US Mobile Data Market Update Q3 2012 November 12, 2012Posted by chetan in : 3G, 4G, AORTA, ARPU, Applications, Infrastructure, LTE, M&A, Mergers and Acquisitions, Messaging, Mobile Advertising, Mobile Applications, Mobile Cloud Computing, Mobile Commerce, Mobile Ecosystem, Mobile Future Forward, Mobile OEMs, Mobile Operators, Mobile Payments, Mobile Traffic, Privacy, Security, US Wireless Market, Wireless Value Chain, Worldwide Wireless Market , 1 comment so far
US Mobile Data Market Update Q3 2012
The US mobile data market grew 3% Q/Q and 17% Y/Y to reach $19.9B in Q3 2012. Data is now almost 43% of the US mobile industry service revenues. For the year 2012, the market is on track for mobile data revenues in the US market to reach our initial estimate of $80 billion.
Largely due to the strong postpaid performance by Verizon, the US operators added a net of 2.4M new subscribers. Sprint and T-Mobile saw further postpaid declines. For T-Mobile, Q3 marked the nine straight quarters of postpaid losses.
The quarter also saw a couple of block-buster operator M&As that took many in the industry by surprise. T-Mobile found a soul mate in MetroPCS while Softbank showed up at the altar for Sprint. Once the mergers are executed, Sprint is likely to emerge as the stronger of the two.
The two horse OS race got a new participant entry last month – Windows 8. Microsoft and its partners launched a worldwide campaign for a chance to compete. Microsoft also made a splash with the first computing device in its history – Surface. Both got a mixed reception from the market. We will find out how consumers will react in the Q4 numbers. Of all the OEMs, Q4 will be the most critical for Nokia who is running out of runway in its turnaround effort.
Despite setbacks in the IP battles, Samsung continued its march of being the undisputed unit leader in mobile device space. After displacing Nokia in Q1 2012, it continued to dominate in units shipped in Q3 2012. However, Apple dominates both the smartphone revenues and more importantly just crushes the competition on device profits. It has only 6% of the global unit shipment share but over 70% profit share. In tablets, Apple completely dominates the landscape in both shipments and revenue. In fact, 95% of the profits in the tablet segment go to Apple with the remaining ecosystem fighting for the crumbs. Apple has the complete stronghold on the supply chain and has sucked out the oxygen from the OEM world.
Amazon hasn’t been shy about its ambitions in the mobile space. While the world awaits an Amazon smartphone, the company launched a slew of tablets to compete primarily with Google though its eyes are on Apple. Apple also launched iPad mini a mid-tier tablet to ward of threats coming from the bottom tier of the market.
As we mentioned it in our last update, smartphones are now past the 50% mark in the US and continue to sell at a brisk pace accounting for over 75% of the devices sold in Q3 2012.
While the US penetration of smartphones is over 50% as we reported last quarter, the 50% of the sub base is concentrated in only 30% of the households thus leaving plenty of growth left in the marketplace.
In terms of Y/Y growth, Connected Devices segment grew 19%, Prepaid 10%, Wholesale 6%, and Postpaid was flat. The connected devices segment picked up some growth after two straight quarters of sub-5% performance growth (Q/Q).
Verizon and AT&T maintained their top positions in the global rankings by mobile data revenues. A survey of the entire ecosystem shows that the US companies dominate the top 5 rankings of profit share. China Mobile leads the industry with Apple, Verizon, AT&T, and NTT DoCoMo completing the rankings.
Postpaid Doldrums and evolution of metrics – ARPU to ARPA to AMPA
The US market has added roughly 400K postpaid subs in the last two quarters. Verizon has added 2.4M, AT&T 400K, and Sprint and T-Mobile have lost a million each. Clearly, Verizon’s performance is far superior to its competitor and its relentless focus on postpaid has yielded significant benefits. Typically, the postpaid ARPU is roughly 2-3 times that of a prepaid subscriber. So, while other operators have been adding prepaid subs, the improvement to the bottom line has been tepid especially for Sprint and T-Mobile. Sprint’s losses have been primarily due to the bleeding of the Nextel customers. The iDEN network should turn off sometime next year and the continuous loss of overall postpaid subs might stop. T-Mobile faces a deeper challenge. Its net-revenue has declined in every quarter since Q4 2008, which is 15 straight quarters of revenue decline. In fact, its current revenue levels is at the Q2 2006 levels – that was six years ago. Though the company has done a terrific job upgrading the network to HSPA+ and doing blocking and tackling until it upgrades to LTE to come at par with its peers, the continuous bleeding of the postpaid subs needs a new strategy. Metro PCS helps gain new subs and spectrum but doesn’t help with postpaid. In fact, one can expect that the churn will rise as consumers migrate from Metro to T-Mobile. 2013 will be a critical transition year for the company as it tries to compete with its larger competitors. Just being a “value” provider is the race to the bottom.
We have been advocating shared data plans to create more consumer demand for over two years. When I talked to CNBC earlier this year (Jan), I said that in all likelihood the family data plans will be introduced in the US market in 2012. I discussed this more with Bloomberg and USA Today and suggested that most likely Verizon will launch them first. Verizon and AT&T launched the shared data plans this summer with AT&T getting the benefit of launching it second. New types of plans also evolved the decades-old operator metric of ARPU to ARPA (Average Revenue Per Account) given that we are seeing a strong influx of multiple devices per individual/household. Verizon was first to transition and we expect others might introduce new matrices to measure progress and performance. AMPA (Average Margin Per Account) will also become an important metric in the coming days, first internally, and then for the markets.
Most western markets have seen the net revenue in the messaging segment decline. The US market has resisted the decline thus far. In Q3 2012, for the first time, there was a decline in both the total number of messages as well as the total messaging revenue in the market. It might be early to say if the decline has begun or the market segment will sputter along before the decline takes place. As we had outlined in our fourth wave paper, once the market segment reaches the 70-90% penetration mark, the decline begins and we might be seeing the start of the decline in messaging revenue. The decline is primarily due to the rise in IP messaging and operators have been slow to evolve their strategies in the segment.
Operator’s Dilemma (And Opportunity): The Fourth Wave
In our paper “Operator’s Dilemma (and opportunity): The Fourth Wave” earlier this year, I proposed that we need a new framework to think about the next generation of revenue opportunities. The fourth curve opportunities are massive but require a different skillset and strategic approach that the past three curves. We are starting to see operators becoming more focused and aggressive. It is being widely adopted in the operator community around the world and some operators have started to break out the 4th wave revenues in their financials. We will have more discussion about how things are shaping up in future research papers.
AT&T has been better prepared in the US market and has embraced the ride on the fourth curve. It is investing in the areas of Digital Life, Mobile Premise Solutions, Mobile Payments, and Connected Vehicles. We discussed the subject at length in our recently concluded annual thought-leadership summit – Mobile Future Forward.
Operator M&A – The Rule of Three Strikes Back
Just when you thought the prospects of any major operator M&A slowed down due to the impending US election, T-Mobile announced its acquisition of Metro PCS giving it more spectrum, access to public markets, a good chunk of subscriber base to become a more competitive number 4. Sprint and Softbank followed the announcement with an absolutely brilliant maneuver. Sun Tzu would have been proud. It provides Sprint access to capital, economies of scale, and becomes a much stronger number 3, and a global telecom player with scale and ambition. There have been some interesting twists and turns but as we have stated before, the US market competitive equilibrium will be complete when Sprint and T-Mobile get together at some point down the road.As outlined in our research paper on the subject, market forces find their way to get to 3 dominant operators that compete for attention and revenues, rest becomes noise. While the regulators might scoff at the idea, the inevitable market forces will find their way around.
In Q3 2012, we released some research around connected devices. If we just look at the active connected devices which can connect to the Internet directly either by wireless or wired means, either using cellular or WLAN, the total number of connected devices in the globe just crossed the 10 billion mark which means that the connected device to human ratio is now 1.3.
- 70% of the connected devices use some form of wireless connection.
- In the US, roughly 80% of the devices use some form of wireless connection.
- For the US Household survey, we asked 1014 HHs about the number of connected devices in their households.
- The average number of devices/HH was 5.
- Over 6% of the HHs had 15 or more devices.
- Splitting the respondents by gender, the results were about the same.
- Splitting the respondents by age group, the 65+ age demographics had the highest number of devices/HH followed by the 18-24 age group.
- The Northeast region of the US had the highest number of devices/HH.
- Suburban HH had the highest number of devices/HH.
More details available here.
Windows 8 arrival – Sept was a big month in Microsoft’s attempt to regain its lost mobile decade. It went from a dominant position to virtually zilch coinciding with the remarkable ascend of iOS and Android. To make any device sell – one needs good and competitive device, distribution channel and marketing muscle, and brand loyalty. I think Windows 8 is genuinely good, is different, and for the first time can stand with its peers (obviously it needs to build a robust apps portfolio and a stronger developer ecosystem).
In the past, while operators, OEMs, and Microsoft announced significant advertising spend, it had almost negligible impact on sales. The actual $ amount spend was tepid, operators didn’t want to be guinea pigs just to prop up a third ecosystem. With Windows 8, things might get better. We can see many more awareness campaigns, more OEMs are launching some quality devices, and operators are warming up to the idea as well. The brand loyalty index for Microsoft Mobile is fairly low and it will take a heavy lift and a few billion dollars of advertising spend to move the needle. The good news is that the devices are shipping and it is not thanksgiving yet.
However, Nokia, once propped at every Windows Phone rally isn’t getting any special love from Microsoft anymore (in public) and it has become one of the many OEMs on the conveyer belt. Its ability to differentiate itself enough in Q4 will decide its 2013.
Last week, Qualcomm eclipsed Intel in market cap marking another milestone in the progression of the mobile ecosystem.
Surface, mini, and the tablet market
Apple launched the iPad mini for some of the same principles that Microsoft launched Surface. It is better to be cannibalized by self than by the enemy. Microsoft saw the notebook market shrink and needed a product to stem the bleeding while Apple saw Amazon and Google attack the bottom tier with a different model that poses a credible threat. Tablet market is indeed fundamentally altering computing in many ways. The changing landscape of computing also has impact on the ecosystem and the application development environment. Developers flock to platform reach, ease of access to the marketplace, and the basic economics of a viable business model. Windows a percentage of computing platform is shrinking which threats not only the platform but also Microsoft’s other software franchises. Surface is classic blocking and tackling to provide a jolt to the shifting ecosystem. With iPad mini, Apple is attempting to lock the mid-top tier of the tablet market and daring its competitors to just play in the bottom tier that leaves no profit on the hardware and revenue stream from services for a very select few.
Apple is getting a lot of grief for its maps app. While the strategic decision to take control of a key application was spot on, it faltered on communications. The half-baked endeavor was nowhere close to being the “best mapping app.”
Infrastructure segment faces a tough road ahead
The infrastructure segment of the wireless industry is facing turbulent and interesting times. The business model for many vendors hasn’t evolved much in the last few years and some of the disruptive forces are bound to have a deep impact on the segment. ALU is facing serious headwinds and will need to figure out its strategic options going forward. Ericsson’s margins are under pressure but more interestingly its services and support revenue exceeded its hardware revenue for the first time. Huawei and ZTE reported decline in revenues but they are making gains in the infrastructure markets outside US and in handsets in the US market. Until Premier Xi Jinping and President Obama sort out their geopolitical differences, the Chinese vendors remain shutout of the US infrastructure market.
What to expect in the coming months?
All this has setup an absolutely fascinating 2013 in the communication/computing industry. Convergence is everywhere and is leading to a fundamental reset of the value chains and ecosystems. Players who firmly attach themselves to the 4th wave will reap benefits while the ones who miss it will see their fortunes dwindle.
As usual, we will be keeping a very close eye on the micro- and macro-trends and reporting on the market on a regular basis in various private and public settings.
Against this backdrop, the analysis of the Q3 2012 US wireless data market is:
· The US Wireless data service revenues grew 3% Q/Q and 17% Y/Y to $19.9B in Q3 2012. For the year 2012, we are forecasting that mobile data revenues in the US market will reach $80 billion.
- Verizon and AT&T dominated the quarter accounting for 69% of the mobile data services revenue and had 66% of the subscription base.
- Verizon and AT&T maintained its #1 & #2 mobile data revenue ranking in Q3 2012. Sprint and T-Mobile maintained their #5 and #9 rank in the top 10 mobile data operators list for Q3 2012.
- The Overall ARPU declined by $0.15. Average voice ARPU declined by $0.58 while the average data ARPU grew by $0.43 or 2% Q/Q.
- The average industry percentage contribution of data to overall ARPU is now at the 43% mark in Q3 2012 and is likely to exceed the 50% mark early next year. All the top three US operators are around the 45% mark with Verizon leading the trio. (For reference, all three major Japanese operators are now over the 60% mark).
- The US operators added 400K postpaid subs and over 2.4M total. It was the lowest net-adds quarter in the US mobile history (barring the early days of tepid growth)
- T-Mobile’s postpaid woes continued for the ninth straight quarter.
- Verizon led the market with 1.7M net-adds followed by AT&T at 678K, and T-Mobile at 160K. Sprint returned to the negative net-add territory after nine straight quarters of positive growth.
- For the twelfth straight quarter, AT&T reported more net-adds from connected devices than postpaid subs.
Applications and Services
- Q3 2012 data suggests that the messaging revenues in the US market might have peaked. For the first time both the overall messaging volume and the revenues declined Q/Q. The task to prolong the access revenue curve and investment in the fourth curve has become all the more urgent.
- The market is finally starting to see activity in the mobile commerce and payment services as well as in various industry verticals like healthcare, retail, and education.
- Q3 2012 again saw tremendous activity in the mobile commerce and payments space with a lot of announcements from the operators, Internet players, and startups as well as the retailers and the ecommerce players. All are vying for a piece of the mobile wallet. Much more to come in the next 12 months. On the retail side, Starbucks is a player to watch as it tries to become a more active participant in the digital ecosystem.
- Smartphones continued to be sold at a brisk pace accounting to almost 80% of the devices sold in Q3 2012 with Android dominating though iPhone leads in revenue and mindshare.
- Samsung now leads in every major unit sale category both on the world stage as well as in the US. However, profits are a different equation where Apple overshadows its rivals like Gulliver on the Lilliput land.
- While it is fairly clear that Windows will acquire the #3 spot behind iOS and Android, the journey to a substantial and competitive market share is still ways off. It renewed its entry into the battlefield with Windows 8 last quarter.
- Apple’s iPhone sales improved marginally in Q3 but the OEM was more plagued by the supply-chain constraints than demand.
- US continues to sell over 40% of the world’s smartphone every quarter thus making it the most attractive market for OEMs.
- AT&T continues to dominate the connected devices segment with over 46% market share.
- Verizon continues to sell more LTE smartphones as its LTE sub tally rose to 15M making it the leading LTE operator in the world. AT&T’s and Sprint’s LTE rollouts are gathering steam. T-Mobile announced that it is putting the cash and spectrum it got from AT&T to good use and deploying LTE by 2013. Expect the “fastest network” marketing to continue for at least another seven quarters. Verizon reported that 35% of its total data traffic is on the LTE network now.
- There is always a beauty contest amongst operators as to who sold more iPhones. AT&T again bested its rivals by selling roughly 48% of the iPhones in the US.
Mobile Data Growth
- The overall data consumption in the US market in 2012 is expected to exceed 2000 Petabytes or 2 Exabytes. The smartphone data consumption at some operators is averaging close to 900 MB/mo. Some devices are averaging close to 2 GB/mo. As we move into 1GB range along with the family data plans kicking in, you can expect the data tiers to get bigger both in GBs and dollar amount.
- The Signaling traffic has increased 3x.
- Mobile data traffic growth is likely to slow down to roughly 80% after doubling for the last five years. Voice traffic will dip below 10% of the overall traffic in 2012.
- While the spectrum debate rages on, in addition to the network and backhaul upgrades, policy management and data offload have emerged as top two solutions that operators deploying around the world. Signaling management solutions like Diameter routing are also getting good traction. However, a long-term video solution is still elusive. As we have been saying in our Yottabyte series of research papers, a comprehensive solution strategy is needed to effectively manage margins/bit.
Your feedback is always welcome.
We will be keeping a close eye on the trends in the wireless data sector in our blog, twitter feeds, future research reports, and articles. The next US Wireless Data Market update will be released in Feb 2013. The next Global Wireless Data Market update will be issued in Mar 2013.
Disclaimer: Some of the companies mentioned in this research note are our clients.AORTA, Applications, European Wireless Market, Mobile Cloud Computing, Mobile Commerce, Mobile Future Forward, Mobile OEMs, Mobile Operators, US Wireless Market, Wireless Value Chain, Worldwide Wireless Market , add a comment
Hope all’s well. Just a quick update on how the program is shaping up.
We have been working steadily on our fall mobile executive summit – Mobile Future Forward (Sept 10th in Seattle) and I am very pleased to announce the preliminary program. We will provide an update as we continue to refine the program and announce more speakers. As you know, our programs are deep in content and high on participant caliber. Each year we strive to bring together some of the leading thinkers and doers from around the world to brainstorm the future of mobile. As we like to call it – it is a mobile boot camp with the brightest brains in mobile.
I am delighted to be partnering with some of the leading players in the mobile ecosystem: Intel, Ericsson, Synchronoss, and Tekelec.
Steve Elfman, President, Sprint will give us an update on the state of the wireless industry – the opportunities and the investment areas. Glenn Lurie, President, Emerging Enterprises and Partnerships at AT&T Mobility will provide us with a glimpse into the world of emerging devices and opportunities. Both Steve and Glenn are mobile industry veterans with decades of experience and their perspective will be invaluable for our Mobile Future Forward community.
Mobile commerce has been a hot topic lately. We have two terrific speakers – Mung Ki Woo, Head of Mobile at Mastercard Worldwide and Antonio Benjamin, Global CTO at Citi to lay the roadmap of the mobile commerce ecosystem evolution.
When it comes to retail, brands, and technology, there are not many people with deeper insights than Stephen David, former CIO of Procter & Gamble. He is a highly sought-after advisor to global brands around the world. I have had the good fortune to work with him in the past and his grasp on how wireless is going to disrupt retail is just brilliant. We are delighted to have him back to have a conversation about mobile, brands, retail, and IT.
As you can see below, we have an outstanding group of executives who are responsible for changing the industry every day. Their viewpoints and commentary will be invaluable. The Mobile Future Forward team, our esteemed partners, our fantastic speakers and our engaged community are really looking forward to Sept 10th.
· Steve Elfman, President, Sprint
· Glenn Lurie, President, AT&T
· Renee James, SVP, Software and Services Group, Intel
· Wim Sweldens, President, Alcatel-Lucent Wireless
· Michael Bayle, SVP and GM, ESPN Mobile
· Martin Fichter, President, HTC
· Stephen Bye, CTO, Sprint
· Bobby Morrison, President, Verizon Wireless
· Erik Moreno, EVP, Fox
· Stephen David, former CIO, Procter & Gamble
· Ed Cantwell, SVP, West Wireless Health Institute
· Jana Messerschmidt, VP, Twitter
.. More to come
· Mung Ki Woo, Head of Mobile, Mastercard Worldwide
· Antonio Benjamin, Global CTO, Citi
· Biju Nair, EVP and Chief Strategy Officer, Synchronoss
· Hank Skorny, VP/GM, Intel
· Jack Kennedy, EVP, News Corp Digital Media
· Marianne Marck, VP – Engineering, Starbucks
· Tim Chang, Partner, Mayfield
· Vish Nandlall, CTO and EVP, Ericsson
· Carlos Domingo, President and CEO, Telefonica R&D
· Kevin Packingham, SVP – Product Innovation, Samsung
· Frank Meehan, Executive, Horizons Ventures
· Oke Okaro, Global Head of Mobile, Bloomberg
· Looking back from Mobile 2020 – the last 10 years
· The fight for developers – Apps, APIs, and Dollars
· Will Privacy get in the way of mobile growth?
· PostPC era and the tablets – commerce, engagement, and consumption
· Quantified Self. Quantified Enterprise – how to benefit from big data?
· Gamification of Everything – How to reinvent business models and revenue streams
· When will Mobile Commerce eclipse Ecommerce? And How?
· Mobile Broadband – LTE is here and now. What’s Next?
· Mobile Competitive Policy – Balancing competitiveness, consumer interests, policy, and innovation
· nScreen Connected Consumer – Expectations, Solution roadmap, and Revenue flows
· Operators vs. OTT – Competition, Co-opetition, and the new landscape. Measuring the seismic shifts.
· Big (Mobile) Data – Collection, Management and Use of Data
· Mobile Cloud Computing – Innovation, Competition, and Business Models
· Mobile CIO Prism – Disruption in the enterprise. Opportunities for growth and cost reductions
· Managing networking growth in the Yottabyte Era – strategies to tame signaling and data tsunamis
· Mobile Platforms and Ecosystems – The Cycles and the Eternal Debate
· Mobile Security – BYOD, Hacking, Protecting, and Monetization
· Emerging Markets, Emerging Opportunities
· Battle for the Home – Devices, Apps, Networks
· Retail channel transformation – how are we going to shop and who makes money?
I hope you will join us in what is shaping up to be an exceptional gathering of the mobile minds. Registration is open now. Early bird will expire July 10th. The last two events were sold out so be sure to grab your seat to one of the most anticipated mobile gathering of the year.
Mobile Patents Landscape – An In-depth Quantitative Analysis April 17, 2012Posted by chetan in : 3G, 4G, AORTA, European Wireless Market, Infrastructure Providers, Intellectual Property, Mobile Advertising, Mobile Applications, Mobile OEMs, Mobile Operators, Mobile Patents, US Wireless Market, Wireless Value Chain, Worldwide Wireless Market , add a comment
In April 2012, in its report on Intellectual Property, the US Patent Office (USPTO) concluded that the entire US economy relies on some form of IP, because virtually every industry either produces or uses it. The foreword of the report said,
“Innovation protected by IP rights is key to creating new jobs and growing exports. Innovation has a positive pervasive effect on the entire economy, and its benefits flow both upstream and downstream to every sector of the U.S. economy. Intellectual property is not just the final product of workers and companies—every job in some way, produces, supplies, consumes or relies on innovation, creativity, and commercial distinctiveness. Protecting our ideas and IP promotes innovative, open, and competitive markets, and helps ensure that the U.S. private sector remains America’s innovation engine.”
Intellectual property has been an integral part of the economic engine of the western world for many decades if not centuries. Over the past two decades, nations and corporations have competed on the creation, funding, execution, and protection of the new ideas. Increasingly, the role of mobile devices, networks, and applications has become an important component of the growth story worldwide.
To say that the mobile devices have become the remote control of our lives would be an understatement. Mobile phones stay attached to us almost 24 hours a day. From waking us up in the morning to keeping us connected and entertained, from speeding up a commerce transaction to being a trusted advisor; mobile is fundamentally changed how we as consumers behave and how societies and cultures evolve over time. As a result, there has been a big influx of investment and innovation over the last decade. This surge of activity has also translated into increased number of patent filings in the two major jurisdictions of US and Europe. Even the developing countries like China and India have seen a significant increase in patent activity in the country. In fact, in terms of filings, China’s share of the global patent grants has increased from 0.8% in 1996 to 15% in 2010 placing it third behind Japan and the US and well ahead of Korea and Europe.
According to the US Patent Office (USPTO), in 2011, the number of applications reached over 535,000 growing by almost 54% from a decade ago. Similarly, the number of patents granted grew 35% to 224,505 by the end of 2011. The numbers of foreign filings are now in the majority for both the applications filed as well as the patents granted. In Europe, similar trends were observed where the EPO (European Patent Office) patent grants increased by 46%.
The number of mobile related patents that were granted by the USPTO and the EPO increased significantly over the course of last decade. The US market saw a 390% increase while the European market saw a 173% increase in mobile related patent grants.
Another interesting fact is that as of Q1 2012, over 21% of the patents granted by the USPTO now are mobile related. This grew from around 2% in 1991 and 5% in 2011. In Europe, roughly 9% of the patents granted are related to mobile.
Chetan Sharma Consulting analyzed almost 7 million patents granted by the USPTO and EPO over the last two decades to understand how mobile has become a key enabler for all technology companies. Furthermore, we looked at patent granted to the top 65 technology companies who are active in the mobile space to understand their relative strengths and weaknesses in the mobile patent landscape. In a first of its kind study, the paper presents and discusses these findings in more detail.
Your feedback is always welcome.
We will be keeping a close eye on the trends in the wireless data sector in our blog, twitter feeds, future research reports, and articles. The next US Wireless Data Market update will be released in May 2012. The next Global Wireless Data Market update will be issued in Apr 2012.
Disclaimer: Some of the companies mentioned in this paper are our clients.