Market Update Q2 2013
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The US mobile data market grew 4% Q/Q and 14% Y/Y to reach $21
billion in mobile data revenues. Data is now 46% of the US
mobile industry service revenues and as we had forecasted a few
years back, the cross-over point of 50% might occur later this
year. For the year 2013, we are expecting $90 Billion in mobile
data service revenues for the US market.
For the quarter, the market added a paltry 139K new connections,
a decline of 95% from Q2 2012. It was the lowest net-adds
quarter in the US mobile history (barring the early days of
tepid growth). The biggest reason was the sun setting of the
Nextel brand which was finally laid to rest after the grand
experiment of 2004 went wrong.
However, the story of the quarter was the resurgence of T-Mobile
which roared back with an industry leading net-add quarter,
something it did last when George Bush was still the president.
Not only that, the growth was on the back of postpaid net-adds,
something it hasn’t done in 12 quarters. The merger with Metro
has helped boost the subscriber count and the revenue numbers.
However, the growth came at a cost with shrinking margins and
lower overall ARPU.
AT&T sold more iPhones but Verizon sold more smartphones. Given
the lack of new devices from Apple and some good ones from
competitors, Android edged past iOS for the US smartphone market
share for the quarter primarily coming from the Samsung success
with the Galaxy brand. Nokia launched some new devices focused
on cameras, Motorola/Google made its first foray into the
smartphone world after the merger with MotoX. However, the
market awaits the next iPhone which is going to be released next
The Sprint-Softbank-Dish drama finally ended and as expected
Softbank got a hold of both Sprint and Clearwire though at a
higher price which the plan was all along. With this merger
behind, all eyes are squarely focused on T-Mobile as to who
makes the bid for 4th ranked operator in the next
Smartphones are now past the 60% mark in the US and continue to
sell at a brisk pace accounting for almost 87% of the devices
sold in Q2 2013. Apple led the smartphone sales amongst the top
4 operators with 42% share for the quarter. While the US
penetration of smartphones is 60%, the 60% of the sub base is
concentrated in only 35% of the households thus leaving plenty
of growth in the marketplace.
Is the smartphone growth over?
There has been some speculation in the market that the
smartphone growth in the US market is over. In the US, roughly
240M subscribers have 335M mobile subscriptions. Out of those
240 subs, roughly 145M have smartphones (many of them have two
or more). These days newborns get an iPhone on their arrival as
a welcome gift, but if we take out the 0-5 age group, we are
left with 293M potential subs. This means the potential market
for smartphones at this point in time is 148M subs who don’t
have a smartphone (obviously, there will always be folks who
just don’t want any wireless phone – smartphone or otherwise but
the size of that group is shrinking). Add to the upgrade cycle
which averages between 18-20 months in the US, the market for
smartphone growth remains pretty healthy.
The global market is even more fertile. The emerging markets are
quite price sensitive and the low-cost Android devices are
rushing to fill the void. If Apple cares about market share, it
will have to figure out a strategy to address the void in its
The success factor of mobile devices and OEMs is not determined
just by product but several other factors as outlined in our
“What Really Drives Mobile Device Performance?”
As I mentioned to the New York Times,
is no longer good enough to have a great product, an OEM needs
to perform well across multiple variables.
referenced the research
in one of their segments.
Predictably, Microsoft’s Surface RT made a dismal impact on the
market. The fundamental strategy was flawed and it was
surprising that so many OEMs fell for it.
Blackberry, Nokia, HTC, each once proud leader of the smartphone
ecosystem is struggling. Can they come back? In this market, you
don’t get too many chances and too many years to turn the ship
around. Once the customer loyalty is lost, it is very hard to
get it back because there are hungry competitors ready to take
your spot. Blackberry and Nokia are a perfect case study for
management schools. The cycle of complacency spares no one.
A more likely scenario for some of these players might be some
form of M&A transaction. As we alluded to in our paper, Lenovo
is the dark horse of mobile and while there are others like HP
and Sony who are looking to, reenergize the market, and Huawei
and ZTE inching-up every quarter, Lenovo seems better positioned
to make an acquisition and make a run for the top 3 spot. But,
it will have to make a decisive move and go global with its
strategy quickly else as we know the mobile market doesn’t wait
for no one.
In terms of Q/Q growth, Connected Devices segment grew 13%,
Wholesale 1%, Postpaid 2%, and Prepaid 1%.
The disappearing Tier-2s
In our previous update, we suggested that the market for tier-2s
in the US is practically over. The reason was pretty simple –
there is no growth left for them. Given the postpaid saturation,
the big guys are also focusing heavily on the prepaid segment
leaving the tier-2s vulnerable. MetroPCS was first to go
followed by Leap (acquired by AT&T, transaction is not complete
yet). The next big shakeup in the industry will be the
acquisition or the merger with T-Mobile. Like we suggested in
our paper “Competition
and the Evolution of Mobile Markets”
in 2011, rule of 3 will ultimately prevail in the US market. We
will be discussing the subject in the more detail at our
Mobile Future Forward Summit
The Fourth Wave and the shift towards services
It is evident that there is a subtle shift from devices/access
to services/solutions. In our paper on the topic “Operator’s
Dilemma (and opportunity): The Fourth Wave”,
I proposed that we need a new framework to think about the next
generation of revenue opportunities. The fourth curve
opportunities are massive but require a different skill set and
strategic approach than the past three curves. As predicted, we
are starting to see the impact of the 4th wave on a
global scale and some operators have started to break out the 4th wave
revenues in their financials. Operators with better balance
sheets will also look for global expansion especially in Europe
where economic impact on the telcom operators has been severe,
however the M&A efforts will be complicated by respective
governments desire to keep control of the national
The incumbent operators in Canada are getting really nervous
about the potential entry of Verizon into the market that hasn’t
seen any “real” competition in years.
We will be discussing fourth wave in much more detail at our
annual thought-leadership summit –
Mobile Future Forward
with the incredible leaders who are making billion dollar
decisions every day.
OTT impact on legacy businesses and models
We will see the same impact of IP and mobility on the various
verticals like Retail, Energy, Education, Entertainment, Travel,
etc. Some operators have been preparing for this shift and going
outside their traditional products and services to launch
services like AT&T’s Digital Life to address opportunities in
the home, Verizon’s efforts in health and public safety and
Sprint’s steps in mobile advertising and analytics. Overseas
operators such as Telefonica, Vodafone, Tata, and others are
looking to make inroads into the US mobile 4th wave
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. We are gearing up for our
annual Mobile Brainstorm Summit – Mobile Future Forward
on Sept 10th, hope you can join us.
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 2013 US wireless
data market is:
The US Wireless data service revenues grew 4% Q/Q and 14%
Y/Y to over $21.7B in Q2 2013. For the year 2013, we are
forecasting that mobile data revenues in the US market will
reach $90 billion.
Verizon and AT&T dominated the quarter accounting for 71% of
the mobile data services revenue and had 65% of the
Verizon and AT&T maintained its #1 & #2 mobile data revenue
ranking in Q2 2013. Sprint and T-Mobile also maintained
their rankings in the top 10 global mobile operators.
The Overall ARPU declined by $0.57. Average voice ARPU
declined by $1.17 while the average data ARPU grew by $0.61
or 3% Q/Q.
The average industry percentage contribution of data to
overall ARPU is now at the 46% mark in Q2 2013 and is likely
to exceed the 50% in 2013. All the top four top US operators
are over the 40% mark. (For reference, all three major
Japanese operators are now close to the 70% mark).
The US operators added only 139K net-adds to the ecosystem,
its lowest in the history of the US wireless industry.
T-Mobile’s postpaid saw positive growth for the first time
in 12 quarters. It added 688K postpaid subs ahead of all but
For the first time in six years, T-Mobile led in net-adds,
just edging out Verizon.
Sprint finally laid the Nextel brand to rest but it came at
the expense of the churn rate which climbed and as a result
the net-decline was over 2M subs.
AT&T continued to lead the connected device segment with 48%
Shared Data Plans
Shared data plans launched by Verizon and AT&T saw positive
results. The tablet and other device attachment rate has gone up
Shared data plans are working so well for AT&T that most of its
postpaid growth is coming from tablets. In the last 4 quarters,
postpaid tablets accounted for over 72% of the net-adds.
Shared data plans moved tablet session based consumers to
postpaid tablet plans with more predictable revenue stream. The
$10 surcharge for every device is still an inhibitor for many
consumers. Over time, we expect this fee to go away to bring in
many more consumers experience data services across devices
other than their smartphones.
Applications and Services
The market is seeing a lot of activity in the mobile commerce
and payment services as well as in various industry verticals
like healthcare, retail, and education. We will be discussing
how mobile is changing all the vertical industries at our fall
Mobile Future Forward
where industry leaders in each of these vertical segments will
convene to share their experiences and expectations.
The cloud and security segments have also gained significant
traction with incumbents as well as startups launching new
initiatives and technologies.
OTT and the impact on legacy services
the last 12 months, Whatsapp has moved around more messages than
all the mobile operators in the US and China combined. Those of
you who have read our
Fourth Wave paper
shouldn’t be surprised by this shift.
Smartphones continued to be sold at a brisk pace accounting to
almost 87% of the devices sold in Q2 2013.
Android edged out iOS smartphones in Q2 2013 by a 49%-47%
margin. However, iOS is expected to bounce back in Q3 and Q4
which is typical due to the product release cycles.
At the end of Q2 2013, Samsung continued its lead in unit
sale category both on the world stage as well as in the US.
However, profits are a different equation where Apple
overshadows its rivals like Gulliver on the Lilliput land.
While it is fairly clear that Windows will acquire the #3
spot behind iOS and Android, the journey to a substantial
and competitive market share is still ways off. It renewed
its entry into the battlefield with Windows phone last year
but sales have been poor. In Q2 2013, Windows device sales
were roughly 0.5 million despite heavy marketing (read
to get more insights into why Windows hasn’t been able to
make a dent so far).
Apple’s next set of devices are expected to be unveiled next
Verizon continues to sell more LTE smartphones as its LTE
sub tally rose to 31.1M making it the leading LTE operator
in the world. AT&T’s and Sprint’s LTE rollouts are gathering
steam. T-Mobile is also ramping up its LTE deployment.
Expect the “fastest network” marketing to continue for at
least another seven quarters. Verizon reported that 60% of
its total data traffic is on the LTE network now, clearly
the fastest technology transitions we have seen.
There is always a beauty contest amongst operators as to who
sold more iPhones. AT&T again bested its rivals by selling
roughly 42% of the iPhones in the US.
4th Wave Solutions
There were several launches of digital services by the operators
but the most prominent has been the Digital Life home security
and automation service launched by AT&T.
There are other instances of companies revving up their mobile
revenue base. Facebook is on its way to cross the 50% threshold,
Pandora is at 60%, and Twitter is close to 50%. Starbucks and
Expedia are doing well in their respective verticals. There are
several mobile-only players that are eating up the revenue from
traditional players who haven’t been quick to move into mobile.
Google and Apple are ahead of the pack when it comes to raw
revenue. We will have more details on the subject in our
upcoming research sequel, “Mobile 4th Wave: The
Evolution of the Next Trillion Dollars.”
Your feedback is always welcome.
We will be discussing a number of issues raised in this research
update at our annual mobile executive thought-leadership summit
– Mobile Future Forward on Sept 10th in Seattle. Thought-leaders
Ralph de la Vega, President and CEO, AT&T Mobility
Steve Elfman, President, Sprint
Erik Moreno, EVP, Fox Networks
Danny Bowman, Chief Sales and Operating Officer, Samsung
Terry Myerson, EVP – Operating Systems, Microsoft
Julie-Woods Moss, CEO – NextGen Business, CMO, Tata
Jef Holove, CEO, Basis
Geeta Nayyar, Chief Medical Officer, AT&T
Rowland Shaw, VP – Strategy, Ericsson
Andrew Stalbow, EVP, Rovio
Raj Toleti, President, Patient Point
Manish Jha, GM – Mobile, NFL
Drew Patterson, CEO, Room77
Dr. Avideh Zakhor, Professor, UC Berkeley
Rick Osterloh, SVP – Products, Motorola – Google
Jeff Warren, VP – Mobile, Expedia
Mark Anderson, CEO, SNS
Doug Suriano, VP – Communications, Oracle
.. More to come
Stephen David, former CIO, P&G
Yung Kim, President and Chief Strategy Officer, Korea
Glenn Lurie, President, AT&T Mobility
Jude Buckley, President – Mobility, Best Buy
David Small, Chief Platform Officer, Verizon Enterprise
Tracy Isacke, Head of Americas, Telefonica Digital
Marianne Marck, SVP – Consumer Facing Technology,
Henning Schulzrinne, CTO, FCC
Fay Arjomandi, Global Lead, Vodafone Xone
Biju Nair, EVP and CSO, Synchronoss
Hank Skorny, VP/GM – Software Services, Intel
Curtis Kopf, VP – Customer Innovation, Alaska Airlines
Matt Carter, President – Emerging Solutions, Sprint
Joost Schreve, VP – Mobile, Tripadvisor
Rod Randall, Partner, Siris Capital
Chris Koopmans, VP and GM – Cloud, Citrix ByteMobile
Wim Sweldens, former President, Alcatel-Lucent Wireless
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
November 2013. The next Global Wireless Data Market update will
be issued in October 2013.
Disclaimer: Some of the companies mentioned in this research are