Market Update Q3 2013
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The US mobile data market grew 5% Q/Q and 15% Y/Y to reach $22.8
billion in mobile data revenues. Data is now 48% of the US
mobile industry service revenues and as we had forecasted a few
years back, the cross-over point of 50% might occur next
quarter. For the year 2013, we are expecting $90 Billion in
mobile data service revenues for the US market making it the
number one market in mobile data revenues ahead of Japan and
China. Q4 2013 is looking to be another record breaking holiday
quarter for the industry at many levels, which is setting up
2014 quite nicely.
For the quarter, the market added 2.4M new connections, a strong
reversal from the paltry 139K last quarter. T-Mobile continued
to impress after its strong reversal in industry metrics last
quarter on the back of a series of marketing and pricing
initiatives that seem to be gaining traction and having an
impact on its image and fortune.
Given that Apple didn’t launch the device until Sept and then
had severe supply-chain constraints, Android had its best
quarter against iOS with 54% share in the US market. However,
iOS is likely to catch-up in Q4.
Smartphones are now past the 64% mark in the US and continue to
sell at a brisk pace accounting for almost 90% of the devices
sold in Q3 2013. Apple led the smartphone sales amongst the top
4 operators with 42% share for the quarter. While the US
penetration of smartphones is 64%, the 64% of the sub base is
concentrated in only 40% of the households thus leaving plenty
of growth in the marketplace. Overall, connected devices remains
the highest growth segment with 6% Q/Q growth.
Smartphone and Connected Device Growth
Though China has overtaken (primarily because of the sheer size
of its population) US in terms of the overall smartphone
penetration, US remains the market where OEMs have to be really
successful in order to be consider a serious player on the
larger canvas. Though the likes of Xiaomi and the Micromax have
had good success in their local markets (and still have a great
amount of growth left), the prized market to make a sizable dent
in their overall revenue and margins is the US market. This is
primarily due to handset subsidy that allows consumers to easily
own premium brands at bargain-basement prices in addition to the
higher disposable incomes. This has helped the ASPs to go up in
this market unlike some of the other markets where they have
been going down.
US also boasts four leading-edge LTE networks that allows the
ecosystem to innovate at the edge, literally. Having access to
fast mobile broadband impacts human behavior, application and
service development and everything in between. As such, US has
become the laboratory for many experiments that benefit the
larger ecosystem. This absolutely doesn’t mean that innovative
things are not happening in other parts of the world. Far from
it. But the “enabling layer” of networks, devices, and platforms
is in its most advanced stage in the US. This layer allows folks
to build applications and services that will power the global
So, in order to be considered credible in the smartphone space,
one must have a decent scorecard in the US today. The pendulum
could of course swing and China could take the lead. In fact, US
and China are the G2 nations of the mobile world.
While there have been murmurs in the market about smartphone
saturation, the upgrade cycles will keep up the demand for more
devices in 2014.
Like any ecosystem or a market, there are winners and there are
companies who couldn’t perform to their potential. Enough ink
has been spilt on Blackberry to reiterate what was quite
predictable. The only interesting tidbit that emerged was that
as we expected, Lenovo made a serious run for it and the
Canadian government stopped it. It is ok for Canadians to use
Lenovo laptops but not the smartphones? Of course, the reasons
were complicated and different from what have been generally
reported. Can Blackberry make a comeback under a savvy CEO? If
they continue with the same OS, it is hard to see how?
Apple for the first time launched two models – 5s and a slightly
lower priced 5c. It seems like the strategy might have been two
fold a) get the supply-chain ready for more than one new model
at a time and b) given an additional option to the consumers (in
the US) who used to go for a level down version. Since the
supply chain was under pressure, it is hard to get a clear
picture of what might be happening but the iPhone 5s/c launch
allowed Apple to raise the percentage of new devices sold. In
fact, based on the weekly sales data from ITG Research, they
might have managed to flip the ratio. For e.g. in Sep and Oct
2012, the old models sold 3:1. During Sept-Oct 2013, the new
models outsold the old models by 1.7:1. 5s outsold 5c 1.6:1.
The big block-buster deal of Q3 was Microsoft’s acquisition of
Nokia. It was clearly one of the outcomes Nokia was on the path
of the day it chose Windows Phone OS. Microsoft got an effective
OEM distribution and design system for really cheap but how long
will it take to turn things around? Its mobile fate might
largely depend on who the new CEO is.
Tablets are making a tremendous impact in the post-pc era. In
the US market, we are already approaching 100M unit sales/year
run rate. While Android tablets have taken market share from
iPad, Apple remains the undisputed king of the category
primarily because of superior hardware and a more robust
ecosystem. Android tablets can be cheap but also unreliable, the
life expectancy of such tablets can be 50% or so compared to the
iPad. The usage is even less. Microsoft launched a credible
challenger in Surface but there have been so many missteps that
it is not (yet) in the picture of the post-pc transition.
There has also been quite a bit of excitement about smart
watches, smart glasses, smart cars, smart homes, and on and on.
However, we must remember that just because device is growing in
the era of the smartphones, it doesn’t makes them smart. In
fact, most of these devices are where smartphones were in the
late nineties – basic, functional, and full of possibilities.
The evolution, however, will be much quicker. Google is one
company that is pushing the boundaries of across multiple
dimensions. Regulators and policy makers better come up to speed
on the emerging landscape quickly.
A good test of a platform’s importance is to find out what
happens if the platform shuts down for 5 minutes – how much
panic and revenue drop does that create in various parts of the
world? Another measure of the platform is the value it creates
by launching new companies and ideas. For mobile, the answer is
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 telecom operators has been severe,
however the M&A efforts will be complicated by respective
governments desire to keep control of the national
We had a very successful Mobile Future Forward Summit last
quarter. It was dedicated to exploring the 4th wave
in more detail across multiple dimensions and verticals. The
dialogue was incredible and validates the march towards the 4th
wave that is redefining industries across the spectrum including
the wireless industry itself, at its core. Some of these
tectonic shifts aren’t very apparent and visible but as I have
spent time working with some of the leaders in New York, Silicon
Valley, London, Abu Dhabi, Barcelona, Hanoi, Singapore, Dallas,
New Delhi, and Seattle this year, it has become abundantly that
mobile industry is at a key inflexion point that is changing
industries and the power structures, creating new opportunities
and new revenue streams. In my interview at Mobile Future
Forward, Ralph de la Vega, CEO of AT&T Mobility indicated that
the ARPU from Digital Life customers is higher and the churn is
lower. So, the fourth wave services have a direct impact on
existing revenue streams as well. Conversely, absence of such
services doesn’t yield a pretty picture.
FCC chairman and regulations
Amidst all the cacophony of device launches, acquisitions, and
investments, FCC finally got its new chairman. Tom Wheeler is
one of the savviest operative in the space with better grasp of
the ecosystem, policy, law, and politics than most of his
predecessors, so it will be interesting to see what the next FCC
era brings over the next 3 years. Clearly, Incentive Auctions
will be one of the most critical items on the agenda but some
other issues like the potential T-Mobile acquisition and
net-neutrality issues are likely to become important as well.
Regardless, we are in for an interesting ride.
What to expect in the coming months?
2013 has been quite a year for the mobile industry and as we
head into the holiday season, it’s a consumer’s market with
plenty of choice and competition.
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 Q3 2013 US wireless
data market is:
- The US mobile
data service revenues grew 5% Q/Q and 15% Y/Y to $22.8B in
Q3 2013.For the year 2013, US mobile data market is on track
to reach our original forecast of $90 billion in 2013.
Verizon and AT&T dominated the quarter accounting for 71% of
the mobile data services revenue and had 68% of the
As expected, China Mobile went passed both Verizon and AT&T
to claim the #1 operator in mobile data service revenues.
Verizon and AT&T slipped to #2 & #3 mobile data revenue
ranking respectively in Q3 2013. Sprint and T-Mobile also
maintained their rankings in the top 10 global mobile
The Overall ARPU increased by $0.82. Average voice ARPU
declined by $0.38 while the average data ARPU grew by $1.19
or 5% Q/Q.
The average industry percentage contribution of data to
overall ARPU is now at the 48% mark in Q3 2013 and is likely
to exceed the 50% next quarter. The top three operators are
hovering over the 50% mark and T-Mobile is slowly catching
The US operators added 2.4M net-adds a sharp reversal from
the lowest net-add in history last quarter. Verizon and
T-Mobile led with over 1M subs, closely followed by AT&T
while Sprint slowly emerges from the Nextel shutdown.
T-Mobile’s postpaid continued to see the positive growth for
the second straight quarter, though Verizon was a clear
leader of the quarter with 927K net-adds.
Sprint continued its losses in the postpaid segment. In the
last couple of quarters, T-Mobile has started to break-away
from Sprint in cumulative postpaid net-adds with positive
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 with more consumers
opting for cellular tablets and connected devices. In fact,
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 premise WiFi solutions.