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US Mobile Data
Market Update Q4 2012 and 2012
http://www.chetansharma.com/usmarketupdateq42012.htm
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US Mobile Market Update Q4 2012
Summary
The US mobile data market grew 3% Q/Q and 15% Y/Y to cross $20B
for the first time in Q412. Data is now almost 44% 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 2012, the market ended up with $79 Billion in
data revenues much higher than any other market. The overall
mobile services revenue were $182 Billion. For the year 2013, we
are expecting $90 Billion in mobile data service revenues for
the US market.
For the year, the market added 9 million new connections, a
decline of 56% from 2012. The postpaid category suffered a 97%
decline despite Verizon and AT&T collectively adding 6.3M
postpaid subs. Sprint and T-Mobile collectively lost over 3.3M
postpaid subs in 2012.
The last year T-Mobile had Y/Y positive postpaid net-adds
growth, George Bush was still the president, Facebook was in
diapers, and Pinterest wasn’t even born yet. T-Mobile suffered
its tenth straight quarter of postpaid declines. Cumulatively,
in the last fifteen quarters, while Verizon and AT&T have added
15M and 8M postpaid subs respectively, Sprint and T-Mobile have
lost approximately 4.7M each. Once Nextel is sunsetted for good
(it is down to 2.1M subs), we can expect a pick-up of
net-postpaid subs at Sprint.
2012 saw a couple of block-buster operator M&As that took many
in the industry by surprise. T-Mobile found a soul mate in
MetroPCS while Softbank showed up at the altar for Sprint.
T-Mobile is adopting the challenger role while Sprint that of a
disruptor.
As we mentioned in our previous
update,
smartphones are now past the 50% mark in the US and continue to
sell at a brisk pace accounting for over 84% of the devices sold
in Q4 2012. Apple led the smartphone sales amongst the top 4
operators with 51% share for the year. While the US penetration
of smartphones is over 50% as we reported last year, the 50% of
the sub base is concentrated in only 30% of the households thus
leaving plenty of growth left in the marketplace.
In terms of Y/Y growth, Connected Devices segment grew 12%,
Wholesale 9%, Prepaid 6%, and Postpaid was flat. The connected
devices segment only grew 1% in Q4 2012 Q/Q.
Verizon and AT&T maintained their top positions in the global
rankings by mobile data revenues. A survey of the entire
ecosystem shows that the US companies dominate the top 5
rankings of profit share. China Mobile leads the industry with
Apple, Verizon, AT&T, and NTT DoCoMo completing the rankings.
Race for the 3rd ecosystem
2013 might help define the 3rd ecosystem or at least
separate wannabes from the true contenders. While iOS and
Android duel out on the top (with iOS ahead in the US market),
there is fight for the distant #3. Windows made a grand entry in
Q4 but the sales have disappointed. Blackberry is hoping its
Q/Z10s will do the trick and help revive its fortune or at least
boost the asking price.
Last quarter, Microsoft and its partners launched a worldwide
campaign for a chance to compete. It went from a dominant
position to virtually zilch coinciding with the remarkable
ascend of iOS and Android. To make any device sell – one needs
good and competitive device, distribution channel and marketing
muscle, and brand loyalty. I think Windows 8 is genuinely good,
is different, and for the first time can stand with its peers
(obviously it needs to build a robust apps portfolio and a
stronger developer ecosystem).
In the past, while operators, OEMs, and Microsoft announced
significant advertising spend, it had almost negligible impact
on sales. The actual $ amount spend was tepid, operators didn’t
want to be guinea pigs just to prop up a third ecosystem. With
Windows 8, things might get better. We can see many more
awareness campaigns, more OEMs are launching some quality
devices, and operators are warming up to the idea as well. The
brand loyalty index for Microsoft Mobile is fairly low and it
will take a heavy lift and a few billion dollars of advertising
spend to move the needle. The good news is that the devices are
shipping at all price points.
Microsoft also made a splash with the first computing device in
its history – Surface. Both got a mixed reception from the
market. In the US, Nokia is selling 80% of the windows volume
making the future of the two companies inextricably tied
together. Can the windows ecosystem thrive without Samsung’s
support?
Additionally, there has been movement with other OSs like
Firefox, Tizen, Jolla, and Ubuntu.
Apple’s dominated 2012 – what’s next?
For 2012, Apple dominated the device sales accounting for 51% of
the smartphone sales amongst the top four mobile operators. In
Q4, its share rose to 59% of the sales on the back of a
successful iPhone 5 launch. AT&T sold a record 8.6M units
followed by Verizon’s 6.2M. For the year, AT&T sold a record
21.3M iPhones. So, while globally, Android dominates iOS more
than 2:1, the US subsidy model has helped Apple keep its lead
from Android. But, will it last? Enough ink has been spilt to
answer that question. Undoubtedly, Samsung and others have
caught up Apple on device specs and ease of use, even created
new categories that Apple didn’t foresee, but, Apple is still
the player to beat in 2013. Apple has clearly exposed its
Achilles heel – software and services. It will take some heavy
lifting to gain back confidence and momentum.
Samsung’s rise
The rise of Samsung and its domination of the Android ecosystem
was clearly one of the most captivating stories of 2012. Samsung
is making more revenue from Android than rest of the ecosystem
put together. Samsung is firing on all cylinders, works better
with its distribution partners, and has the bank balance to
fight toe-to-toe for its share of the market. It is also in the
unique position of having good perch in all the three major
screens – mobile, laptops, and TV. But, software and services is
also a weak spot for the company. How quickly it beefs up its
offerings and how ambitious it is in providing end-to-end
solutions will determine its competitiveness in the next 24
months.
Despite setbacks in the IP battles, Samsung continued its march
of being the undisputed unit leader in mobile device space.
After displacing Nokia in Q1 2012, it continued to dominate in
units shipped in 2012. However, Apple dominates both the
smartphone revenues and more importantly just crushes the
competition on device profits. It has only 6% of the global unit
shipment share but over 70% profit share. In tablets, Apple
completely dominates the landscape in both shipments and
revenue. In fact, 95% of the profits in the tablet segment go to
Apple with the remaining ecosystem fighting for the crumbs.
The Fourth Wave has arrived – the shift towards services
If you attended the AT&T developer summit and Verizon keynote at
CES this January, you might have noticed the 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. It is being
widely adopted in the operator community around the world and
some operators have started to break out the 4th wave
revenues in their financials. We will have more discussion about
how things are shaping on the fourth wave in future research
papers.
The Patent Battles
In 2012, Samsung had a strong showing not only in the market
place but also in the patents area. It edged past Nokia to
become the overall mobile patents leader in the industry. IBM
and Microsoft also improved their rankings. Nokia, Ericsson, and
Alcatel-Lucent slid in rankings. Motorola dropped out of top 10.
Not surprisingly, companies who have been around for a while
especially in the infrastructure and the platform space lead the
overall mobile patents. Samsung has been fiercely building its
patent portfolio in both Europe and the US and the efforts have
paid off as it has built a significant portfolio and a
formidable lead that is likely to serve it well in the coming
years.
A more startling observation is the mobile patent grants as a
percentage of the total patent grants in a given year have risen
significantly for the US market indicating the importance
innovators attach to mobile in their business. In the US, one
out of every five patent granted in 2012 was related to mobile.
Less than a decade ago, this number was less than 10%. The
European market has seen lower growth relative to the US market.
Roughly one out of every ten patents granted in Europe are
mobile related.
We will have a more detailed analysis of the patent landscape of
the mobile industry later this month.
The vanishing Tier-2s
The so called Tier-2s in the US market are practically done. For
the year 2012, the top 4 Tier-2 operators suffered a drastic 77%
decline in net-adds. Combined they added a measly 366K
subscriptions. One of the reasons is that the tier-1s are now
squarely focused on the prepaid market as a growth engine.
Sprint has had a long history in the segment with brands like
Boost and Virgin. T-Mobile’s has retooled itself to go after the
prepaid and wholesale opportunities. Additionally, the top 2
have also been launching attractive plans for the prepaid
segment. That’s why the top 4 added ten times the prepaid subs
compared to the next 4 operators. With Metro gone and Clearwire
on the blocks, we expect the Tier-2s to lose their relevancy in
the market.
Operator M&A – The Rule of Three Strikes Back
Just when you thought the prospects of any major operator M&A
slowed down due to the impending US election, T-Mobile announced
its acquisition of Metro PCS giving it more spectrum, access to
public markets, a good chunk of subscriber base to become a more
competitive number 4. Sprint and Softbank followed the
announcement with an absolutely brilliant maneuver. It provides
Sprint access to capital, economies of scale, and becomes a much
stronger number 3, and a global telecom player with scale and
ambition. The T-Mobile-Metro merger has been approved by the FCC
and we expect Sprint merger to go through as well.
There have been some interesting twists and turns but as we have
stated before, the US market competitive equilibrium will be
complete when Sprint and T-Mobile get together at some point
down the road. As
outlined in our research paper on the subject,
market forces find their way to get to 3 dominant operators that
compete for attention and revenues, rest becomes noise. While
the regulators might scoff at the idea, the inevitable market
forces will find their way around.
Surface, mini, and the tablet market
Apple launched the iPad mini in 2012 for some of the same
principles that Microsoft launched Surface. It is better to be
cannibalized by self than by the enemy. Microsoft saw the
notebook market shrink and needed a product to stem the bleeding
while Apple saw Amazon and Google attack the bottom tier with a
different model that poses a credible threat. Tablet market is
indeed fundamentally altering computing in many ways. The
changing landscape of computing also has impact on the ecosystem
and the application development environment. Developers flock to
platform reach, ease of access to the marketplace, and the basic
economics of a viable business model. Windows as a percentage of
computing platforms is shrinking drastically which threats not
only the platform but also Microsoft’s other software
franchises. Surface is classic blocking and tackling to provide
a jolt to the shifting ecosystem. Surface RT was an expected
disaster but Surface Pro will see takers in the corporate world.
With iPad mini, Apple is attempting to lock the mid-top tier of
the tablet market and daring its competitors to just play in the
bottom tier that leaves no profit on the hardware and revenue
stream from services for a very select few.
2012 – US Highlights and Milestones
2012 provided enough drama and suspense for the year, good
enough for a hit Spielberg flick. Here were some of the
highlights from the US market:
·
Samsung went past Nokia to become the world’s biggest OEM by
unit volume
·
Qualcomm eclipsed Intel in market cap marking another milestone
in the progression of the mobile ecosystem.
·
Verizon sold 29M smartphones (with half of them being LTE) and
AT&T sold 10.2M in Q4 – all US records.
·
Shared data plans were introduced by Verizon and AT&T which have
been viewed by the consumers favorably.
·
The focus of operator metrics is changing from ARPU to ARPA to
AMPA.
·
After dealing with the AT&T-T-Mobile merger in 2011, the
regulators were back to work with the T-Mobile-MetroPCS and
Softbank-Sprint mergers.
·
Verizon and AT&T Wireless became the top two mobile operators
globally by mobile data revenues.
·
US market saw its first decline in both messaging revenues and
volumes.
·
Smartphones penetration eclipsed the 50% mark.
·
Over 42M tablets were sold in the US with more than half being
iPads. Globally, Apple went past 100M iPads in cumulative sales
making it the fastest computing platform.
·
mCommerce started to eclipse eCommerce for some companies.
·
Amazon made a splash with its Kindle line of tablets, the sales
have been steady. Google’s Nexus devices also got good traction.
·
The average number of connected devices per household was over
five.
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. Details to come.
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 Q4 2012 and full year
2012 US wireless data market is:
Service Revenues
-
The US Wireless data service revenues grew 3% Q/Q and 17%
Y/Y to over $20B in Q4 2012 becoming the first country to
have a $20B quarter. 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 69% of
the mobile data services revenue and had 66% of the
subscription base.
-
Verizon and AT&T maintained its #1 & #2 mobile data revenue
ranking in Q4 2012. Sprint and T-Mobile maintained their #5
and #9 rank in the top 10 mobile data operators list for Q4
2012.
-
For the year, Verizon aggregated an astonishing $28.2
Billion haul from mobile data with AT&T close behind at
almost $26 Billion. The mobile data business for the US was
around $1 Billion a decade ago.
ARPU
-
The Overall ARPU declined by $0.15. Average voice ARPU
declined by $0.64 while the average data ARPU grew by $0.48
or 2% Q/Q.
-
The average industry percentage contribution of data to
overall ARPU is now at the 44% mark in Q4 2012 and is likely
to exceed the 50% in 2013. All the top three US operators
are over the 45% mark. (For reference, all three major
Japanese operators are now over the 60% mark).
Subscribers
-
The US operators added 2.3M postpaid subs and approximately
3M total. It was the lowest net-adds Q4 quarter in the US
mobile history (barring the early days of tepid growth)
-
T-Mobile’s postpaid woes continued for the tenth straight
quarter.
-
Verizon led the market with 2.2 M net-adds accounting for
73% of the market’s net-adds. It was followed by AT&T at
1.1M, and T-Mobile at 61K. Nextel continues to drag Sprint’s
postpaid additions. Sprint is expecting the transition from
Nextel to Sprint to be complete in the next few months.
-
For the last three years, at AT&T, the connected device
growth had exceeded that in the postpaid segment. In Q4 12,
postpaid share increased significantly as the connected
device growth slowed primarily due to shared data plans and
tablet users becoming postpaid users.
Applications and Services
-
The market is finally starting to see activity in the mobile
commerce and payment services as well as in various industry
verticals like healthcare, retail, and education.
-
The cloud and security segments have also gained significant
traction with incumbents as well as startups launching new
initiatives and technologies.
-
Q4 2012 again saw tremendous activity in the mobile commerce
and payments space with a lot of announcements from the
operators, Internet players, and startups as well as the
retailers and the ecommerce players. All are vying for a
piece of the mobile wallet. Much more to come in the next 12
months.
Handsets
-
Smartphones continued to be sold at a brisk pace accounting
to almost 84% of the devices sold in Q4 2012.
-
iPhone dominated smartphone sales for Q4 as well as the full
year of 2012. In Q4, iPhone accounted for 59% of the total
smartphone sales at the top four operators. For the year,
its tally was over 51%.
-
At the end of 2012, Samsung now leads 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 in Q4 2012
but the sales in the US market were disappointing for just
over 1M in unit sales for the full year.
-
Apple’s iPhone sales almost doubled in Q4 from Q3 but the
company faces significant innovation and perception
challenges as it prepares for its product launches in
2013.
-
AT&T continues to dominate the connected devices segment
with over 47% market share.
-
Verizon continues to sell more LTE smartphones as its LTE
sub tally rose to 21.6M 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 50% of
its total data traffic is on the LTE network now.
-
There is always a beauty contest amongst operators as to who
sold more iPhones. AT&T again bested its rivals by selling
roughly 50% of the iPhones in the US.
Mobile Data Growth
-
The smartphone data consumption at some operators is
averaging close to 1 GB/mo. Some devices are averaging close
to 2 GB/mo. As we move into 1GB range along with the family
data plans kicking in, you can expect the data tiers to get
bigger both in GBs and dollar amount.
-
While the spectrum debate rages on, in addition to the
network and backhaul upgrades, policy management and data
offload have emerged as top two solutions that operators
deploying around the world. Signaling management solutions
like Diameter routing are also getting good traction.
However, a long-term video solution is still elusive. As we
have been saying in our Yottabyte series of research papers,
a comprehensive solution strategy is needed to effectively
manage margins/bit.
Intellectual Property/Patents
-
Samsung was the leader in the mobile patents granted in 2012
in the US and that propelled the company to the top ranking
in overall patents (1996-2013). Samsung was followed by IBM,
Sony, Microsoft, RIM, LG, Qualcomm, Ericsson, Panasonic,
Alcatel-Lucent, and Nokia for the top 10 companies by mobile
patent grants in 2012.
-
The top 5 categories for patents grants in the US for 2012
were Telecommunications, Digital Multiplexing, Digital
Processing – Data Transfer, Digital Processing – Financial,
and Digital Processing – Databases.
-
The top 5 filers of mobile patents in the US were IBM,
Microsoft, Samsung, Qualcomm, and Sony. Apple made it to top
10 for the first time on the strength of its patents filed
in the computer graphics processing category.
Your feedback is always welcome.
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 May
2013. The next Global Wireless Data Market update will be issued
in Apr 2013.
Disclaimer: Some of the companies mentioned in this survey are our
clients.
