There are now dozens of such players and the list is just growing. (for more discussion on the topic please see: “Mobile 4th Wave: Evolution of the Next Trillion Dollars”)

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

· Verizon reported $150 million revenue from M2M and Telematics. At the current run-rate, this will be a billion dollar business by 2016.

· AT&T reported 684K net-adds on the connected car platform. We estimate that connected car will become a billion dollar revenue stream for AT&T in 2015. Connected cars accounted for 62% of the connected devices for AT&T.

Connected Devices

· Connected devices (non-phones) accounted for almost 52% of the net-adds in Q4 2014. This means that while there is a healthy smartphone sales pipeline, it is for the existing subs and as such net-adds for the phone business is tapering off and we can expect that new net-adds will continue to be dominated by the connected devices segment.

· For AT&T, Connected cars started to form a significant base of the connected devices segment with 68% of the new connections in the segment coming from cars.

Handsets 

· Smartphones continued to be sold at a brisk pace accounting almost 95% of the devices sold in Q1 2015. The feature phone category is practically becoming extinct in the US market.

· The smartphone penetration in the US is now at 76%.

· Verizon continues to sell more LTE smartphones as its LTE sub tally rose to 71M making it the #2 LTE operator behind China Mobile which has more than twice LTE subs. Other three operators are also deep into their LTE deployments. Verizon reported that 86% of its total data traffic is on the LTE network now, clearly the fastest technology transitions we have seen in the US wireless industry.

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, articles, and our annual thought-leadership summit – Mobile Future Forward. The next US Wireless Data Market update will be released in Aug 2015.

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

Vancouver Mobile Breakfast Series Recap: Mobile Commerce and Payments April 16, 2015

Posted by chetan in : 4th Wave,Chetan Sharma Consulting,Mobile 2015,Mobile Breakfast Series,Mobile Commerce,Mobile Future Forward,The Golden Age of Mobile,US Wireless Market,Wireless Value Chain,Worldwide Wireless Market , add a comment

We hosted our second event of the year in Vancouver (our first in Canada) earlier this week and had a great time. I have been going to Vancouver for 20+ years and have been thinking about doing something north of the border. It is also one of my favorite cities in the world. By strange coincidence, all 3 of our MBS cities outside Seattle have been Olympic cities – Atlanta, London, and now Vancouver. I guess we will have to go to Beijing or Seoul next.

With the help of my good friend Pankaj Agarwal and his team at Optimus Information and Wavefront, we were able to plan out a sold-out event. We continued the theme of Mobile Commerce and Payments given that it is such a hot topic right now and brought together three startup CEOs who are right in the middle of the action.

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The mobile ecosystem is evolving exactly we envisioned it in our 4th wave paper in 2012. The 4th wave is becoming the most dominant portion of the revenue stream as was witnessed from the revenue results in 2014 in the US.

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As I have said before in various public forums, one of the metrics I use to track progress in any segment is the number of $1B businesses being created each year. In 2012, there were only 9 companies mostly large enterprises like AT&T, Apple, Google, and Amazon that had > $1B digital businesses. However, in 2014, this number jumped to 37 with several new entrants – from known brands like Twitter, Walmart, and Xiaomi but several companies unknown to the western world like WeChat, FlipKart, Otto Group, GungHo, Suning Appliance, and others. While most of the concentration of digital wealth in the US, China is emerging very strongly as a player to reckon with. In fact, how China and US companies interact and play will perhaps define the next 10 years. While other economies like India, EU will play a role, I find China and US to be the most fascinating.

The speakers were:

Sam Gadodia, CEO & Co-Founder, Lotusflare

Sam co-founded LotusFlare with couple of his colleagues from Facebook with the objective to make mobile internet more accessible across the globe. Prior to LotusFlare, Sam worked at facebook and worked with Mobile Operators’ on SMS, Zero rating and other initiatives to drive growth on FB mobile app. Before this, Sam built and scaled TeleSign, one of the leaders in mobile authentication and verification space. Sam also co-founded and successfully built Global eProcure, a leading SaaS based SCM analytics Company with operation spanning from North America to Asia. While at Global eProcure, he received the Stevie award and was named by American Business Awards as Best Operation Executive.

Michael Gokturk, CEO & Founder, Payfirma

Michael Gokturk is the kind of entrepreneur who takes a company public in 3 years then launches a new business 3 days later. In 2011, Michael founded Payfirma with the goal of disrupting the highly competitive payments market by creating a solution to merge online, in-store and mobile payments. He has since grown Payfirma from the first company to introduce mobile payments in Canada into one of the top multichannel payment platforms. Before Payfirma, Michael founded and was the CEO of Versapay. A payments company specializing in point of sale systems and electronic bill presentment and payment (EBPP).

Ajay Hans, CEO and Co-Founder, Mobetize

Ajay Hans, Founder of Alligato Inc. and Co-Founder of Mobetize Corp brings over 15 years of diverse experience in the development, marketing and implementation of complex billing and payment related software technologies dedicated for MNO’s and MVNO’s. Ajay has overseen Mobetizes’ strategic vision and tactical execution since inception. He has held senior executive positions with leading telecom software technology companies where he successfully implemented solutions for brands including SaskTel, Sprint and AT&T.

Chetan Sharma, CEO and Founder, Chetan Sharma Consulting (moderator)

The three panelists are involved in advertising, payments, and commerce working with all parts of the value chain – banks, operators, startups, credit card companies, retailers, etc. We had a very interesting discussion that covered a breadth of topics.

The salient points of the session were:

In summary, mobile commerce remains a hot area and we are approaching a tipping point wherein mobile commerce dominates ecommerce in all parts of the world. I really enjoyed the moderation and questions from the audience. My thanks to Optimus Information and Wavefront for being our partners for the event. and thanks to the Vancouver mobile community for embracing us with open arms.

Our next event is going to be in our annual mobile summit – Mobile Future Forward on Sept 29th in Seattle. Stay tuned for announcements and details.

New Paper: 5G – The past, present, and future of the mobile industry evolution March 16, 2015

Posted by chetan in : 4G,4th Wave,5G,Chetan Sharma Consulting,Connected Intelligence Era,European Wireless Market,Mobile 2015,Mobile Ecosystem,Mobile Future Forward,Mobile Payments,The Golden Age of Mobile,Wireless Value Chain,Worldwide Wireless Market , add a comment

5G – The past, present, and future of the mobile industry evolution

A Mobile Future Forward Research Paper

http://www.chetansharma.com/5G.htm

NA_Wireless_Market

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Introduction

The deployment of LTE otherwise known as 4G is in full swing. Operators in US, Japan, Korea, Finland, Australia, and others started deploying the new technology some years ago and are nearing completion of their network build out. Others in Europe and Asia are on an aggressive schedule to catch-up. We can expect that a majority of the operators will have LTE up and running in the next couple of years. Operators have sunsetted 2G. In some instances they even stopped investing in 3G and are putting all of their investments in the 4G bucket. As mobile networks transition to all IP, operators will be able to re-farm their spectrum assets for 4G deployments. Beyond LTE, operators are looking at LTE-A to provide more efficiency and network bandwidth to consumers.

In mature LTE markets like the US, Korea, and Japan, the talk has shifted to the next generation technology evolution – 5G. Even Europe, which still has a long way to go before their 4G is built out have set their sights on 5G to recapture the mantle and the pride of the GSM days. Korea and Japan led the world in 3G but lost the lead of 4G to the US. They both are eager to be considered leaders in 5G. Japanese government has set the ambitious goal of having 5G by the Tokyo Olympics in 2020. US regulators have started to talk about 5G and the future spectrum needs as well.

Since the launch of 1G networks in late seventies and the eighties, we are now onto the 5th iteration of the network technology evolution. We have gone through a lot of technology skirmishes but with 4G and likely with 5G, we are narrowing the differences between technology options giving significant technology scale advantages to the ecosystem.

As network technologies have evolved, the application landscape has changed as well. 1G or AMPS was all about basic voice services. GSM and CDMA (2G) digitized mobile and we saw basic messaging and data services introduced into the market. 3G (WCDMA, EVDO) introduced the potential of data services to the ecosystem and the consumers. The launch of iMode in Japan became the poster child of data services for much of the 3G evolution around the globe. Midway in the 3G growth, new players like Apple and Google entered the ecosystem and laid the foundation of unprecedented data and application growth. Business models and control points in the ecosystem changed overnight. The insatiable data demand led to the acceleration of the 4G services in many leading markets. For the first time, the network technology was data-led. We are clearly moving towards an IP infrastructure where voice is just another app running on the data network.

In fact, data is the primary revenue engine for the services providers and rest of the ecosystem. In Japan, almost 80% of the revenue now comes from data services. In the US, we are approaching 60%. Other nations are not far behind. Even the emerging markets have caught up very fast and in some instances leap-frogging their western counterparts in certain application and services segments.

All through last four generations, the fundamental business model of “metering” remained the same. Barring some exceptions, there has been a direct correlation of usage and revenues. Will 5G be any different?

Another significant standard that has evolved is Wi-Fi. The impact of Wi-Fi on the mobile ecosystem can’t be overstated. It has become so pervasive that we have ask the question how long before nationwide Wi-Fi first networks start to make a run for the wallet share in major markets. How will Wi-Fi fit in with 5G, will the two standards merge?

Will 5G offer new business models or explore a different relationship between usage and cost? Will consumers warm up to the idea of value-based pricing? Or Will access just become a commodity layer like water and electricity and most of the value will reside in the platform and application layers? Though we have started to see the shifts (as discussed in detail in our 4th wave series of papers), how fast will future accelerate? Will the ecosystem landscape be markedly different than what we have in place today?

We won’t know the answer to some of these questions for a while but it is worth exploring the lessons from the past and potential disruptions that 5G could bring to the ecosystem that benefits the end customers. In the end, it might not be about the technology at all but about the business models that shape the technology landscape. This paper explores 5G through the lens of the past and explores the wireless world beyond 2020.

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, articles, and our annual thought-leadership summit – Mobile Future Forward. The next US Wireless Data Market update will be released in May 2015. We will be discussing 5G and its impact on the ecosystem in more detail at Mobile Future Forward.

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

US Mobile Market Update Q4 2014 and 2014 February 23, 2015

Posted by chetan in : 4G,4th Wave,5G,AORTA,ARPU,Chetan Sharma Consulting,Connected Devices,Connected Intelligence Era,Devices,European Wireless Market,Fourth Wave,Internet of Things,IoE,IoT,LTE,Mobile Applications,Mobile Cloud Computing,Mobile Devices,Mobile Future Forward,Technology Cycles,The Golden Age of Mobile,US Wireless Market,Wi-Fi,Wireless Value Chain,Worldwide Wireless Market , add a comment

US Mobile Market Update Q4 2014 and 2014

 

Summary

The US mobile market continues to be the biggest market by revenue and 2014 was a key transition year for the industry. The overall market grew 21% to almost $400B. Voice revenues declined by 15%, messaging by 16%, and tablets by 4%. The biggest winners were the 4th wave/OTT services which grew by 92%. Access revenues increased by 32%, handsets by 11%, and wearables by 150%. Verizon, AT&T, and Apple were the top 3 players by revenue (from the US market).

Last Jan, we had estimated $108 Billion in mobile data revenues for the market and the revenues ended spot on at $108B making US the first market to surpass the $100B mark. We are forecasting that the mobile data service revenues will increase by 22% to $132 Billion in 2015. Verizon will become the first operator to generate more than $50B from data services in 2015.

Verizon became the second operator after China Mobile to cross the milestone of 100 Million postpaid subs. After acquiring lusacell and Nextel Mexico (still pending), AT&T became the biggest North American operator with over 131 million subs. In 2014, US also crossed the 350 million subscription mark.

The average mobile data consumption (cellular) crossed 2GB/mo in 2014. In the US, it took roughly 20 years to reach the 1GB/user/mo mark. However, the second GB mark has been reached in less than 4 quarters. An entire year’s worth of mobile data traffic in 2007 is now reached in less than 100 hours.

From 2010 to 2013, the data pricing declined by only single digits YoY. However, in 2014, the data pricing has plummeted by 77%. It is having an impact on the industry financials which might help clear the way to further M&A in the US market.

The intense competition amongst the operators meant a whopping 20% rise in OPEX QoQ and a 1% decline in CAPEX YoY. The income stayed flat while EBITDA grew modestly at 3%.

In our 4th series of papers, we had postulated for years that the 4th wave revenues will become bigger than any of the previous curves. This finally happened in 2014 in the US market with the revenues from the 4th wave applications and services built on top of the IP access layer surpassed both voice and data revenues. The operator share of the US mobile industry revenues fell below 50% for the first time since the birth of the industry.

Smartphone penetration increased to 75% and roughly 95% of the devices sold now are smartphones.

The Android OEM ecosystem suffered its first major profit decline in 2014 – the profits dropped precipitously by 44%. iOS revenues increased by 31%. The difference in profits between the two major ecosystems is now $33 Billion – the highest it has ever been.

Apple broke more records in a single quarter than most athletes break in their lifetime. The amount of revenues and profits generated by a rectangular screen sent everyone in a tizzy. To get a sense of the scale, consider this – Apple’s iPhone generated more revenue than revenues generated by entire portfolio of products from Microsoft, Google, Facebook, and Twitter combined. Add in Macs and Tablets and you can mix a dozen more companies in the mix. The laser focus on quality and the benefit of the brand loyalty and aspiration catapulted into the business stratosphere that few can even dream of reaching.

Apple also introduced two new products late last year – Watch and Apple Pay. While it is too early to figure out the overall impact of Apple Watch (it clearly will put some Swiss Watchmakers out of business), Apple Pay appears to be more disruptive. Apple’s classic approach of embracing the ecosystem and thinking end-to-end might finally disrupt the otherwise staid financial sector. Apple Pay is already seeing significant traction and the financial industry is nervously promoting the service. Rumors of Apple Car will keep media on its toes for the next few years.

4th wave services continue to grow at a very past face around the globe. At least 37 companies generated a billion dollar or more from 4th wave services in 2014 – a 311% jump from 2012.

The difference between Sprint and T-Mobile number of subs is less than a million now – the narrowest it has ever been. Like we suggested mid-last year, T-Mobile is likely to become the number three operator in a matter of weeks now. This is more or less just a symbolic event with the transfer of bragging rights.

T-Mobile accounted for over 40% of the overall net-adds for the year with Verizon coming in second at 30%. After having a lack-luster year in 2013, the operators doubled the net-adds in 2014 with connected devices driving most of the growth.

Race To The Bottom?

The mobile data traffic has been doubling YoY in the US. The consumption is clearly growing with the introduction of new devices, network upgrades, and application enhancements. Operators are seeing tremendous pressure on data pricing due to the competitive environment. EBITDA declined for the second straight quarter.

From 2010 to 2013, the data pricing declined by only single digits YoY. However, in the first 9 months of 2014, the data pricing has plummeted by 77%. It is having an impact on the industry financials which might help clear the way to further M&A in the US market.

Is Android in trouble?

Samsung suffered one of the biggest mobile revenue and profit declines in its history. As the dominant leader of the Android ecosystem, it is caught in the middle of two major trends that ironically enough Samsung had influenced. The bigger screen phone segment that Samsung seeded has become the fastest growing segment in smartphones. Apple following Samsung into the segment meant that it took away the single biggest differentiating factor and as such a serious impact on its high-end line. The lower end which yields higher volumes but much smaller ASP has attracted hordes of local developers in China, India, and Russia who have better logistics and operational advantage. Many of these players are becoming successful. To damage Samsung, they all don’t need to be successful, just enough to be in the market to sway the market. As such, Samsung has seen its share dwindle in the two biggest emerging markets.

Much of the current situation has been predictable for some time. While Samsung has ridden the smartphone wave masterfully, it hasn’t been able to build a platform moat, something that helps fundamentally differentiate its products in the sea of Android devices around the planet. They are not in a Blackberry or Nokia panic situation yet as some in the media have surmised. But, they need to figure a way out of the middle band. Unlike Nokia or Blackberry who were blinded by their success and ignorance, Samsung has shown it is a more nimble competitor. Samsung’s R&D and marketing is also second to none. Its diversified portfolio also helps in cushioning the drop in the phone segment. Historically, OEMs with such sharp revenue declines haven’t been able to arrest the decline. Can Samsung do it? Samsung is launching Galaxy 6 at MWC this weekend.

Given that Samsung controls most of Android ecosystem profits, the Android ecosystem suffered a 44% decline in profits. The woes of OEMs such as Sony, Motorola, and others also contributed to the decline. We can expect some of the Android OEMs leaving the device business altogether.

Operator M&A

In his classic book, “Competition in Telecommunications,” Nobel Laureate Jean Tirole wrote, “With digital technology, telecommunications, cable TV, broadcasting, and computers have become a single industry, which will be a critical element of our economies’ backbone. With the impending opening of competition, industrial restructuring is progressing at a fast pace.” The book was written almost 15 years ago. As I have written before, the computing and communications industries are merging into one and that collision is generating ripple effects some of which we are starting to understand (more on the Connected Intelligence Era trends here)

One of the implications of the 4th wave evolution is that there will be fewer mobile operators in the world. As we have argued in the papers, many of the smaller players just won’t be able to keep up and compete. AT&T acquired Mexican operator Iusacell (it also made the bid for Nextel Mexico) which made AT&T a clear leader in North America with almost 131 Million subscriptions. As we mentioned in our 4th wave series of papers, the number of operators will continue to shrink with fewer global operators who will seek to combine wireless and wireline assets to strengthen their moat. It is quite likely that US Cellular will be acquired in 2015.

Net-Neutrality Debates

After a blockbuster spectrum auction, FCC is looking to put its stamp on the future of the Internet by proposing net-neutrality rules later this week. President Obama decisively tilted FCC’s position on the subject. However, this is not a done deal yet. The legal and political apparatus is likely to react quite strongly to the ruling and we are in for a tough fight on this one. Other governments and regulators are also keenly watching the debate and the final ruling. Dish ended up acquiring a bulk of the spectrum wares. Is this a precursor of their wireless moves or was this just old-fashioned asset hoarding?

4th Wave Revenues

For the first time, US operators revealed some of their 4th wave (digital) services metrics publicly. Verizon reported $585 million in 2014 up 45% from a year ago. At the current run-rate, this will be a billion dollar business by 2016. AT&T reported 2.8M connected car connections and 140K home security connections. The connected car segment is clearly on its way to becoming a billion+ dollar business for AT&T. Connected cars accounted for 62% of the connected devices for AT&T.

Globally, 37 companies generated a billion dollar or more from 4th wave services in 2014 – a 311% jump from 2012.

The Upcoming 5G wars?

I started my career when 1G was all the rage. My first 4G project was back in 2002. By some measures, we are already behind on the 5G discussions. In general, it takes 7-10 years before the standards are finalized and then the network technology lasts for approximately 20 years before a market moves onto the next generation of technology. US led in the growth of 1G (AMPS, TACS) followed by Europe on 2G (GSM, CDMA). Japan took the leadership role with 3G (WCDMA, EVDO) and US wrestled it back on 4G (LTE). Japan and EU are determined to lead on 5G and have been making very public statements and R&D investments about their ambitions on 5G. Japan of course has a very clear goal of having 5G by Tokyo Olympics in 2020. Am sure some operator(s) somewhere will jump the gun and start calling LTE-A+ as 5G around 2017-18 or sooner. You can expect a lot of activities both in public and private on 5G as companies and governments try to figure out a way to claim the 5G leadership mantle.

We have a 5G paper coming out in March. You can read the summary here – 5G: The history of the future.

Apple Pay

Mobile Payments has long infatuated mankind. Many players with deep pockets have invested in the segment but in truth, the market was waiting for Apple to show up and show up it did with the launch of Apple Pay. In an ambitious orchestration of the financial supply chain, Apple introduced a simple payment proposition. The basic strategy is for commerce to flow through iOS. The institutions are even paying a share of the transaction to Apple which previous payment explorers are watching in utter disbelief. Ladies and Gentlemen, get ready for iTunes 2.0.

What to expect in the coming months?

2014 was a tremendous year for the mobile as it becomes omnipresence in every industry. We saw some massive moves, astounding acquisitions, and interesting strategic endeavors. 2015 promises to be an exciting year for the industry as well.

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 2014 and 2014 US wireless data market is:

Overall Industry Revenues

· The overall market grew 21% to almost $400B.

· Voice revenues declined by 15%, messaging by 16%, and tablets by 4%.

· The biggest winners were the 4th wave/OTT services which grew by 92%.

· Access revenues increased by 32%, handsets by 11%, and wearables by 150%.

Service Revenues

· The US mobile data services revenues in Q4 2014 increased 3% and crossed the $25B market for the first time.

· The mobile data services revenue crossed the $100B mark in mobile data services revenue to become the first country to generate $100B from mobile data services.

· Verizon and AT&T dominated the quarter accounting for 70% of the mobile data services revenue and had 68% of the subscription base.

· Verizon and AT&T are at #2 & #3 global mobile data revenue ranking respectively in Q4 2014. Sprint and T-Mobile also maintained their rankings in the top 10 global mobile data operators.

ARPU

· The Overall ARPU fell by 2.57%. 

· Data contribution to the overall revenues is now at 60%.

· The postpaid ARPU continues to decline for all operators with AT&T and T-Mobile experiencing double digit losses for the year.

Subscribers

· The US market had the best net-add year in the last 7 years.

· The US operators added 20M new subscriptions with T-Mobile leading the pack at 40%.

· Verizon’s tablet net-adds accounted for almost 50% of the overall tablets that were added in Q4. Verizon has caught up with AT&T on the tablet front.

· T-Mobile’s postpaid continued to see the positive growth for the seventh straight quarter. It has recovered all its losses that began in Q3 2009 and is now growing in the positive territory.

Shared Data Plans

· Shared data plans launched by Verizon and AT&T have been quite successful. The attachment rates have increased tremendously over the course of 2013-14 with more consumers opting for cellular tablets and connected devices. 61% of postpaid accounts at Verizon are now on shared plans. For AT&T, the number is even higher at 70%.

· Some more granular data plans for tablets have also spurred interest as the cellular broadband is becoming available on demand vs. expensive on premise Wi-Fi solutions.

· 52% of AT&T’s postpaid accounts are on 10GB+ plans.

4th Wave Progress

· The number of players making $250M/quarter on mobile continues to increase rapidly and these aren’t your traditional wireless players. For example, Mobile is now contributing 69% (up from 30% in Q1 2013) to Facebook’s quarterly revenues. Latest addition to the club is Twitter which is now doing 88% in mobile (of the total advertising revenue) up from 60% in 2013. Even traditional players like Hertz, Sears, and Starbucks are generating meaningful revenues from mobile. There are now dozens of such players and the list is just growing. (for more discussion on the topic please see: “Mobile 4th Wave: Evolution of the Next Trillion Dollars”)

· In 2014, we are also seeing continued investments from the operators especially AT&T, Verizon, and Sprint in non-traditional segments like home security, healthcare, insurance, automotive, enterprise mobility, advertising, and security, and others. Collectively, this is already a multi-billion dollar business in the US.

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

· Verizon reported $585 million in 2014 up 45% from a year ago. At the current run-rate, this will be a billion dollar business by 2016.

· AT&T reported 2.8M connected car connections and 140K home security connections. The connected car segment is clearly on its way to becoming a billion+ dollar business for AT&T. Connected cars accounted for 62% of the connected devices for AT&T.

Connected Devices

· Connected devices (non-phones) accounted for almost 52% of the net-adds in Q4 2014. This means that while there is a healthy smartphone sales pipeline, it is for the existing subs and as such net-adds for the phone business is tapering off and we can expect that new net-adds will continue to be dominated by the connected devices segment.

· For AT&T, Connected cars started to form a significant base of the connected devices segment with 62% of the new connections in the segment coming from cars.

Handsets 

· Smartphones continued to be sold at a brisk pace accounting almost 95% of the devices sold in Q4 2014. Within the next two years, the feature phone category will practically be extinct in the US market.

· The smartphone penetration in the US is now at 75%.

· After ceding the lead to Android for the last three straight quarters, iOS roared back to reclaim the lead with 54% share of the smartphones sold. For the year though, Android edged out iOS.

· Verizon continues to sell more LTE smartphones as its LTE sub tally rose to 67M making it the leading LTE operator in the world (this year China Mobile will overtake Verizon to become the number 1 LTE operator by subscriptions). Other three operators are also deep into their LTE deployments. Verizon reported that 84% of its total data traffic is on the LTE network now, clearly the fastest technology transitions we have seen in the US wireless industry.

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, articles, and our annual thought-leadership summit – Mobile Future Forward. The next US Wireless Data Market update will be released in May 2015.

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

CES Observations 2015 January 16, 2015

Posted by chetan in : 4th Wave,5G,CES,Chetan Sharma Consulting,Connected Intelligence Era,The Golden Age of Mobile,US Wireless Market,Worldwide Wireless Market , add a comment

CES 2015 Observations

International CES – the annual gadget fest is a cauldron of hopes and aspirations of big and small entrepreneurs, crazy and whacky ideas, the place where roadmaps are laid bare – some obliterated by the time the show is over while others benefit from the infusion of interest and inspiration. The promise of the Connected Intelligence Era was in full display last week in Vegas where the faithful converge to get a glimpse of what’s to come. More than anything else it is the time to meet friends and colleagues that provide much more insights than any of the booths, launches, and press conferences could disseminate.

Here is the summary of our observations from 2015 CES.

Transcendence – Coincidentally my trip started by watching Transcendence – a story about the metamorphosis of man and machine. It was interesting to view the show from this angle and try to connect the dots of the future.

First, let’s do the numbers – CEA expects the overall electronics market to grow by 3% primarily because of growth in the new category of connected and emerging devices (also includes 4K Ultra HDTV) which are likely to reach $11 billion in revenue in the US market.

Connected Intelligence Landscape – CES lay bare the evolution of the connected intelligence landscape. Millions of end-points are propping up that communicate and interact in ways unexpected. We are all grapple with what it means to progress of technology and humanity and how can we harness the power of “connectivity” and “intelligence.” Some things are moving forward at a much faster pace for e.g. autonomous vehicles, self-watering plants, cancer detecting pills are all examples of connected computing and actionable intelligence. Selfie sticks – not so much.

The IoT Show – If CEA had switched its name to the “The IoT Show,” it won’t be too far off for all the major discussions at the show were around the promise of IoT. The number of companies having something to do with IoT grew manifold this year. Though nothing significant has emerged from the level tricks and trinkets, the overarching theme is that one will see hundreds of these floating around each consumer to prepare an aura of information and intelligence around them that anticipates problems, provides guidance, and keeps them from getting into trouble. But where is the money? As usual, it seems pretty clear that the money will be in the tools and components and not the actual end points. Big winners will be the component suppliers and software players who can tie all of the complexity together in an easy to use human language and interface. There is probably more money in battery packs right now than IoT sensors.

Wearables – Humankind’s first rendezvous with a wearable was back in 1286 in Italy when the Dominican friar figured out the art of making glasses. More progress has been made in this segment in the last 12 months than all the centuries’ prior. In my last year’s CES note, I surmised that the market will segment into high-end luxury (Apple, etc.) and low-end commodity (Chinese OEMs). This theory is unraveling in front of our eyes. Apple is due for its Apple watch splash this quarter and the Chinese are flooding the market. For every $150 fitbit, there was a $20 identical unit from a Shenzhen vendor. For every $200 basis watch, there was an identical watch for a fraction of the cost. Obviously, the Chinese firms need distribution to the western markets and it is not an easy problem to solve. On top of that zero marketing and brand loyalty means there is an opportunity for someone to step in a distribution platform and make a killing.

The value is in the intelligence – As I outlined in my Connected Intelligence paper, the “sensing” part of the ecosystem is going to be commodity. Any new performance enhancements will last only a few months if not days so the value has to be built beyond “sensing” and in “making sense of the data” part. The two big aggregation islands at the OS layers are obviously Android and iOS but there is room for someone to congregate these data points in hubs that control a home or an office, an airport or the mall. Historically, each new wave brings in its own set of aggregation pods – windows for PCs and Android/iOS for smartphones. So, it is likely we will see new plays in the IoT space.

Ma, the Robot is home now – the Robots are getting real in how they interact with humans that some of the science fiction movies look very real today. The Japanese are leading the way with robots and what can be done with them especially in the consumer environment.

Handsets – Just when we thought the market for > $5K mobile handsets was over, Lamborghini launches a $6.5K handset. One sale to an unsuspecting Saudi sheikh has been confirmed. For the rest of us, the market stays flooded with innumerable choices. As I mentioned in my year-end update, the Chinese OEMs control over 40% of the smartphone market now. It is going to be over 50% this year and strolling the show floor you can see why. The market is getting flooded with cheap Android devices. With some really good-looking Android smartphones at $25, the ability to charge more uniformly around the world is virtually gone. I even saw some Samsung look-alikes with 14K gold for only $120. You can’t tell the difference between the brands.

Autonomous Cars – Last year’s show was about connected cars. This year we moved to very possibility of autonomous cars. It is quite likely that a kid born this decade might never need a driver’s license. Thanks to the market push by Google and Tesla, this segment is moving incredibly and excitingly fast and we are going to see some fascinating science fiction concepts come to life over the course of the next 5 years. Regulations obviously need to be figured out but this train is moving so fast that we better get on board. On the operator front, AT&T continues to corner the US market with OEM deals.

3D printing – Is there anything you can’t print with 3D printers – organs, food, rockets, fuel – you name it, you got it. But will you?

Connected Home – Continuing the theme of IoT, connected home innovators were in full display mode. Solutions are starting to come together though they are still cumbersome, work only in silos, battery life is a problem, security is iffy, and the pricing is not attractive just yet for it to be a mass market but slowly and steadily we are cracking the code.

Healthcare – The CES highlight for me was to attend the talk by Dr. Eric Topol (if you haven’t read his new book, do so now). He is a great champion of technology transforming the health care system and as a result changing the doctor-patient relationship forever and for good. As he mentioned in his address, the healthcare profession hasn’t been challenged since the 200 BC. He listed an endless stream of companies who are changing how various aspects of health and wellness gets measured and analyzed that lays bare the futility of today’s healthcare system.

Security and privacy – Last year, we released paper on “IoT Data Privacy Framework.” FTC seems to agree with many of the arguments and concepts laid out in the paper for connected device privacy and security. The agency is expected to release its recommendations in a paper later this year. In general, security continues to be a hot topic with every keynote addressing it. Even President Obama is expected to make cyber security as one of the key themes of this year’s state of the union address.

Dish $20 – Probably the biggest surprise of the show came from the most unlikeliest quarters of the industry. Dish announced a $20 service that provides basic set of channels + the prized ESPN channel. Consumers are likely to switch in droves to accelerate the cord-cutting trend.

TV – What will be a CES show without some TV splash? 3D TVs have been a flop but consumers still crave for high-res and slim designs. Samsung, LG, Sony, and others continue to impress with new designs however pixel based strategy is getting old.

Samsung’s strategy – Samsung has taken the expected hit in the second half of 2014. At CES, some of the early elements of a strategy could be sensed out from the tea leaves – Tizen led IoT strategy, convergence of Samsung products glued by common interfaces, and rethink of the smartphone product lines around the globe. The company still needs to do a better job of telling its story.

Virtual Reality – There are many more players jumping into the VR space after the spectacular rise of Occulus last year.

Enterprise – A well-organized AT&T developer summit kicks off CES every year. As you might have gathered from my past writings, the new mobile money is flowing into the enterprises. Vertical industries and players who serve them are utilizing mobility, IoT, and cloud to change how they design their own business processes and instruments, manage their employees and engage with the customers. I am always impressed with what developers are able to come up with during Hackathons. It is surprising that the governments and corporations around the world don’t invest more in bringing entrepreneurs under a common umbrella to see the possibilities. AT&T also opened up its digital life platform for partners in the ecosystem.

Coolest keynote – Intel – Brian Krzanich excelled in driving home his three points around computing unleashed, intelligence, and wearable revolution. The new Realsense technology can expand the use cases from desktops to drones. Diamler’s Zetsche also scored points for bringing a cool looking autonomous concept car on the stage.

Overall, CES is a good show to sense the pulse of the industry at the start of the year and catch-up with colleagues who provide real insights into what’s going to be important.

Have a fabulous 2015

Chetan Sharma

US Mobile Market Update – Q3 2014 November 10, 2014

Posted by chetan in : 4G,4th Wave,5G,AORTA,Chetan Sharma Consulting,Connected Intelligence Era,Mobile Cloud Computing,Mobile Ecosystem,Technology Cycles,The Golden Age of Mobile,US Wireless Market,Wireless Value Chain,Worldwide Wireless Market , add a comment

US Mobile Market Update – Q3 2014

http://www.chetansharma.com/usmarketupdateq32014.htm

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Summary

The US mobile data services revenue exceeded $25B for the first time and increased 23% YoY and 7% QoQ. The US market will easily exceed the $100B mark in data revenues in 2014 thus becoming the first nation to do so.

Verizon became the second operator after China Mobile to cross the milestone of 100 Million postpaid subs.

The average mobile data consumption (cellular) crossed 2GB/mo. In the US, it took roughly 20 years to reach the 1GB/user/mo mark. However, the second GB mark has been reached in less than 4 quarters. An entire year’s worth of mobile data traffic in 2007 is now reached in less than 100 hours.

From 2010 to 2013, the data pricing declined by only single digits YoY. However, in the first 9 months of 2014, the data pricing has plummeted by 77%. It is having an impact on the industry financials which might help clear the way to further M&A in the US market.

Smartphone penetration increased to 72% and roughly 93% of the devices sold now are smartphones.

Samsung suffered one of the biggest mobile revenue and profit declines in its history. As the dominant leader of the Android ecosystem, it is caught in the middle of two major trends that ironically enough Samsung had influenced.

After a relatively quiet year, Apple had a blockbuster quarter with new product introductions. The expected bigger screen device arrived and was an instant big hit. It is going to do really well in Q4. The 6+ was in severe short supply and in Q3, the ratio of 6:6+ was 10:1 in the US market.

Apple also introduced two new products – Watch and Apple Pay. While it is too early to figure out the overall impact of Apple Watch (it clearly will put some Swiss Watchmakers out of business), Apple Pay appears to more disruptive. Apple’s classic approach of embracing the ecosystem and thinking end-to-end might finally disrupt the otherwise staid financial sector.

4th wave services continue to grow at a very past face around the globe. We expect 37 companies to be generating a billion dollar or more from 4th wave services in 2014 – a 311% jump from 2012.

T-Mobile recovered all of its postpaid losses since Q3 2009. At its peak, T-Mobile had cumulatively lost almost 5 million subscribers. However, in the last 4 quarters, the 4th place operator has added over 4.5M subs to recover in a dramatic fashion. Sprint on the other hand lost postpaid subs for the 11th straight quarter.

Due to its strong performance, T-Mobile has narrowed the gap with Sprint to roughly 1M subs. As expected, Sprint launched a series of price cuts to counter T-Mobile’s uncarrier moves to recapture the value share of the market. The Sept and Oct numbers show that Sprint has improved its performance but will it be enough to maintain its #3 spot that it has had forever?

The US market had the best net-add quarter in a decade and probably the 2nd best quarter in the history of the US wireless market.

The net-adds rebounded strongly in Q3 2014 on the back of strong performances by Verizon, AT&T, and T-Mobile. The ratio of non-phone to phone net-adds was 1.66. 62% of net-adds were connected devices.

Race To The Bottom?

The mobile data traffic has been doubling YoY in the US. The consumption is clearly growing with the introduction of new devices, network upgrades, and application enhancements. Operators are seeing tremendous pressure on data pricing due to the competitive environment. EBITDA declined for the second straight quarter.

From 2010 to 2013, the data pricing declined by only single digits YoY. However, in the first 9 months of 2014, the data pricing has plummeted by 77%. It is having an impact on the industry financials which might help clear the way to further M&A in the US market.

Samsung – Can It Rediscover Its Mojo?

Samsung suffered one of the biggest mobile revenue and profit declines in its history. As the dominant leader of the Android ecosystem, it is caught in the middle of two major trends that ironically enough Samsung had influenced. The bigger screen phone segment that Samsung seeded has become the fastest growing segment in smartphones. Apple following Samsung into the segment meant that it took away the single biggest differentiating factor and as such a serious impact on its high-end line. The lower end which yields higher volumes but much smaller ASP has attracted hordes of local developers in China, India, and Russia who have better logistics and operational advantage. Many of these players are becoming successful. To damage Samsung, they all don’t need to be successful, just enough to be in the market to sway the market. As such, Samsung has seen its share dwindle in the two biggest emerging markets.

Much of the current situation has been predictable for some time. While Samsung has ridden the smartphone wave masterfully, it hasn’t been able to build a platform moat, something that helps fundamentally differentiate its products in the sea of Android devices around the planet. They are not in a Blackberry or Nokia panic situation yet as some in the media have surmised. But, they need to figure a way out of the middle band. Unlike Nokia or Blackberry who were blinded by their success and ignorance, Samsung has shown it is a more nimble competitor. Samsung’s R&D and marketing is also second to none. Its diversified portfolio also helps in cushioning the drop in the phone segment. Historically, OEMs with such sharp revenue declines haven’t been able to arrest the decline. Can Samsung do it?

Operator M&A

In his classic book, “Competition in Telecommunications,” Nobel Laureate Jean Tirole wrote, “With digital technology, telecommunications, cable TV, broadcasting, and computers have become a single industry, which will be a critical element of our economies’ backbone. With the impending opening of competition, industrial restructuring is progressing at a fast pace.” The book was written almost 15 years ago. As I have written before, the computing and communications industries are merging into one and that collision is generating ripple effects some of which we are starting to understand (more on theConnected Intelligence Era trends here)

As expected Iliad gave up its dream of acquiring T-Mobile. The deal never made sense and had no market merit. This has left DT scratching for other options. The most likely scenario is that Sprint and T-Mobile try to get married in 2017 again or the FCC/DOJ have a change of heart due to declining financial performance of the two players. Another possibility is America Movil getting into the fray. And finally, some cable companies are likely to flex their muscles at an opportune time.

AT&T acquired Mexican operator Iusacell last week. If approved (and there is little reason why it won’t), it will make AT&T a clear leader in North America with almost 127 Million subscriptions. As we mentioned in our 4th wave series of papers, the number of operators will continue to shrink with fewer global operators who will seek to combine wireless and wireline assets to strengthen their moat. Perhaps, US Cellular should sharpen its pencil.

4th Wave Revenues

For the first time, US operators revealed some of their 4th wave (digital) services metrics publicly. Verizon reported $150M revenues from M2M and Telematics. At the current run-rate, this will be a billion dollar business by early 2016. AT&T reported 2M connected car connections and 140K home security connections. The connected car segment is clearly on its way to becoming a billion+ dollar business for AT&T. Sprint is also quite active on the 4th wave front but hasn’t shared any details yet.

Globally, we expect 37 companies to be generating a billion dollar or more from 4th wave services in 2014 – a 311% jump from 2012.

Microsoft Freemium Moves

First it was the OS, Now it is the Office portfolio – Microsoft is leaving no sacred cow unturned in order to gain relevancy in mobile. However, it seems that for the Office apps, Microsoft is essentially doing what it did for Windows Mobile i.e. just pare down the desktop OS for mobile. It never worked. The Office apps on competitive platform is a good strategy but they are still the pared down versions of the desktop app. As such, while people are downloading these apps out of curiosity, they are really not using them. However, the recent moves do indicate a willingness to rethink the business models, the platforms, and the distribution models which is a good start.

Amazon’s Mobile Aspirations

While Amazon is the biggest mobile commerce player in the world by a distance, its hardware aspirations have failed to impress. As expected, the Fire Phone was a complete dud. As we explained previously, it never had a shot. It was Zuned out of the market in record time (Facebook Phone probably holds the world record but Fire Phone wasn’t too far behind). A product without any substantial differentiation doesn’t stand a chance in this crowded market. While Kindle tablets had a tempting price point that made them relatively successful, Fire Phone failed across all dimensions. Software mistakes can be iterated upon. Hardware mistakes show up on the balance sheet.

In the meantime, Amazon is poised to have a blockbuster mobile commerce quarter to make it one of the most dominant players on the 4th wave.

The Upcoming 5G wars?

I started my career when 1G was all the rage. My first 4G project was back in 2002. By some measures, we are already behind on the 5G discussions. In general, it takes 7-10 years before the standards are finalized and then the network technology lasts for approximately 20 years before a market moves onto the next generation of technology. US led in the growth of 1G (AMPS, TACS) followed by Europe on 2G (GSM, CDMA). Japan took the leadership role with 3G (WCDMA, EVDO) and US wrestled it back on 4G (LTE). Japan and EU are determined to lead on 5G and have been making very public statements and R&D investments about their ambitions on 5G. Japan of course has a very clear goal of having 5G by Tokyo Olympics in 2020. Am sure some operator(s) somewhere will jump the gun and start calling LTE-A+ as 5G around 2017-18 or sooner. You can expect a lot of activities both in public and private on 5G as companies and governments try to figure out a way to claim the 5G leadership mantle.

Apple Watch

After visiting the show floor at CES in January, we noted that “The space is going to get commoditized very quickly and it is likely going to get stratified into two major buckets – really cheap $10-20 wearables. The other bucket will be high-end fashion driven wearables.”

Earlier in the year, Xiaomi released a $13 tracker and Apple announced its new product in almost 5 years – the Apple Watch. The mid-market will be under tremendous stress.

Apple Pay

Mobile Payments has long infatuated mankind. Many players with deep pockets have invested in the segment but in truth, the market was waiting for Apple to show up and show up it did with the launch of Apple Pay. In an ambitious orchestration of the financial supply chain, Apple introduced a simple payment proposition. The basic strategy is for commerce to flow through iOS. The institutions are even paying a share of the transaction to Apple which previous payment explorers are watching in utter disbelief. Ladies and Gentlemen, get ready for iTunes 2.0.

What to expect in the coming months?

2014 has been a tremendous year for the mobile as it becomes omnipresence in every industry. We have already seen some massive moves, astounding acquisitions, and interesting strategic endeavors.

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 2014 US wireless data market is:

Service Revenues

· The US mobile data services revenues in Q3 2014 increased 7% and crossed the $25B market for the first time.

· The mobile data services revenue is on track to exceed the $100B mark in mobile data services revenue to become the first country to generate $100B from mobile data services.

· Verizon and AT&T dominated the quarter accounting for 70% of the mobile data services revenue and had 68% of the subscription base.

· Verizon and AT&T are at #2 & #3 global mobile data revenue ranking respectively in Q3 2014. Sprint and T-Mobile also maintained their rankings in the top 10 global mobile data operators.

ARPU

· The Overall ARPU rebounded to increase by $0.08. 

· Data contribution to the overall revenues is now at 58%.

Subscribers

· The US market had the best net-add quarter in a decade and probably the 2nd best quarter in the history of the US wireless market.

· The US operators added 6.3M new customers with T-Mobile leading the pack.

· 62% of the net-adds in Q3 2014 were from the non-phone category. The net-effect has been that while overall subscriber count has increased, there has been a negative impact on the ARPU. 

· Verizon’s tablet net-adds soared accounting for almost 71% of the overall tablets that were added in Q3. Verizon has caught up with AT&T on the tablet front.

· T-Mobile’s postpaid continued to see the positive growth for the sixth straight quarter. It has almost recovered all its losses that began in Q3 2009.

Shared Data Plans

· Shared data plans launched by Verizon and AT&T have been quite successful. The attachment rates have increased tremendously over the course of 2013-14 with more consumers opting for cellular tablets and connected devices. 57% of postpaid accounts at Verizon are now on shared plans. For AT&T, the number is even higher at 62%.

· Some more granular data plans for tablets have also spurred interest as the cellular broadband is becoming available on demand vs. expensive on premise Wi-Fi solutions.

· 50% of AT&T’s postpaid accounts are on 10GB+ plans.

4th Wave Progress

· The number of players making $250M/quarter on mobile continues to increase rapidly and these aren’t your traditional wireless players. For example, Mobile is now contributing 66% (up from 30% in Q1 2013) to Facebook’s quarterly revenues. Latest addition to the club is Twitter which is now doing 85% in mobile (of the total advertising revenue) up from 60% in 2013. Even traditional players like Hertz, Sears, and Starbucks are generating meaningful revenues from mobile. There are now dozens of such players and the list is just growing. (for more discussion on the topic please see: “Mobile 4th Wave: Evolution of the Next Trillion Dollars”)

· In 2014, we are also seeing continued investments from the operators especially AT&T, Verizon, and Sprint in non-traditional segments like home security, healthcare, insurance, automotive, enterprise mobility, advertising, and security, and others. Collectively, this is already a multi-billion dollar business in the US.

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

Connected Devices

· Connected devices (non-phones) accounted for almost 62% of the net-adds in Q3 2014. This means that while there is a healthy smartphone sales pipeline, it is for the existing subs and as such net-adds for the phone business is tapering off and we can expect that new net-adds will continue to be dominated by the connected devices segment.

· Tablets form 70% of the connected devices sold.

· QoQ, the non-phone segment grew 30%.

Handsets 

· Smartphones continued to be sold at a brisk pace accounting almost 93% of the devices sold in Q3 2014. Within the next two years, the feature phone category will practically be extinct in the US market.

· The smartphone penetration in the US is now at 72%.

· Android again outperformed iOS by a good margin. iOS is likely to bounce back in Q4.

· 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 last year but sales have been poor. While Microsoft has made steady progress in other regions, in the US, it’s not gaining any traction and its share remains at a measly 1-3%. (Read our paper to get more insights into why Windows hasn’t been able to make a dent so far).

· Verizon continues to sell more LTE smartphones as its LTE sub tally rose to 59M making it the leading LTE operator in the world (next year China Mobile will overtake Verizon to become the number 1 LTE operator by subscriptions). Other three operators are also deep into their LTE deployments. Verizon reported that 79% of its total data traffic is on the LTE network now, clearly the fastest technology transitions we have seen in the US wireless industry.

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, articles, and our annual thought-leadership summit – Mobile Future Forward. The next US Wireless Data Market update will be released in Feb 2015.

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

Interview with Matt Grob, EVP/CTO – Qualcomm September 18, 2014

Posted by chetan in : 4th Wave,AORTA,Chetan Sharma Consulting,Connected Intelligence Era,Internet of Things,Mobile Advertising,Mobile Applications,Mobile Future Forward,Wireless Value Chain,Worldwide Wireless Market , add a comment

Mobile Future Forward – Seattle – Sept 24th 8am-8pm

Registration (Registration closes this Friday)

In proud partnership with: Amdocs, Ericsson, HYLA Mobile, Intel, Mio Global, MoBack, Oracle Communications, Qualcomm, Synchronoss, and Tata Communications.

Mobile Future Forward Preview: Q&A with Matt Grob, EVP/CTO – Qualcomm

We are looking forward to welcome many of you to our Mobile Future Forward Summit next week. This is the final interview in the series and it is with our opening keynote speaker Matt Grob, EVP, Qualcomm Technologies and CTO. I am really excited that we will kick off the summit with Matt as he has deep experience and knowledge of the space and a compelling vision for the future. In his 23+ years at Qualcomm, he has been instrumental in taking many technologies to the market that we take for granted today. I had a chance to catch-up with Matt to give you a preview of our discussion at the summit next week.

MFF: The chipset roadmap gives us a sense of what new devices will emerge from the mobile platform. What are some of the things on the horizon that you are excited about, and that developers should pay attention to?

Matt: We continue to see a tremendous amount of innovation in smartphones. In the next 5 years, analysts estimate that nearly 8 billion smartphones will be sold worldwide. That amount is larger than the world’s population! With such scale, there’s no doubt that mobile will continue to be a focal point for technology R&D — with major advancements not only in the chipset feature set, but also in the evolution of software, and mobile networks. Many of the things we foresaw a few years back are already in commercial devices, things like LTE Advanced, Ultra HD, wireless charging, surround sound, and computational photography.

Moving forward, I’m pretty excited about further advancements in LTE, things like LTE in unlicensed spectrum, and LTE Direct. These technologies will make mobile networks much more capable and useful. On the device side, we’ll see more low-power processing and sensor technologies, and new developments in computer vision that will improve the context awareness capabilities of mobile devices.

And I’m personally passionate about the developments we’ll see in the field of machine learning — the evolution of processor platforms that mimic the way the human brain thinks and sees. This will be a game changer — since we finally will be able to “teach” our machines instead of simply “programming” them.

MFF: We know that rising data consumption is a challenging issue for mobile operators worldwide. Looking out over the next 5 years, what kinds of solutions do you anticipate? And how big a part will unlicensed spectrum play?

Matt: Although the numbers vary depending on the region, we continue to see solid growth in data demand. According to the CTIA, mobile network operators in the U.S. saw a 120% year-over-year (YOY) increase in data traffic in 2013, compared to a 69% YOY increase in 2012. In emerging regions, we are still in the early days of smartphone adoption, so we should expect further increases in data demand, as people adopt more advanced mobile devices.

We anticipated a day in which networks will have to deal with a thousand times more data traffic than they handle today. We called this the 1000x data challenge. To solve it, our industry has implemented a range of strategies. Of course spectrum is critical. We’ll need to squeeze more out of existing spectrum and we’ll need to find more of it. That’s going to involve taking advantage of multiple access schemes, including licensed, unlicensed, and shared access.

We’re also working on continuing the evolution and enhancement of LTE, including carrier aggregation strategies. Other network efficiencies will be achieved through advancements in 3G, 4G and Wi-Fi technologies. Another key strategy is network densification. We’re working to beef up mobile network infrastructure with the deployment of advanced small cells.

We’ll need all of these tools to address the continuing rise in demand for mobile data, because the fact is that people in every part of the world love their mobile devices, which is a pretty exciting challenge for our industry.

MFF: Mobile is changing so many industry verticals — health, auto, retail, energy, and more. Which verticals are you the most excited about, and why?

Matt: The huge scale of the mobile industry and the rapid design cycles associated with it are driving a tremendous amount of technology innovation. And those breakthroughs are now driving innovation in a growing number of other industry sectors. The components and capabilities that have been invented, integrated, refined, and dramatically cost reduced within modern smartphones are now poised to revolutionize and enable whole new categories of devices, sensors — and machines.

I’m particularly excited about how these mobile innovations will accelerate the evolution of robotics. Drones and robots are taking a lot of the technology developed for smartphones. Things like wireless connectivity, image stabilization, computer vision, precise outdoor and indoor location, and low power processing, are all now contributing to the evolution of robotics as well. And the scale of deployment of those technologies is making robots much more affordable as well. Today we can find hobby drones that sell for less than $1,000.

As part of our R&D effort at Qualcomm we’re building experimental robots that can learn to perform some menial tasks without prior programming, things like sorting toys and organizing them in bins. And all running on the same Snapdragon processors that power many of the most popular smartphones today. It’s exciting to see how smartphone technology is accelerating the development of general-purpose robots and drones, and I’m grateful to have a front row seat, not only as a witness that evolution, but also as a participant in the robotics revolution.

MFF: The “Internet of Things” continues to make headlines and holds great promise, but the growth has been slow due interoperability, security, regulatory, and other issues. What will it take to move past these issues and see the growth rate graph take the anticipated hockey stick shape?

Matt: Everything around us is becoming intelligent and connected, changing the way we interact with the world: phones, tablets, cars, appliances, and health devices. We use the term “Internet of Everything” (IoE) because not only “things” are getting connected, but also places and people.

The IoE is still in its early days, but the ecosystem is coming together to solve some of the key issues preventing the full realization of its promise. Until recently, most IoE products and services have existed in silos, as vertical solutions — without the capability to connect and interact with each other. The challenge is, how to create a horizontal, secure, interoperable environment. We believe that AllJoyn is key solution for moving the industry in the right direction. AllJoyn is an open, universal, and programmable software and services framework, initially developed by Qualcomm Innovation Center and now hosted by the AllSeen Alliance.

Qualcomm backs the AllSeen Alliance as it drives the AllJoyn open source project forward, as the common language for the Internet of Everything. The AllSeen ecosystem consists of a broad representation of cross industry leaders looking to enhance AllJoyn via open source contributions, and to commercially deploy smart connected devices that can discover, connect and communicate with each other across brands and device categories.

The consortium now counts more than 60 members, including many big names in technology and consumer electronics. This level of support increases our confidence about the future. I think we’re close to reaching a tipping point in the development of a truly interoperable IoE.

Hope you enjoyed the insights.

We look forward to seeing you next week.

Kind regards,

Chetan Sharma

Connected Intelligence Era: The Golden Age of Mobile August 21, 2014

Posted by chetan in : 4th Wave,Chetan Sharma Consulting,Connected Intelligence Era,Fourth Wave,Technology Cycles,The Golden Age of Mobile,Wireless Value Chain,Worldwide Wireless Market , add a comment

Connected Intelligence Era: The Golden Age of Mobile

– A Mobile Future Forward Research Paper

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

This paper is the 5th paper in the Mobile Future Forward Series. It is a required reading for Mobile Future Forward participants.

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History and Background

In 1925, a soviet economist Nikolai Kondratiev observed in his book “The Major Economic Cycles,” that the growth of human history has been intertwined with economic cycles that resemble waves spread across multiple decades (figure 1). The duration of the cycles might vary but the pattern repeats itself. If we study the technology revolutions of the last 300 years that have shaped human history – the industrial revolution, the age of steam and railways, the age of steel, electricity, and heavy engineering, and the current age of information and telecommunications, each of these cycles lasted on average 50 years. There was GDP growth with every cycle and with each technology cycle, we made earth a better place to live even though sometimes it might not seem that way.

Early in the 20th century, an Austrian economist, Joseph Schumpeter expanded on the theory of business cycles and development and wrote perhaps one of the most influential book in economics – “The Theory of Economic Development.” Schumpeter posited that the entrepreneurs changes the equilibrium of any business cycle and is the prime cause of economic development (figure 2), which proceeds in cyclic fashion along several time scales. In fashioning this theory connecting innovations, cycles, and development, Schumpeter kept alive the Russian Nikolai Kondratiev’s ideas of 50-year cycles.

In 2003, another economist Carlota Perez from Venezuela expanded on the Kondratiev cycle theory in her book, “Technological Revolutions and Financial Capital: The Dynamics of Bubbles and the Golden Ages.” She drew upon Schumpeter’s theories of the clustering of innovations to explain why each technological revolution gives rise to a paradigm shift and a New Economy and how these opportunity explosions, focused on specific industries, also lead to the recurrence of financial bubbles and crises (figure 3). By analyzing the changing relationship between finance capital and production capital during the emergence, diffusion and assimilation of new technologies throughout the global economic system, Carlota’s book discussed some of the pressing issues in front of us.

This brings us to the present time. Where are we in the big economic cycles? Are we in the golden age of the last technology cycle of information and telecommunications that gave birth to the Internet and the modern wireless ecosystem as we know it or are we perhaps on the verge of a new age that will transform human history for the next 50 years? Given that the markers of transition are not always clear, we won’t know for sure which wave we are embarking on for some time but we are fairly certain that we are entering the golden period of the mobile industry.

There is also a strong possibility that we might be onto something new, something more transformative, something different that we would humbly propose is the start of theConnected Intelligence Era. These two operative words are going to define the next phase of human evolution. The confluence of mobile broadband network, smarter devices, pervasive connectivity, and our ability to program the intelligence around us is going to dramatically change every industry vertical from the ground up. Consider the health industry – sensors inside the body can send alerts days before a stroke, telemedicine can help direct a surgery in remote parts of Bhutan, mobile devices will educate and guide us on nutrition, wellness, and medicine compliance. In fact, technology might eliminate the need to go to a doctor completely except in the case of chronic diseases or an emergency. Some of this is already happening but we will see implementations on a global scale that will hopefully reduce the enormous burden on the global GDP.

Similarly, the travel and tourism industry is being transformed by intelligence at the fingertips of travelers in unfamiliar lands. The education segment especially in the developing world is being changed by the availability of affordable tablets. M2M is making the energy sector reinvent itself. In a few years, it will be hard to imagine a car without mobile broadband connectivity.

As we outlined in our Mobile 4th Wave paper series, change is in the air. Mobile is becoming the critical tool to drive human ingenuity and technological growth. Fueled by the revenue growth curves of voice, messaging, and access, the industry has flourished beyond anyone’s imagination.

We as an industry are on the verge of incredible milestones in human history. Very soon, for the first time, mobile connections will exceed humans on the planet. Mobile broadband networks are being deployed at the fastest pace ever. Smartphones are in such great demand that in some countries, feature phones are already going extinct. The trifecta of fast broadband networks, well-designed mobile computing devices, and the insatiable supply of content, applications, and services has unleashed consumer demand like never before.

The last thirty years of industry growth were primarily driven by network access to voice, messaging and data. The next thirty will be defined by access to services and solutions that are customized to the individual consumer lifestyles. Enterprises around the globe are also rethinking their business processes and business models and how they can take advantage of the connected intelligence around us. As an industry, we have reached an annual run rate of $1.7 trillion in revenues. But how will the next trillion dollars be generated? Which services are going to dominate? Which players will get the lion share of the revenue stream? How will regulators regulate? How are we going to deal with the vexing issues of privacy and security? How will consumers adapt to the changing dynamics and will we truly realize the potential of the 4th wave? The next decade will yield the answers and determine the new winners of the mobile ecosystem.

In this paper, we make the case that we are in the beginning of the “Golden Age of Mobile” and discuss its impact and the early years of the transformation some of which we are already starting to see.

Download (37 pages, 2.6 MB)

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, articles, and our annual thought-leadership summit – Mobile Future Forward. The next US Wireless Data Market update will be released in Nov 2014. The next Global Wireless Data Market update will be issued in Sept 2014.

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

We will be discussing many of the ecosystem and technology issues, opportunities and challenges for the coming years in our annual mobile executive summit Mobile Future Forward on Sept 24th in Seattle. Some of the confirmed speakers are: Bill Ruh, VP – Global Software, GE; Tim Campos, CIO, Facebook; Erik Moreno, SVP, Fox Networks; Glenn Lurie, President, AT&T; Steve Mills, CIO, Motorola Mobility; Hank Skorny, VP/GM, Intel;Dr. John Saw, CNO, Sprint; JD Howard, VP/GM, Lenovo; Dave Webb, CIO, Equifax; Dr. Hassan Ahmed, CEO, Affirmed Networks; Mark Fernandes, Managing Dierctor, Sierra Ventures; Ujjal Kohli, Founder, Rhythm NewMedia; Vik Kathuria, Global Chief Media Officer, Razorfish; Erin Kienast, SVP, Starcom Worldwide; Josh Will, Senior Category Manager, Best Buy; Steve Elfman, President, Sprint; Glenn Laxdal, VP, Ericsson; Matt Grob, EVP/CTO, Qualcomm; Julie Woods-Moss, CMO, CEO of Nextgen Business, Tata Communications; David Richter, VP, Uber; Paul Brody, VP & Mobile Practice Leader, IBM; Mathew Oommen,President, Reliance ; Andreas Gal, CTO, Mozilla; Chris Putnam, SVP, Synchronoss; Brian Angiolet, SVP – Consumer Product Innovation, Verizon; Sharath Dorbala, Head of Mobile Financial Services, Amdocs; Rajeev Tankha, Senior Director – Applications, Oracle; Andy Chu, VP – mCommerce, Sears Holdings; Philip Fasano, EVP and CIO, Kaiser Permanente;Erik Ekudden, SVP, Ericsson, Benedict Evans, Partner, Andreessen Horowitz; Dr. Mani Prakash, VP – R&D, Covidien; Dr. Corrina Lathan, CEO, AnthroTronix; Chia Chen, SVP, Digitas; Eric Mugnier, SVP, M&C Saatchi Mobile; Rob Chandhok, President, Qualcomm, and many more to come. We hope to see you there for the brainstorm.

Mobile Future Forward: Mobile Advertising: Q&A with Erin Kienast, SVP Starcom August 13, 2014

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“Advertising, once a gamble, has become under able direction, one of the safest of business ventures. Certainly no other enterprise with comparable possibilities need involve so little risk.”

– Claude Hopkins, Scientific Advertising, 1923

We are looking forward to welcoming you to our Mobile Future Forward Summit next month. We are doing interviews with some of the thought-leaders leading up to the event to give you a glimpse of the upcoming brainstorms. Mobile Advertising has been at the heart of the mobile economy. Seven years ago when I was co-authoring the book on the subject, it was clear to us that mobile will fundamentally transform advertising. Slowly but surely, we are getting there.

In our Mobile Advertising panel at the summit, with the help of some really experienced executives who deal with advertising day-in and day-out, we will explore the future direction of the advertising industry. One of the distinguished panelists is Erin Kienast, SVP at media agency Starcom USA. We caught up with Erin about her thoughts on the space.

MFF: What are some of the key characteristics of a very successful mobile advertising campaign? How do you measure success?

Erin: Success is dependent on overall campaign objectives so characteristics can vary drastically by initiative.  First and foremost content is king with mobile so having mobile ready content is critical to driving success.  Mobile offers such a small screen to deliver a message but it is one of the most impactful screens a marketer can deliver given personal nature of the device.  Clearly articulating success metrics at the start of the campaign is critical to understand what exactly you are trying to achieve.  Success can be measured at each phase of the purchase funnel; it is really dependent on what a marketer is trying to achieve.  Sufficient spend is one area that often goes unnoticed when executing mobile campaigns.  Mobile budgets still remain small compared to other mediums in market so spend is often passed over.  It is critical to make sure there is sufficient spend backing a campaign to sustain presence in the market and allow a campaign to achieve overall objectives.

MFF: The mobile advertising industry has grown tremendously in the last 5 years, however, still there are many challenges remain for it to fully realize its full potential. If you had the power to knock-off the top 2 issues that could change the industry landscape, what would those issues be?

Erin: The top two issues are:

o Measurement/ROI: Until there is consistent measurement in place and solid ROI data, marketers will still remain hesitant to shift a larger percentage of dollars in the space.  At the end of the day, marketers are tasked with moving product off of shelf and without having proven success that an investment is driving return, there will continue to be hesitancy.

o Content: Marketers and creative agencies are not prioritizing the building of mobile creative so we still do not understand the full creative capacity of the space.  Now, marketers rely on partners to build a large percentage of mobile creative which results in inconsistency across partners and with other media in market for a brand.

MFF: You have been in the media business for a long time. How has the mobile world changed the consumer expectations and behaviors?

Erin: Consumers expect a brand to be there in a meaningful way.  They are actually willing to provide personal information in return that they receive a meaningful brand experience.  That is a major shift from TV and print advertising where consumers are not providing personal information.  Consumers rely on mobile devices daily outside of previous work only usage.  Consumers rely on phones for directions, recommendations, socialization, shopping, photography, weather, almost everything consumers do in life involves a mobile device.  As a result, a brand must be there when a consumer is seeking them out but be there in a way that provides value.  Before consumers did not expect and sometimes did not want a brand to interrupt an experience.  Now it is welcomed if it is meaningful.

MFF: Where do you get your inspiration in creating unique solutions for clients?

Erin: I walk around and observe people in their natural environments on the streets, in restaurants, at sporting events, on public transportation, at the airport, etc.  Observing and noting human behavior provides with me with the opportunity to capture ways to improve lives that currently doesn’t exist.  People are inspiring, especially those I do not interact with daily.  I love observing human behavior because it sparks a level of creativity and pushes my previous boundaries of thought to brainstorm without boundaries.

I also like to imagine the unimaginable then find a way to make it happen, even if it takes baby steps to reach full capacity.  When it is said something cannot be done, I am inspired to find a way to make it happen and it’s proven successful time and time again.

MFF: As you look forward 2-3 years, what technology shifts in mobile excite you the most – things that will have a major impact on how advertising budgets are allocated?

Erin: Connectivity is the most exciting shift in my mind.  Connectivity in terms of connected home, connectivity in store via lighting/beacons/camera monitoring, wearables, etc.  Marketers are finding new ways to connect to consumers in more meaningful ways outside of a simple banner.  The ability to deliver a brand message in a new way fueled by connectivity and devices that create connectivity is going to advance our culture in the next few years.  The focus is less on traditional advertising outlets in the form of a banner and more on the technology.  Take a washer as an example.  Technology is advancing and these machines are becoming smart, connected to you mobile devices.  How does a washing machine trigger a notification to purchase more detergent where consumers can purchase directly from their phone or tablet? This is where the future will be focused, less on creating large spots/banners, more on partnering with technology company to align with human behavior.

US Mobile Market Update – Q2 2014 August 7, 2014

Posted by chetan in : 4th Wave,Chetan Sharma Consulting,Connected Devices,Fourth Wave,Mobile Applications,Mobile Ecosystem,Mobile Future Forward,Mobile Patents,Wearables,Wireless Value Chain,Worldwide Wireless Market , add a comment

US Mobile Market Update – Q2 2014

http://www.chetansharma.com/usmarketupdateq22014.htm

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Summary

The US mobile services revenues in Q2 2014 declined marginally by over $200M. The mobile data services revenue however continued to increase and is on track to exceed the $100B mark in mobile data services revenue. Data contribution to the overall revenues is now at 55%.

T-Mobile continued to outperform its competitors in net-adds. T-Mobile has almost recovered all its postpaid losses that started back in Q3 2009 and continued till Q1 2013. It should move into the positive territory next quarter. T-Mobile also crossed the 50M sub mark and is now within a striking distance of Sprint and could become the number 3 operator in the country before early 2015.

AT&T registered the lowest postpaid churn in its history at 0.86. For the industry buffs, the US record is held by Verizon which recorded the churn of 0.84 in Q2 2012. The world record is held by NTT DoCoMo for its churn of 0.44 in Q2 2010. In general, Japanese have the most loyal customer base in the world.

The net-adds in the US market is now primarily driven by connected devices (tablets and m2m). 84% of the net-adds in Q2 2014 were from the non-phone category. Tablets are driving the connected devices segment with 70% share. The net-effect has been that while the overall subscriber count has increased, there has been a negative impact on the ARPU which declined by 2.27%. All operators saw their ARPU decline.

Smartphone penetration increased to 70% and roughly 93% of the devices sold now are smartphones. Android beat iOS handedly in the quarter. For the first time, Verizon sold more iPhones than AT&T.

M&A Season

From 2005 to almost 2008, the combined entity of Sprint and T-Mobile would have been the #1 operator in the US. Up until 2004, the “Others” were collectively the number #1 operator in the US. However, through a series of acquisitions, exclusive device deals, and just better business performance, Verizon and AT&T have dominated the mobile landscape in the US since 2007. Now, AT&T and Verizon are tied at the top while the market awaits the question mark on how the #3 will shape up. Iliad provided some market entertainment that kept media scratching its head with its offer to buy T-Mobile last week. It was an unattractive proposition as it doesn’t fundamentally offer to alter the US market structure. There are other global operators who are eying T-Mobile as a way to enter the lucrative US market. It might all come down to how desperate is DT to offload T-Mobile.

Yesterday, Sprint abandoned its pursuit of T-Mobile and probably saved itself a couple of billion dollars of break-up fee. The regulatory hurdle in the current environment of mega-mergers was just too high to overcome at this time.

So, will there be further consolidation in the mobile industry? Short answer is – Yes. The only question is about the timing. As we noted in the last note, T-Mobile has complicated things by being successful in the short-term. A third player with 30% market share will of course be better but T-Mobile has been able to change the market by being the fourth at 15%.

Is Windows Phone getting Zuned Out of the Market?

In 2012, we described “Zuned Out” as a phenomenon wherein the market punishes the player (even incumbents and dominant ones) for late entry into the market. The fast follower strategy that had served Microsoft so well for a couple of decades is no longer a useful framework for competing. Either one needs to be a “really fast follower” like Samsung (though they did invent the big-screen device segment that Apple is now following) or a trend setter like Apple/Google to have some command of the control points in the ecosystem.

Google was tempted by the lure of the device business and to some extent was forced to buy Motorola. It took 10 quarters to realize that the device business is a different beast, that there was a DNA mismatch, but the exercise did provide some key business insights to the management team. Google shed the device business and kept its partners happy. Microsoft’s acquisition of Nokia followed a similar pattern. Nokia threatened to go Android and Microsoft had no choice but to acquire the beleaguered company that has been just devastated since it picked up Windows as its primary OS. It was clearly a mistake both by Nokia first and Microsoft after that. The new CEO (to his credit) shed a good part of the business in a mere 3 quarters (a clear admission of a mistake). While the impending decimation of the once vaunted Finnish brand was very obvious, the bigger question in front of Microsoft is “what to do with Nokia that’s remaining?” The current plan is to continue churning out the Lumia devices at different price points and see what happens.

As is well known, Microsoft is very strong in the enterprise and in the cloud. Will the new “productivity and platforms” strategy look at the market facts and focus on where the company can be a player and invent new categories and experiences? Or will it focus on just chasing the competitors that have infatuated it over the last decade? Productivity is more than Office and Platforms have moved to iOS/Android. The “core” of the computing market is very different from what it used to be.

The market share of the windows devices in the US last quarter was 1.3%. Globally, it fared marginally better at 2.7%. Granted that in some countries, Windows is starting to approach double digit market share, even Microsoft admits its mobile strategy is in shambles. After being in the US market for more than 2 years with billions spent in marketing and distribution, 1.3% share is nothing to write home about. Microsoft can get better traction in markets where new-subs are entering the ecosystem vs. replacement markets like the US. However, what market is telling us is that despite the blood, sweat, and tears that have been spent over the past few quarters, there is little appetite or need for another platform.

Also, there is this issue of competing with your partners – Microsoft outperforms its ecosystem partners by a distance. I wrote at the launch of the new windows OS that is was a fresh approach, the OS is very well designed and the devices coming out a quite good. However, the current data indicates that unless something changes drastically, windows phones might be on the verge of being “zuned out” of the market. And just like Zune, the fault will lie not in the product or the distribution or the marketing but rather in the timing of the market entry. Microsoft might be better off giving up on its device dream and just focus on services on top of the platforms that dominate. It might be time for hermit crab strategy.

IBM-Apple deal

Intuitively, we have known for a while that the application development environment was moving from windows to iOS and Android. In 2012, we actually measured that shift and found that SMBs were moving to the new platforms in droves. The paper concluded:

“We believe that the SMB segment is a leading indicator of how larger enterprises and consumers in general will adopt mobile data solutions to enhance productivity and reduce costs.”

Fast forward 2 years. Last month, IBM and Apple announced their historic deal that woke up lot of people in the enterprise world. Apple is just looking to find a more efficient channel into the enterprise to sell iOS devices but IBM’s embrace means that the investment in iOS UX and app infrastructure will start to move more directly. Given that IBM is positioned well in all important enterprises across all industry verticals is a big coup for Apple. It also demonstrably indicates the shift from Windows to iOS and Android as the computing platform of choice.

Amazon phone

Amazon phone has been talked about for more than three years. It finally arrived but disappointed. While there were some interesting tech innovations seamed together to provide some differentiation, without any service pricing innovation (and the fact that it is only available on one operator), its fate seems similar to that of the Facebook phone.

Unraveling of Nokia

The mobile (more broadly digital) markets continuously remind us how brutal can the markets be if one is not quick enough to adjust strategies. As the old saying goes, “the bigger they are, the harder they fall.” Motorola was founded in 1928 and only a skeleton of the old glorious days remain as a subsidiary of Lenovo. An 80+ year old firm disappeared very quickly.

In the case of Nokia, the decomposition was even more stunning. A company founded in 1865 had 40%+ of the phone market only 7 years ago, employed tens of thousands of employees around the globe. After the latest round of rightsizing, only a few thousand remain (at least for the short term). Blackberry experienced a similar slide downwards. The cycle of complacency spares no one. The bigger the host, the more lethal the complacency virus is. This decomposition process is actually healthy for the ecosystem. Though the process is traumatic for those who are in the middle of it, it lays the fertile ground for new ideas and startups to germinate, and the cycle continues.

The bifurcation of the wearables market

After visiting the show floor at CES in January, we noted that “The space is going to get commoditized very quickly and it is likely going to get stratified into two major buckets – really cheap $10-20 wearables. The other bucket will be high-end fashion driven wearables.”

Last month, Xiaomi released a $13 tracker and Apple is expected to announce its wearable next month. The mid-market will mostly disappear.

What to expect in the coming months?

2014 has had an excellent start and rest of the year is looking great with a slew of announcements and activities planned for the rest of the year. We have already seen some massive moves, astounding acquisitions, and interesting strategic moves.

As usual, we will be keeping a very close eye on the micro- and macro-trends and reporting on the market on a regular basis in various private and public settings.

Against this backdrop, the analysis of the Q2 2014 US wireless data market is:

Service Revenues

ARPU

Subscribers

Shared Data Plans

4th Wave Progress

Connected Devices

Handsets 

Mobile Patents/IP

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, articles, and our annual thought-leadership summit – Mobile Future Forward. The next US Wireless Data Market update will be released in Nov 2014. The next Global Wireless Data Market update will be issued in Sept 2014.

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

We will be discussing many of the ecosystem and technology issues, opportunities and challenges for the coming years in our annual mobile executive summit Mobile Future Forward on Sept 24th in Seattle. Some of the confirmed speakers are: Bill Ruh, VP, GE; Tim Campos, CIO, Facebook; Erik Moreno, SVP, Fox Networks; Glenn Lurie, President, AT&T; Steve Mills, CIO, Motorola Mobility; Hank Skorny, VP/GM, Intel; Dr. John Saw, CNO, Sprint; JD Howard, VP/GM, Lenovo; Dave Webb, CIO, Equifax; Dr. Hassan Ahmed, CEO, Affirmed Networks; Mark Fernandez, Managing Partner, Sierra Ventures; Ujjal Kohli, Founder, Rhythm NewMedia; Vik Kathuria, Global Chief Media Officer, Razorfish; Erin Kienast, SVP, Starcom Worldwide; Josh Will, Senior Category Manager, Best Buy; Steve Elfman, President, Sprint; Paul McNamara, VP, Ericsson; Matt Grob, EVP/CTO, Qualcomm; Julie Woods-Moss, CMO, CEO of Nextgen Business, Tata Communications; David Richter, VP, Uber; Paul Brody, VP & Mobile Practice Leader, IBM; Mathew Oommen, President, Reliance ; Andreas Gal, CTO, Mozilla; Chris Putnam, SVP, Synchronoss; Fareed Adib, Global Head of Telecom Partnerships, Google; Brian Angiolet, SVP – Consumer Product Innovation, Verizon; Sharath Dorbala, Head of Mobile Financial Services, Amdocs; Rajeev Tankha, Senior Director – Applications, Oracle; Andy Chu, VP – mCommerce, Sears Holdings; Philip Fasano, EVP and CIO, Kaiser Permanente; Erik Ekudden, SVP, Ericsson, and many more to come. We hope to see you there for the brainstorm.

Mobile Breakfast Series–IoT–London July 3, 2014

Posted by chetan in : 4th Wave,Chetan Sharma Consulting,Internet of Things,IoT,Mobile Breakfast Series,Mobile Ecosystem,Mobile Future Forward,Smart Cities,Wireless Value Chain,Worldwide Wireless Market , add a comment

We hosted our Europe Mobile Breakfast Series in London last month in partnership with Telefonica and they have been gracious host for the series. The topic of discussion was “Internet of Things: Exploring the next big thing in mobile.” Regular readers will notice that it is the same topic we covered in our Seattle breakfast event in March. IoT is gaining lot of share of the news cycle and investments from big companies like GE and Caterpillar to startups like Fitbit and Smart Things. Many traditional computing and communications players like Telefonica, AT&T, Intel, Qualcomm, Microsoft, Google and others are also plunging full-steam ahead into the segment.

I have written about the notion of the coming “Golden Age of Mobile” and IoT, IMHO fits right into that growth strategy. In previous notes, I suggested that:

It is very clear to us that we are entering the ‘Connected Intelligence’ era. These two operative words are going to define the next phase of human evolution and are going to dramatically change every industry vertical from the ground up.

We are starting to see the signs in all directions. We had assembled a great panel to delve into some of the early opportunities, solutions to problems, and the traction areas. Executives from BMW, Intel, Telefonica, and Worldsensing were at hand to share their opinions and experiences in the space.

IMG_0383IMG_0391IMG_2613IMG_2611

Dominik Fromm is responsible for expanding BMW Group’s Mobility Services in the United Kingdom under the BMW, MINI and BMW i brands. Strategy, Mobility and Financial Services have been his professional focus in recent years. The current work builds on this wealth of experience, gained whilst working in the United Kingdom and in BMW’s global headquarters in Munich.

Raine Bergstrom is a vice president in the Software and Services Group at Intel Corporation and general manager of API Services. He takes the lead on market and product definition, as well as the execution of API management. He also defines the IoT Services Platform strategy, helping deliver a true end-to-end IoT solution for some of Intel’s largest customers.

Carlos de otto Morera is an economist educated in the United Kingdom. He has now 15 years of international experience including entrepreneurial experience in mobile, hardware and Internet startups. Created the largest online music platform in Spain from 2008 till 2012. Deeply passionate about his job designing and manufacturing connected products. Currently running Thinking Things, connected Hardware initiative from Telefónica.

Mischa Dohler is Chair Professor in Wireless Communications at King’s College London, UK. He is Distinguished Lecturer of IEEE ComSoc, Senior Member of the IEEE, and Editor-in-Chief of ETT. He frequently features as keynote speaker and had press coverage by BBC and Wall Street Journal. He is a tech company investor and also entrepreneur, being the cofounder, former CTO and now with the Board of Directors of Worldsensing.

So, as you can see, we had quite an eclectic group of individuals with diverse backgrounds and perspectives.

To recap, as we stand today, here are some of the forecasts:

In 2011, Ericsson forecasted 50 Billion Connected Devices by 2020

In 2012, Cisco agreed with the forecast and said they too expect the same number of connected devices and in 2013 came out with a paper talking about a $14.4 Trillion economy powered by IoE

In 2013, GE came out with their research and paper on the Industrial Internet powered by sensors and calculated that we could see $10-15 trillion dollar impact on the GDP in the next 20 years.

The salient points of the discussions were:

Overall, it was a great discussion on the practical aspects of IoT and the audience was great in keeping us honest. I always enjoy interacting with the London mobile crowd and this time was no different. My thanks to the attendees, the partners, the speakers, and to Telefonica for making this event possible.

Given the importance of the topic, we will be dealing with it again at our annual summit Mobile Future Forward on Sept 24th in Seattle and will have more speakers talking about their perspectives and experiences on IoT including GE.

US Mobile Market Update – Q1 2014 June 2, 2014

Posted by chetan in : 4G,4th Wave,AORTA,ARPU,Chetan Sharma Consulting,Mobile Future Forward,US Wireless Market,Wireless Value Chain,Worldwide Wireless Market , add a comment

US Mobile Market Update – Q1 2014

Summary

The US mobile data service revenues grew 4% Q/Q and 23% Y/Y to $25.9B in Q1 2014. In 2014, we expect US to become the first country to cross the $100B mark in mobile data services revenue. We have also started to see digital services appear in the revenue maps as more companies rely on mobile to generate their revenues.

With the acquisition of Leap, AT&T has virtually tied Verizon for market share at 34%.

T-Mobile continued to impress with 66% share of the net-adds. Even Verizon felt the heat in Q1 resulting in a subpar performance. Smartphone penetration increased to 68% and roughly 93% of the devices sold now are smartphones.

M&A Season

FCC must have cancelled all summer vacations for its staff as it is going to have a busy summer. As expected, Comcast made a bid for Time Warner and AT&T for DirectTV. Encouraged by the M&A season, Softbank is going to make a run for T-Mobile and pop the question to the FCC – so what do you think?

This in addition to the net-neutrality religious wars that have been triggered.

So, how will this all end-up?

It’s complicated.

The basic problem is that the communications and computing worlds have collided and nobody told the politicians. One can’t develop a policy framework in vacuum. It has to synchronize with the real world and with the facts on the ground. In my travels around the globe, I find that some of the most underdeveloped countries have better policy framework than some of the developed nations. Obviously, they don’t have the legacy to work with but they are more progressive in terms of national competitiveness and creation of jobs as the central underpinning of their framework.

As we noted in our 2011 research paper, “Competition and the Evolution of the mobile markets,” the mobile markets gravitate towards three player composition. Over time, every market approaches this equilibrium. We looked at the world’s top 36 markets and the average HHI (Herfindahl-Hirschman Index) for these markets is 0.344. If we just look at the developed markets, the HHI is 0.327. The US market HHI stands at a relatively lower number of 0.25 which is right at the cusp of what DOJ calls heavily concentrated and moderately concentrated markets. In fact, 30 of the 36 markets are over this line and that includes pretty much every developed market except UK.

If and when Softbank proposes the T-Mobile merger, the HHI will increase to 0.28 and will clearly cross the DOJ marker of heavily concentrated markets. For contrast, the cable industry is at 0.13 HHI. Clearly, just looking at HHI is inadequate and misleading as we showed in our paper back in 2011.

In heavy Capex industries, it is natural to have consolidation. It allows more efficient deployment of the capital or else everyone gets bloodied in the turf war as is evident in Indian mobile market which is on the verge of a major restructure.

In the last 20 years, the share of top 3 operators has grown from roughly 40% to 80%. The number of mobile subscriptions have grown 14x during the same time period.

So, will there be further consolidation in the mobile industry? Short answer is – Yes. The only thing up for debate is whether it happens in this administration or the next. As we said in the last note, T-Mobile has complicated things by being successful in the short-term. A third player with 30% market share will of course be better but T-Mobile has been able to change the market by being the fourth at 14%.

FCC’s dilemma is that it can’t evaluate these proposed mergers in isolation and Congress hasn’t done a good job of clearly defining FCC’s authority.

It is going to be an interesting summer for sure.

What’s next for Microsoft?

With a new CEO at the helm, Microsoft made some key (albeit late) changes to its strategy: Office for non-windows devices, zero-rating the OS licensing fees, doubling down on the enterprise class Surface. In light of the plummeting PC sales, Microsoft is trying to figure out its place in the post-PC world. Surface 3 is good device but there are also significant hurdles. Having failed to stem the tide of iPad and Android tablets, Microsoft seems to be focusing on the high-end by trying to change the discussion around the wisdom of carrying multiple devices.

One of the basic problem that the current strategy faces is that of articulating a valid value proposition. On the pricing axis, it doesn’t make a dent. MacBook Air is still the best notebook around and iPad is still the best tablet and you can get both of them for $1500 while a comparable Surface configuration will set you back $1200-1300, a drop of less than 20%. The reason Kindle and other sub $200 tablets got some traction was that the price difference was 60%. It forced Apple to reconsider and launch the mini to secure the mid-tier.

However, it is smart of Microsoft to fight the battle on the top end in the enterprise where their biggest strength lies rather than in the low-mid tier consumer segment which is nothing but a bloodbath for new OEMs.

The mobile ecosystem will clearly benefit from a stronger Microsoft but it has to address some key strategic questions for its partners and customers. It has started to shed some legacy constraints, is getting some product thinking behind its strategy, and is becoming more open which is a good start.

About that Google Car

The autonomous car that Google showcased earlier this week is probably the most interesting technology development in the last couple of years (in addition to whatever Elon Musk does). Given that going from point A and point B is so central to our civilization, a rethink of how it should be done is going to have profound effect on not only the existing value chains and industries but more fundamentally, how humans organize themselves as social beings. There are a number of exciting and terrifying (for some) questions in front of us – how quickly will autonomous cars become the norm in major markets – 5 years? 15 years? What does this do to the driver segment? Auto sales? Cost of transportation? Design and investment of infrastructure? Privacy and security of data? Mobile network infrastructure to support a radical societal architecture? Will tech companies become car OEMs? Should they? How quickly will the regulators catch-up? Months? Years? Decades?

I do think Google car is a perfect embodiment of the connected intelligence era and this is going to have such profound implications that we haven’t yet built a model to grasp its impact (more to come on this topic).

What to expect in the coming months?

2014 has had an excellent start and rest of the year is looking great with a slew of announcements and activities planned for the rest of the year. We have already seen some massive moves, astounding acquisitions, and interesting strategic moves.

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 2014 US wireless data market is:

Service Revenues

ARPU

Subscribers

Shared Data Plans

4th Wave Progress

Connected Devices

· Connected devices (non-phones) accounted for almost 50% of the net-adds in Q1 2014. This means that while there is a healthy smartphone sales pipeline, it is for the existing subs and as such net-adds for the phone business is tapering off and we can expect that new net-adds will continue to be dominated by the connected devices segment.

· Tablets form 63% of the connected devices sold.

· YOY, the connected devices segment grew 23%.

We hosted our IoT Americas session last quarter with Verizon, Ericsson, Samsung, and adidas and are planning our IoT Europe panel with Telefonica, BMW, Intel, and Worldsensing in London on June 17th.

Handsets 

· Smartphones continued to be sold at a brisk pace accounting almost 93% of the devices sold in Q1 2014. Within the next two years, the feature phone category will practically be extinct in the US market.

· The smartphone penetration in the US is now 68%.

· Android had its best showing in the US market with 54% share of the quarter. Q2 is expected to strong as well.

· 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 last year but sales have been poor. While Microsoft has made steady progress in other regions, in the US, it’s not gaining any traction and its share remains at a measly 3%. (Read our paper to get more insights into why Windows hasn’t been able to make a dent so far).

· Verizon continues to sell more LTE smartphones as its LTE sub tally rose to 48M making it the leading LTE operator in the world. Other three operators are also deep into their LTE deployments. Expect the “fastest network” marketing to continue for at least another seven quarters. Verizon reported that 73% of its total data traffic is on the LTE network now, clearly the fastest technology transitions we have seen in the US wireless industry.

· Mobile operators also announced their VoLTE launches.

· Verizon and AT&T sell more iPhones than Android while the reverse is true for T-Mobile (by a big margin) and Sprint. There is always a beauty contest amongst operators as to who sold more iPhones. AT&T again bested its rivals by selling roughly 36% of the iPhones in the US.

Mobile Patents/IP

· 24% of the patents granted by the USPTO were mobile related. Samsung, IBM, Microsoft, Sony, and Ericsson make the top 5 patent players in mobile. We will have more details in our coming paper on Mobile Patents Landscape next month.

· US companies comprise of 50% of the top 50 list followed by Japan, China, and South Korea.

· Samsung was again the leader in mobile patents granted in 2013 in the US and worldwide. Samsung was followed by IBM, Qualcomm, RIM, LG, Sony, Microsoft, Ericsson, Google, and AT&T for the top 10 companies by mobile patent grants in 2013.

· Google made an entry into the top 10 overall mobile patents list for the first time. AT&T did the same for the mobile patents granted in 2013.

· US Mobile Operators dominate the top 10 operator rankings: Patent top 10 Rankings: AT&T, NTT DoCoMo, Sprint, Verizon, Telecom Italia, Swisscom, T-Mobile, Orange, SK Telecom, and TeliaSonera.

· Mobile Infrastructure Patent top 10 Rankings: Samsung, Ericsson, Alcatel-Lucent, Qualcomm, LG, Intel, Siemens, Fujitsu, NEC, and Panasonic.

· Mobile OEM Patent top 10 Rankings: Samsung, Microsoft, Sony, Nokia, Google, LG, RIM, Siemens, Fujitsu, and Panasonic.

· The top 5 categories for patents grants in the US for 2013 were Telecommunications, Digital Multiplexing, Digital Processing – Data Transfer, Digital Processing – Financial, and Computer Graphics.

· The top 10 filers of mobile patents in the US were IBM, Samsung, Microsoft, Sony, Qualcomm, Nokia, Ericsson, Google, LG, Intel and Apple. It was the first time that Samsung, Microsoft, Google and Apple showed up in the top 10 patent filers list together.

· Facebook’s mobile patent filings increased by 177% YoY.

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, articles, and our annual thought-leadership summit – Mobile Future Forward. The next US Wireless Data Market update will be released in Aug 2014. The next Global Wireless Data Market update will be issued in July 2014.

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

We will be discussing many of the ecosystem and technology issues, opportunities and challenges for the coming years in our annual mobile executive summit Mobile Future Forward on Sept 24th in Seattle. Some of the confirmed speakers are Dan Hesse, CEO, Sprint; Tim Campos, CIO, Facebook; Ben Fried, CIO, Google; JD Howard, GM and VP, Lenovo; Erik Moreno, SVP, Fox Networks; Glenn Lurie, President, AT&T; Steve Mills, CIO, Motorola Mobility; Mark Fernandez, Partner, Sierra Ventures; Dave Webb, CIO, Equifax; John Saw, CNO, Sprint; Hank Skorny, VP/GM, Intel; Hassan Ahmed, CEO, Affirmed, and many more to come. We hope to see you there for the brainstorm.

2014 CES Observations January 12, 2014

Posted by chetan in : 4th Wave,Chetan Sharma Consulting,Connected Devices,US Wireless Market,Wearables,Wireless Value Chain,Worldwide Wireless Market , 4 comments

2014 CES Observations

International CES is not an event where game-changers are launched but it is a celebration of technology and gadgets. It is a good place to understand what is on its way to hope (many if not most of the products never make it to the market), hype (“innovation” was the most used word for defining pretty much anything, second year in a row), and commoditization (how many body tracker does the world need?). It is a place for like-minded people to congregate and pontificate, to do deals, to validate their roadmaps, spy on competitors, meet new partners and suppliers, and just get warmed-up for the year ahead. CES is a good place to get a sense of where the investments might flow this year.

Here is the summary of our observations from 2014 CES:

The big numbers – CEA expects the overall consumer electronics market to grow 2-3% in 2014 to $208 billion. The new growth areas are connected devices, tablets, wellness devices, connected auto, 3D printers, etc. Smart watch sales are expected to double in revenues in 2014. The wearables are expected to grow 25%. At CES, clearly, the connected universe was in full display in all its current glory. It was a mix of some new ideas, incremental improvements from last year, and innovators from all walks of life getting into the value chain.

Wearables – It was no surprise that wearables were one of the highlights of the show. The good news is that the barrier to entry is fairly low. The bad news is that the barrier to entry is fairly low. The space is going to get commoditized very quickly and it is likely going to get stratified into two major buckets – really cheap $10-20 wearables (if one can have < $50 smartphone, there is no real reason for a common wearable to be > $100 given that the components are fairly standard and algorithms are well understood. The other bucket will be high-end fashion driven wearables. Companies that can afford to get some classy designers involved and get good retail distribution are going to cater to the “jewelry” conscious market. The big winners are obviously the component folks who don’t really care who wins as long as there are many players in the pond. Wearables might congregate around natural islands of geography, distribution, and ecosystems. Intel’s keynote was focused almost entirely on wearables.

Connected Auto – There were announcements in the connected auto space. This year things matured a bit with more investments flowing in. AT&T and Google announced their respective platforms for connected auto. While there are significant opportunities in the space, it is still quite fragmented and as such less appeal for the wider developer population.

Robotics – While we are still ways away from the household robotic butler, tiny robots are becoming very sophisticated. Robotics has been around for ages but the connected environment gives them their soul. Toys, games, entertainment, emergency verticals, etc. are natural categories.  Unlike the wearables segment, robotics is less commoditized but has lesser overall mass appeal.

Sponsored data – Maybe sponsored data rubs some folks the wrong way but alternate data monetization models are needed in the market. AT&T announced their sponsored data platform. There are already numerous examples of sponsored data all around us across the world. In fact, in some regions, sponsored data will become a key ingredient of the overall mobile data strategy. There are several other alternate sponsored data models that will benefit users and markets should be encouraged to explore them. If it is indeed a bad idea, the market will take care of itself.

US mobile industry – While I work around the globe and there are some fascinating markets with new developments, US is by far the most interesting mobile market right now.  Not only does it have the most innovation going on, the competitive dynamics make it a great study for the students of the industry. T-Mobile, having decided on the value strategy is disrupting the market dramatically from the pricing structure point of view. Just like Free in France changed the market within 12 months, T-Mobile is doing the same in the US. They pre-announced their Q4 numbers at CES and they are stunning. 1.6M net-adds, 900K postpaid adds. For the year, they added 4.4M subs. To understand how dramatic of a reversal this is one has to only look at 2012 numbers – 2M postpaid losses compared to 2M postpaid gains in 2013. US industry has never seen such reversal in a short amount of time. Fasten your seat belts, 2014 is going to be a fascinating ride.

Healthcare connected devices – This super category of the wearables is something that is actually quite interesting and can be quite lucrative if you get it right. Sensors that can alert of impending heart attack or food poisoning or help manage diabetes and cancer by understanding the markets inside the body are revolutionary. If we get the price points to manageable levels, the impact on global health is going to be astounding and unprecedented. Of course, regulations and a moribund industry stands in the way.

Curved TV – The 3D TVs were a big flop. Consumers really didn’t warm up to the idea. The curved TV introduced by Samsung won lot of accolades and it was indeed a good experience if you find the right spot to view the screen in front of you. The 4Ks were out in full force as well with Vizio even touting one for under $1K. it is another matter that the UHD content doesn’t really exist in any meaningful way to while there was buzz, there might be little biz on the cards in the short term.

3D Printing – We all appreciate the potential for 3D printing – it is enormous. However, the impact could surprise us. With printers coming down in price to below $500, it is becoming more affordable and could really unleash the creativity of individuals of all shapes and sizes.

Smart Home – There is lot of activity and some real dollars flowing into the segment. AT&T has had some good success with their Digital Life rollout and it is generating new ARPU and increasing LTV of the customers. Additionally, startups are coming out with specific improvements around security, energy, entertainment, appliances, communication, and other related areas.

Disconnect between data and security – There is so much data emanating out of the wearables and the personal IoT devices that NSA or the hackers don’t really have to worry about the lack of data. Given the massive breach at Target, it is time for regulators to step in and work with the industry to formulate some basic guidelines on data protection. It should be unacceptable that these incidents are increasing in audacity and frequency.

Virtual Reality – Oculus VR was one the biggest hits at CES. The marriage of gaming and VR is a natural one and whoever tried the space-age headset at CES seemed immersed into an experience previously unexplored.

Best Booth – Samsung again took the honors

Best Booth Engagement – GoPro has some loyal fans

Your feedback is always welcome.

Chetan Sharma