US Mobile Market Update – Q2 2014
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The US mobile services revenues in Q2 2014 declined 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
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
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
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 it 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.
Intuitively, we have known for a while that the application
development environment was moving from windows to iOS and
Android. In 2012,
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
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 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
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
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:
The US mobile services revenues in Q2 2014 declined by over
The mobile data services revenue however continued to
increase and 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 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 Q2 2014. Sprint and T-Mobile also
maintained their rankings in the top 10 global mobile data
Revenue from new subs has declined to roughly 2%.
The Overall ARPU declined by $1.15. Average voice ARPU
declined by $1.53 while the average data ARPU grew by 1%
Data contribution to the overall revenues is now at 55%.
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.
Non-phone devices are performing 5x compared to phones.
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.
49% 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 62% (up from 30% in Q1 2013) to Facebook’s
quarterly revenues. Latest addition to the club is Twitter
which is now doing 81% 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 (non-phones) accounted for almost 84% of
the net-adds in Q2 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 10%.
Smartphones continued to be sold at a brisk pace accounting
almost 93% of the devices sold in Q2 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 70%.
Android had its best showing in the US market with 60% share
of the quarter. In Q3, Apple is expected to announce its
next iPhone that will pull it back into contention for the
top stop for the second half of the year.
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 54M 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 six more quarters. Verizon
reported that 76% of its total data traffic is on the LTE
network now, clearly the fastest technology transitions we
have seen in the US wireless industry.
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. For the first time, Verizon sold more
iPhones than AT&T.
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
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 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.
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 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
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
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
© Chetan Sharma Consulting
Chetan Sharma Consulting is a
management consulting and advisory firm helping companies in the mobile and
voice communications sector. Our expertise is in developing
innovation-driven product, business, and IP strategy. We've
helped companies like NTT DoCoMo, China Mobile, Samsung, KDDI,
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