Market Update - Q1 2014
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US Mobile Market Update – Q1 2014
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
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.
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
So, how will this all end-up?
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
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
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
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:
The US mobile data service revenues grew 4% Q/Q and 23% Y/Y
to $25.9B in Q1 2014. For the year 2014, we expect US to
become the first country to generate $100B from mobile data
Verizon and AT&T dominated the quarter accounting for 68% of
the mobile data services revenue and had 68% of the
Verizon and AT&T are at #2 & #3 global mobile data revenue
ranking respectively in Q1 2014. Sprint and T-Mobile also
maintained their rankings in the top 10 global mobile
Revenue from new subs has declined to roughly 2%.
The Overall ARPU declined by $0.51. Average voice ARPU
declined by $1.27 while the average data ARPU grew by $0.76
or 3% Q/Q.
As noted in the last update, the average industry percentage
contribution of data to overall ARPU is now over 50%. US
became the 7th nation to achieve this feat. Japan
at 70% leads the industry.
In terms of total subscribers, thanks to the Leap
acquisition, AT&T is virtually tied with Verizon at 34%
share in terms of market share. Verizon hasn’t ceded the top
spot since its acquisition of Alltel in 2008/9.
The US operators added 3.5M new customers. In a first,
T-Mobile added twice the amount of new customers compared to
the rest of the top 3 combined.
T-Mobile’s postpaid continued to see the positive growth for
the fourth straight quarter. Verizon was impacted
significantly with the smallest postpaid net-add quarter in
two years. Sprint continued its losses in the postpaid
segment. While T-Mobile is on its way to recover from the
postpaid losses of the last few years, Sprint’s tally of
postpaid losses over the last 5 years stands at 7.4M.
AT&T continued to lead the connected device segment with 48%
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. 50% of
postpaid accounts at Verizon are now on shared plans. At
AT&T, tablets are performing 2-3 times better than
smartphones in postpaid net-adds.
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.
45% of AT&T’s postpaid accounts are on 10GB+ plans.
4th Wave Progress
The number of players making $100M/quarter on mobile
continues to increase rapidly and these aren’t your
traditional wireless players. For example, Mobile is now
contributing 59% (up from 30% in Q1 2013) to Facebook’s
quarterly revenues. Latest addition to the club is Twitter
which is now doing 80% in mobile (of the total advertising
revenue) up from 60% in 2013. 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 (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
Americas session last quarter
with Verizon, Ericsson, Samsung, and adidas and are planning our
with Telefonica, BMW, Intel, and Worldsensing in London on June
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
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.
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
Mobile Infrastructure Patent top 10 Rankings: Samsung, Ericsson,
Alcatel-Lucent, Qualcomm, LG, Intel, Siemens, Fujitsu, NEC, and
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
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.
We will be keeping a close eye on the trends in the wireless
data sector in our blog, twitter
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
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.