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US Wireless Data
Market Update - Q1 2009
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http://www.chetansharma.com/usmarketupdateq109.htm
Executive Summary
The US wireless data market grew 5% Q/Q and 32% from Q108 to reach $10B
in mobile data service revenues. It marked the first time the US market
has crossed the $10B milestone. Given the strong growth in data revenues
shown by the top carriers and the increase in service revenues overall,
it appears that at least for the time being that the worst is over for
the mobile industry. In summary, the recession has been all but a tiny
blip (from the service revenue perspective) in its growth trend and the
US mobile market has weathered the downward spiral in economy better
than its counterparts in other developing nations.
The US subscription penetration went passed 90%. While the flailing
economy hit certain segments of the wireless ecosystem hard esp. the
infrastructure and handset segments, consumers haven’t really pulled
back on the mobile data overall spending. Additionally, the CAPEX
spending will stay strong in 2009 given the activity around 3G/4G
deployments and trials. As expected, the data card subscriptions were
hit the hardest and there was an increase of prepaid subscribers which
dropped the overall revenues for some of the carriers.
As we mentioned in our last research note that this time around, the
fate of the US mobile industry is more closely tied to the overall
economy compared to the previous recessions. As the consumer sentiment
improved over the last couple of months along with better than expected
Q1 2009 earnings from corporations, the mobile industry seems to be back
on track. While the structural flaws in various industry segments
remain, and the economy is a crisis away from the double dip, the
outlook for the remainder of 2009 remains bright and we are expecting
the overall data revenues to now increase by 24% compared to 2008.
US Wireless Industry in Recession - The light at the end of the tunnel
might not be of the oncoming train
Note:
For a detailed discussion of the US wireless industry in recessions,
please see 2008 US Wireless Market Update.
The % GDP change dropped from 4.8% in 2007 to 2.3% in 2008. Q4 2008
reported a drop by 6.2% QoQ in one of the sharpest declines in the last
quarter century. Q1 2009 reported a 6.1% decline. On an yearly
basis, the GDP is expected to change by 3.2% for 2009 and the service
revenues are expected to account for 1.13% of the US economy by
year-end.
As mentioned in the previous report, while in the past, the recession
hardly impacted the wireless industry, this time around; it is going to
be more tied to the recession. In the past couple of months, the
consumer sentiment has improved and the Q109 earnings have been better
than expected. While there are still many structural flaws in the
financial and housing industries and the unemployment is at a 25 year
high of 8.9%, consumers are feeling better about the economy and their
own prospects in it. Most companies are being optimistic but cautious.
So, what does this mean? Well, the markets can still be volatile, but
overall the market seems to be feeling better about the economy than it
was in February.
The Conference Board Consumer Confidence Index
experienced a significant jump to 39 (relative scale of 100) from being
at an all-time low of 25 in February.
Given that consumer sentiment is improving, it appears that US mobile
data market is all but back from the recession. While some segments
within the mobile industry might be suffering, there has been an
increase in spending overall.
What to expect in the coming months?
We noted in our Q3 2008 note
that we will get a better picture of the impact of the recession on the
wireless industry in Q109 as it was the first full quarter after the
seasonal holiday quarter. There are two micro trends that are clear.
First, as expected, due to the high unemployment, the data card segment
took a hit. It will recover in due course as more of the workforce comes
back over in the next 18 months.
Also, as expected, there was a shift from postpaid to prepaid in some
user segments. For example, for T-Mobile, prepaid constituted 61% of the
net-adds in Q109 up from 57% in Q408 and 25% in Q108. It is not clear if
the good times will bring back the prepaid subscribers to the postpaid
realm or like the consumers who are canceling their landline connections
and moving to mobile, these customers will get used to savings and the
prepaid lifestyle.
It is quite likely that 50-60% of such consumers don’t go back to
postpaid thus permanently lowering the ARPU base for such customers and
carriers who have experienced more postpaid to prepaid shift will have
to make up for the lost revenues someplace else (or maybe they can hire
Oprah to send a tweet to her followers to upgrade to Postpaid. It will
crash the system but increase the ARPU).
Rising unemployment continues to accelerate another trend - landline
replacement by Mobile which reached almost 22% by Q109 (of course this
benefits the mobile industry). This trend is irreversible and requires
fresh thinking.
Messaging continues to grow. The messaging volume jumped 27% and
messaging revenue was up 7% QoQ. The data access (excluding data card)
including flat rate data plan subscriptions have also show significant
strength lately. In addition to smartphones, we are also seeing
increased mobile data activity amongst feature phone users.
The positive factors are helping negate the negative factors and given
the strength of 3G and smartphone adoption, the increase in activity on
the appstores front, and in general, a better awareness of mobile data
services and applications amongst consumers, any decline due to the loss
of data card revenue and postpaid transition to prepaid accounts has
been taken care off. In particular, Verizon and AT&T have done really
well. Smartphones remain a bright spot, which in turn has a direct
positive impact on the data revenues. Even with the decline in handset
sales, smartphone segment will continue to increase in 2009 accounting
for almost 30% of the overall device shipments.
We are likely to see continued price and margin pressure on subscription
plans and as a result, voice ARPU will continue its downward trend and
data ARPU will become a more prominent factor of the ARPU mix by the end
of 2009 reaching over 30% of the service revenues.
This will lead to new business and pricing models for e.g. some will
find the low flat rate pricing untenable in the long-run without a
fundamental rethink of the network and business architecture.
Coming back to the 2009 forecasts, we are raising our estimates for the
mobile data service revenues to $42B for the year. 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 Q109 US wireless data market
is:
Service Revenues (Slides 11, 18)
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The US Wireless data service revenues grew 5% Q/Q to $10B in Q109.
Compared to Q108, the data service revenues grew 32%.
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It marked the first time the US mobile data service revenues crossed
$10B. It is also the first time any country has reported a $10B
quarter (for mobile data services).
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Thanks to the Alltel acquisition, Verizon’s data revenues grew the
most - 18% QoQ and 46% YoY. AT&T experienced a 39% lift while
T-Mobile reported a 24% increase in YoY data revenue growth.
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Last quarter AT&T surpassed Verizon in data revenues for the first
time since 2005 and in Q109 Verizon duly took many of titles back
from AT&T becoming the number 1 carrier in almost all the
categories.
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AT&T and Verizon now account for 68% of the market data services
revenues. Sprint had a fourth consecutive quarter of data revenue
growth.
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The average industry percentage contribution of data to overall ARPU
is now $26%. US market is likely to exceed the 30% mark in 2009.
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The top four US carriers are now a permanent fixture in the top 10
global operators by mobile data service revenues occupying #3, #4,
#6, and #8 spot respectively. Apart from NTT DoCoMo and China
Mobile, Verizon Wireless and AT&T are the only two other operators
generating more than $3B in quarterly mobile data service revenues.
ARPU (Slides 12-15)
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Overall ARPU decreased by $0.91. Average voice ARPU declined by
$1.17 while average data ARPU grew by $0.26 or 2% and couldn’t
negate the drop in voice ARPU.
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Sprint led in data ARPU with $15 followed by Verizon at $14.16. In
terms of % contribution, Verizon led with 27.91% followed by AT&T at
27.2%.
Subscribers (Slides 16-17)
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In Q109, the US market added almost 3M new subscriptions down 33%
from Q108.
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The number of data subscribers has been on the rise with Verizon
leading the way. At the end of Q109, 62% of US subscribers were
using some form of data services.
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The messaging volumes in the US market now average 485
messages/subscriber/month or at the frequency of a message/sub every
1.5 hours. The leading messaging nation is Philippines where
consumers routinely send a message/hr on average.
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In terms of net-adds, Verizon led in Q109 with 1.3M net-adds, edging
its friendly rival AT&T which added 1.2M net subscriptions. Sprint
losses reduced to 180K subscribers.
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With its Alltel acquisition, Verizon became the number one carrier
in the US easily overtaking AT&T. It now has 86.6M subs and secured
the bragging rights to being the biggest operator in the Americas.
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The 3G penetration in the US went past 40% in Q109. Verizon led the
pack while T-Mobile is slowly expanding its 3G coverage. The growth
in 3G and smartphones is helping offset some of the downward
pressure on the data revenues and overall ARPU.
Applications and Services
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Non-messaging services continue to grab 50-60% of the data revenues
for the US carriers. For the first time the non-messaging share
exceeded 60%.
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The flat-rate pricing movement that was started by Willcom in Japan
which moved to Europe became more prevalent in the US market with
industry wide flat-rate pricing plans that included data. All the
major carriers seem to be offering flat-fee access plans for most of
the new smartphones being introduced in the market. Approximately
17% of the consumers have flat-rate data plans. We will see a
further acceleration of this trend aided by the recession.
-
There are probably 18-20 sub-segments within mobile data services
and consolidation looms. While the valuations are still high for
rapid consolidation, we think that due to recession pressure, the
M&A scene is starting to heat up.
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The usage and data consumption trends are enabling carriers to
accelerate their 4G plans and develop long-term business and
technical strategies (I will be moderating a panel on “The
future of Broadband” at the
“Future in Review (FiRE)”
conference on May 20th in San Diego where some of the best minds on
broadband will be debating the evolution of our industry)
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The appstores battle is intensifying with OEMs and carriers are
announcing their plans and some of them are opening their wares to
woo the developer community. In the midst of the appstores hoopla,
Apple announced the passing of the 1 Billion download mark with
increasing number of developers participating the ecosystem. The new
functionality being released with 3.0 is going to take the battle up
a notch. The clear-cut business model of 30/70+ split is attractive
to the long-tail of developers. While there is no dearth of
applications, findability remains a challenge. Also, appstores are
changing the monetization strategies for content and application
developers (I will be moderating the panel
“Wireless Monetization”
at TiECON on May 16th in Santa Clara)
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Slowly but surely, mobility is becoming pervasive across industry
verticals. Mobile Health looks very promising and the impact could
be global. (I will be participating in a conference on mHealth
being held in San Francisco on May 22nd by UN Foundation, Vodafone
Foundation, UCSF Global Health Services, Berkley Engineering, Cisco,
and NetHope)
Handsets
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After selling over 100M units for seven straight quarters, Nokia
slipped to 93M handsets in Q109, still more than the next three
players combined but an 18% drop from Q408 nevertheless. Samsung and
LG have been really gaining on their rivals in the past year and are
now at #2 and #3 respectively. Motorola and Sony Ericsson with 6%
share each round up the top five.
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While Apple has been stealing all the press, RIM upped the ante by
claiming leadership in the smartphone wars by outselling Apple in
the first quarter of the year.
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The growth in smartphone usage is also putting pressure on the
networks which are not able to handle the load during peak times in
certain cities thus forcing carriers to look for alternate
strategies to satisfy the demand for broadband - metered billing,
UMA, Femtocells, Hotspot buys, WiMAX, LTE, and others.
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Rest of 2009 is eagerly awaiting the release of Palm Pre, several
Android handsets from HTC, Samsung, Motorola, and others, Windows
devices along with follow on of Danger devices, new model(s) of
iPhone, and other touch screen devices.
Misc.
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Not surprisingly, Venture money in the mobile sector experienced a
rapid decline. Compared to Q108, venture financing declined by 58%.
(Source: Rutberg)
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In a sign of convergence battles to come, T-Mobile’s @Home and
various Femto cell initiatives are taking hold. Cable operators are
also aggressively seeking triple-play by providing the wireless
component of the service.
We will be keeping a close eye on the trends in the wireless data sector
in our blog, future
research reports,
and articles.
The next US Wireless Data Market update will be released in Aug 2009.
The next Global Wireless Data Market update will be issued in Sept 2009.
Your feedback is always welcome.
Should you have any questions about navigating or understanding the
economic and competitive icebergs, please feel free to drop us a line.
Thanks.
Chetan Sharma
Disclaimer: Some of the companies mentioned in this note are our clients.
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