US
Mobile Data Market Update Q3 2010
http://www.chetansharma.com/usmarketupdateq32010.htm
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Executive Summary
The US wireless data market grew 7% Q/Q and 25% Y/Y to exceed
$14B in mobile data service revenues in Q3 2010 - on track to
meet (and most likely exceed) our initial estimate of $54B for
the year.
Sprint had a second straight positive net-add quarter. T-Mobile
also reversed its losses and had a net-positive quarter though
postpaid additions were down for both the carriers. 2011 is
shaping up to be an interesting year with some big M&As on the
cards. The launch of 4G networks provides an opportunity to
realign the industry.
The US subscription penetration crossed 96% at the end of Q3
2010. If we take out the demographics of 5 yrs and younger, the
mobile penetration is now past 101%. While the traditional
net-adds have been slowing, the “connected device” segment is
picking up so much that AT&T, T-Mobile, and Sprint added more
connected devices than postpaid subs in Q3 2010. Given the slow
postpaid growth, operators are fiercely competing in prepaid,
enterprise, connected devices, and M2M segments.
The role of connected devices
In the connected device category, tablets led almost
singlehandedly by the iPad is taking away the lion share of the
revenues. The whole category is catching up speed in the US with
12% growth Q/Q much higher than in the postpaid segment which
has trickled down to 1% Q/Q growth by Q3 2010.
We expect that in less than 5 years, the connected devices
category will generate more revenue for the operators than the
entire prepaid segment in the US. While today, connected devices
represent only 3% of the quarterly data revenues, this segment
didn’t really exist a few months ago and will keep on gaining
strength every year for the foreseeable future.
In terms of financials, the addition of connected devices units
and revenues to the mix masks the tremendous growth in
smartphone related data revenues. For example, T-Mobile lost
360K postpaid subs but added 300K connected devices for a net
loss of 60K subscriptions. Because of lower ARPU, Connected
devices have a dilutive impact on the revenues and ARPU so the
overall ARPU for postpaid segment for T-Mobile was $52 instead
of $55.
iPad literally created a new category and rest of the industry
is scrambling to respond. Some just want to follow Apple’s trail
to cash in while others don’t want to competing head-to-head
with Apple so they are launching smaller sized units. There will
be others who will launch devices at every inch increments just
to see what sticks. However you might slice and dice the market,
the segment is here to stay and as we had mentioned before,
Netbooks will take a hit as the category was the creature of a
falling economy and with a viable alternate, the need for
Netbooks diminishes.
Mobile Data Consumption
Data traffic continued to increase across all networks. There
are some superphones that are routinely average more than 1
GB/mo, superphones as a category is averaging 700-800 MB/mo. By
the end of 2010, we expect the average US consumption to be
approximately 325 MB/mo up 112% from 2009. This puts US right
behind Sweden in the top two by per capita mobile data
consumption. While the US lags Japan and Korea in 3G penetration
by a distance, due to higher penetration of smartphones and
datacards, the consumption is much higher than its Asian
counterparts. Given that it is also becoming the largest
deployment base for HSPA+ and LTE, most of the cutting edge
research in areas of data management and experimentation with
policy, regulations, strategy, and business models is taking
place in the networks of the US operators and keenly watched by
players across the global ecosystem.
As we had forecasted, the tiered pricing structure for mobile
broadband expanded further with Verizon and T-Mobile following
AT&T in deploying policy management strategies for controlling
data margins. We will see the pricing evolve over the next 2-4
quarters as the US mobile ecosystem adjusts to the new realities
and strategies for mobile data consumption.
What to expect in the coming months?
Kids of the now generation are growing with connected
electronics that is fundamentally altering the behaviors and
expectations of interaction, communication, consumption, and
monetization.
Microsoft launched its much anticipated Windows Phone 7 in a bid
to recapture the mind- and unit-share. By taking a different UI
route, it actually has a shot to be a viable third option to
iPhone and Android and pushing RIM from the top 3.
All this has setup an absolutely fascinating 2011 in the
communication/computing industry. Convergence is everywhere and
is leading to fundamental reset of the value chains and
ecosystems. We are going to be discussing the ins and outs of
how the industry is going to evolve in the next decade in our
Sept 15th event – Mobile
Future Forward which
is bringing exceptional industry thought-leaders, inventors, and
doers to brainstorm, discuss, and debate what’s next. More
details to come. We will also be discussing the trends and
opportunities in our Dec
Mobile Breakfast Series
event.
US is also leading the way in smartphone sales. In Q3 2010, 47%
of the devices sold in the US were smartphones compared to 24%
globally. The fast pace of device introduction has catapulted
the agile players like Samsung and HTC to the forefront while
others like LG and Sony Ericsson have lost ground. By focusing
singularly on Android and by broadening the device portfolio,
Motorola has written a great comeback script.
The pace of product introduction is accelerating with each
quarter. Devices of all shapes and sizes are coming into the
market literally every week. Players are having to re-evaluate
their businesses and long-term strategies. There are several
players whose future is at stake (to put it mildly). The
competition has grown fierce and companies are finding it hard
to take ideas from R&D to products in market in a short amount
of time.
While 2010 started quite active on the regulatory front as the
national broadband plan was unveiled in March little substantive
progress has been made w.r.t. the spectrum, net-neutrality, and
other broadband related issues.
To start planning for 4G, 5G, and beyond, US should think about
rolling a 50 year broadband plan. While more spectrum is always
helpful, will we have all the spectrum we need in 2050? or do we
need to invent new technologies and business models that use
spectrum more wisely? This topic will keep the industry occupied
for some time to come.
ITU christened LTE-A and Wireless MAN-Advanced as the “official”
4G technologies but the marketing departments cared less. (We
will be releasing the next edition of our “State
of the “Mobile” Broadband Nation” in
the coming months.
As we had mentioned last year, the mobile data traffic kept on
growing disproportional to the revenues. A series of solutions
have come into the market from players big and small. We
released the second edition of our in-depth research paper on
data growth - "Managing
Growth and Profits in the Yottabyte Era"
earlier this year.
Finally, operators are starting to diversify more aggressively
than in the past. AT&T’s mobile enterprise business is a leading
indicator of this trend. Their focus by verticals has yielded
new revenue streams and positioning them to become a one-stop
shop for devices, access, and services in the enterprise market.
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 2010 US wireless
data market is:
Service Revenues (Slides 7, 17)
-
The US Wireless data service revenues grew 7% Q/Q to $14B in
Q310. The mobile data revenues for the US market are likely
to reach $55B in 2010.
-
Verizon and AT&T accounted for 85% of the increase in data
revenues in Q3 2010.
-
T-Mobile’s 3G drive is starting to pay off. While the
postpaid net-adds were still in the red, its data growth is
starting to match with its peers. The 21% 3G smartphone base
definitely helps.
-
AT&T and Verizon now account for 70% of the market data
services revenues and 62% of the subscription base.
ARPU (Slides 8-11)
-
The Overall ARPU decreased by $0.17. Average voice ARPU
declined by $0.99 while the average data ARPU grew by $0.82
or 5% Q/Q.
-
The average industry percentage contribution of data to
overall ARPU is now 33% in Q310.
-
Verizon led in data ARPU with $18.61 followed by AT&T and
Sprint. In terms of % contribution, all the top three
operators exceeded the 30% mark. T-Mobile ended the quarter
with approximately 27% of its revenue coming from data
services.
Subscribers (Slides 12-15)
-
Helped by the growth in connected devices, the overall
net-adds increased by 4.5M.
-
For the fourth straight quarter, AT&T reported more net-adds
from connected devices than postpaid subs. Connected devices
are now 8% of AT&T’s subscription base.
-
Overall, Verizon and AT&T are tied in terms of total
connected devices on the network thought AT&T has a much
more diverse and revenue-rich base.
-
The connected device segment grew 12% Q/Q and 42% Y/Y.
-
Sprint extended its streak of positive net-adds to two
quarters by adding over 600 subs while T-Mobile reversed
its customer losing streak thanks to the growth in the
prepaid and connected devices segments.
-
The national prepaid penetration is touching 20%.
Applications and Services
-
Non-messaging services continues to grab 60-65% of the data
revenues for the US carriers.
-
There is a significant shift taking place in terms of app
revenues. In 2010, there will be more revenues generated
(globally) from off-deck than on-deck for the first time and
while the on-deck revenues are in billions, the decline
trend looks irreversible. In the US, this shift will occur
next year. (We released our mobile
apps economy research paper earlier
this year)
-
The usage and data consumption trends are enabling carriers
to accelerate their 3.5G/4G plans and develop long-term
business and technical strategies.
Handsets
-
Nokia sold 110.4M units in Q3 2010 amounting for 32% of the
market share. Samsung continues to be one of the most agile
players shipping a whopping 71.4M for a 21% share of the
market. Apple also edged past RIM to be in the top 5.
-
While rest of the industry counts units, Apple counts $ and
leads in the revenue share. It shipped 9.1M iPhones in Q3
despite the backlash over the antenna design.
Data Traffic (Slide 16)
·
As we noted in our previous updates, the data traffic is now
significantly more than the voice traffic. By end of 2010, we
expect the average US consumer was consuming approximately 325
MB/mo up 112% in 12 months. The good news is that there are
several solutions available and are being invented that will
help manage the data growth starting with the tiered pricing
plans.
Your feedback is always welcome.
Thanks.
Chetan Sharma
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 Mar
2011. The next Global Wireless Data Market update will be issued
in Dec 2010. Be sure to participate in our annual mobile
industry predictions survey coming out in Dec 2010.
Disclaimer: Some of the companies mentioned in this paper are
our clients.
