Market Update - Q4 2013 and 2013
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US Mobile Market
Update - Q4 2013 and 2013
US mobile data service revenues grew 5% Q/Q and 20% Y/Y to
$24.8B in Q4 2013. For the year 2013, US mobile data market
reached $90 billion in 2013. In Q4 2013, the mobile data
revenues also eclipsed the 50% mark meaning that more than 50% of the
mobile services revenues is now coming from data services – an
important milestone. In 2014, we expect US to become the first
country to cross the $100B mark in mobile data services revenue. We have
also started to see digital services appear in the revenue maps
as more companies rely on mobile to generate their revenues.
US operators added 12M+ new subscriptions in 2013 with a
majority of them coming from non-phone devices. Verizon led with
36% share followed by T-Mobile at 34%.
expected, iOS bounced back and edged past Android with 49% share
of smartphones sold in Q4 2013. For the year, iOS and Android
were practically even at 48% each with crumbs left for the rest.
Smartphone penetration increased to 66% and roughly 92% of the
devices sold now are smartphones.
Mobile Data Services Revenue: The Journey to $100 Billion
US mobile market is by far the most dominant right now in terms
of revenues and innovation across the stack. It wasn’t always
like that. After inventing the industry, US lost the initiative
to Japan and Europe until 2006-7 when the confluence of the
iPhone, broadband networks, and robust applications ecosystem
tilted things towards the US. Ever since, the US market has been
on a rampage. And mobile data has been fueling this resurgence.
In 2002, the mobile data market was approximately $1B. In 2014,
US will become the first nation to cross the $100B mark in
mobile data revenues. The next two nations are China and Japan,
which are quite a bit behind. Having a 22% share of the data
revenues gives US quite a bit of leverage over the ecosystem.
2004, mobile data contributed only 4% to the overall services
revenues. In Q4 2013, the industry crossed the 50% mark for the
first time. In the process, it became the 7th nation
to do that. Japan was the first to cross in 2011 (Philippines
has been outlier and a unique case study where approximately 50%
of the revenue come from messaging).
Japan clearly showed the way with iMode, 3G, and digital
services but US has taken over the mantle in data services. It
doesn’t mean that US is most progressive on every metric. South
Korea is much further ahead in the LTE network performance while
some other nations score better on pricing (though on the metric
of consumer mobile spend as a percentage of GDP per capita, US
is #2 behind UK). Comparing nations in mobile often becomes a
political, emotional, and irrational exercise in the industry.
Like Hawking’s Black Hole theory, it’s complicated. Perhaps, it
is a topic for a future paper.
US mobile services market hasn’t seen many skirmishes until
T-Mobile “uncarrierized” the industry with a series of pricing
adjustments that has made everyone take notice. We have been
witnessing new pricing plans virtually every week in Q1 2014 and
consumers (and media) love it. T-Mobile also changed the device
subsidy equation in operator’s favor and OEMs saw the impact
first-hand in Q4 2013. More of that will happen in 2014 as
consumers start to do the math of decoupling the device cost
with the services expense. It helps lower the subsidy burden for
the operators but then “churn management” becomes a big issue.
saturated market, once a player decides to operate at a lower
operating margin, it triggers the value destruction in the
industry, which can be sometimes devastating to incumbents. Good
examples are: Reliance, Softbank, and Free. Reliance in India
changed the landscape in 2002 by introducing really low voice
plans and the industry is still recovering from that disastrous
dip (Indian market is obviously far complicated due to a host of
other reasons but Reliance pricing changed the market).
Similarly, in 2012, Free in France decided that it doesn’t need
to operate at 30-40% margins and can change the industry by
operating at 20% margin. Result, in the first year, it gained 8%
market share and all the three incumbents had a net-10%+ decline
in revenues in 12 months. In 2008, Softbank in Japan managed to
snag iPhone exclusivity and lowered its data pricing to undercut
the two incumbents and over the last 3-4 years has completely
changed the market – a strategy it is trying to replicate in the
While operators had to work harder for every dollar they earned
in 2013, the impact of T-Mobile’s strategy wasn’t really felt in
the financials in 2013. AT&T’s revenue increased 5% and the ARPU
was stable. Verizon was the one least impacted in 2013 with 6%
increase in revenue and over $64B in postpaid revenue. Sprint
which is going through its own resurgence story while
undertaking a massive network upgrade plan probably saw the most
impact with flat overall revenue growth.
However, T-Mobile’s strategy isn’t without risks. One of the
most fundamental problems is that it is not that defensible in
the long-term (compared to say a better network, exclusive
handsets, or new products). Right now customers are primarily
switching to T-Mobile based on pricing, meaning once other
operators (of course a big IF) get close to their pricing, other
factors start to matter again like network quality and coverage.
In 1-2 years, all four operators are likely to have similar LTE
coverage and reliability. Devices are no longer a
differentiating factor for the operators, so it might come down
to the their investments in the 4th wave. Operators
left standing without any strategy or investment will be
exposed. Paraphrasing the oracle of Omaha - “When the pricing
tide goes out, it will be clear who’s been swimming naked.”
2-3 quarters will be critical to see how close other operators
want to come to T-Mobile’s pricing (and cost structure) which
will depend on how much are they hurting on a Q/Q basis. If and
when others match T-Mobile in pricing, T-Mobile will have to
lower the prices further else the influx of net-adds could stop.
To get a sense of the risk, consider this – just to be able to
maintain the same level of postpaid revenues every quarter,
T-Mobile might have to add 800,000 customers every quarter
(assuming same level of decline in ARPU every quarter and stable
churn rates). If it doesn’t, it will start to see the erosion in
revenue. To maintain its margin, it will have to further
pressure the operations and its vendors.
leads to another observation – the coming squeeze on the
infrastructure and OEM space. Given that operator’s margins and
revenues are under tremendous pressure, it will have a natural
trickle down effect. Lot of infrastructure and OEM contracts
will be up for renegotiation and operators will be rethinking
their strategic roadmaps. We got some glimpse of that at MWC
where operators are asking for more flexible SDN/NFV deployments
at every level, which will put pressure on traditional box
providers and provide new opportunity for innovative startups.
T-Mobile’s impact is not only being felt in the US but also
around the world as other operators (typically #3 or below) look
to shake things up. The roaming revenue is likely to take a hit
course, all this shouldn’t be a surprise to the
students of the 4th wave.
What’s Next For Microsoft?
Steve Ballmer announced his retirement, Satya was the only
choice for the top job. An outsider would have been a disaster,
and others within Microsoft had perceived or real issues in
leading an organization of the size and impact of Microsoft. The
support from Bill Gates pretty much sealed the deal early in the
process. Rest was just formality. But what next? How does
Microsoft reassert itself in the “Mobile First, Cloud First”
world where the landscape is constantly shifting and Microsoft
doesn’t have the control, the loyalty, or the product roadmap to
keep the developers, users, and partners focused on the windows
story. Having acquired Nokia cheaply, how does it ensure it is
an asset and not a burden? As I have mentioned several times
before, Microsoft made a series strategic blunders but is
learning and course adjusting to the new reality where it is no
longer the center of the tech universe. It won’t be easy and it
will require Satya to articulate a 5-10 year vision that enables
to become a key participant in the mobile economy.
Microsoft has significant assets and leverage in the enterprise
world; it has been making steady progress in some regions with
the windows devices. I have seen large organizations slow down
on their research->prototype->product cycles. There are too many
committees, too much frivolity around launching the perfect
product in a perpetually beta world. Microsoft needs to unleash
its Research into Products and bring partners and consumers into
the process early in the process. If it isn’t able to manage
that transition, despite generating one of the biggest profit
streams in the industry, it will be relegated to the status as
an old grumpy man catering to the niches. Unlike the desktop
world, mobile ecosystem is big enough that having a base of 1B+
can generate good revenue and goodwill streams.
Facebook, Whatsapp, and the future of communications
covered this in my MWC note last week so won’t spend too much
time discussing the reasons and the ramifications except that if
the deal was a surprise to you, you haven’t been paying
attention or internalizing the
implications of the 4th wave.
Google’s love affair with Motorola
Google is a brilliant strategist. It is often misunderstood but
even the mighty Google can get infatuated with strategies that
don’t bear fruit. Motorola’s acquisition was circumstantial and
done to defend Android, which feeds lucrative revenue streams to
the mothership. In the process, it developed the itch to become
a device maker without having much appreciation of what does it
actually take to be an OEM. Google satisfied its itch and have
better appreciation of the work its partners do for Android. The
lesson cost a mere $2B and it acted decisively to unload
Motorola to Lenovo, which needed a break to make a move into the
have maintained for many years that Sprint and T-Mobile will
merge. The timing is uncertain because it depends on multiple
variables. It also doesn’t help the case that T-Mobile has been
busy changing the industry which regulators and customers love.
So, will it happen? Short answer is yes but we might have to
wait for a bit.
of the lifelines thrown recently was that from Comcast-Time
Warner proposed acquisition. The probability that it will be
blocked is lower than the Jamaican bobsled team winning the
Olympic Gold in PyeongChang (though it will receive serious
scrutiny from different quarters). Granted the cable and mobile
industries are quite different in their structure, if regulators
start allowing 1-2 combinations, how can they stop 3-4 mergers.
Looking at the merger equation strictly through HHI can also
lead to incorrect conclusions. It is a multi-dimensional
question which we covered in our paper “Competition
and the Evolution of Mobile Markets”
and will have more to say in the coming days.
What to expect in the coming months?
2013 has been quite a year for the mobile industry and 2014
promises to be full of action as well. We have already seen some
massive moves, astounding acquisitions, and interesting
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 2013 and 2013 US
wireless data market is:
The US mobile data service revenues grew 5% Q/Q and 20% Y/Y
to $24.8B in Q4 2013. For the year 2013, US mobile data
market reached $90 billion in 2013.
In 2014, we expect US to become the first country to
generated $100B from mobile data services.
Verizon and AT&T dominated the quarter accounting for 68% of
the mobile data services revenue and had 67% of the
Verizon and AT&T are at #2 & #3 global mobile data revenue
ranking respectively in Q4 2013. Sprint and T-Mobile also
maintained their rankings in the top 10 global mobile
- Revenue from
new subs has declined to roughly 2%.
The Overall ARPU declined by $0.39. Average voice ARPU
declined by $1.51 while the average data ARPU grew by $1.13
or 5% Q/Q.
As predicted, the average industry percentage contribution
of data to overall ARPU is now at the 50% mark in Q4 2013.
US became the 7th nation to achieve this feat.
Japan at 70% leads the industry.
The US operators added 4.6M net-adds a sharp reversal from
the first half of 2013. Verizon and T-Mobile led with over
1.6M subs, followed by AT&T and Sprint.
T-Mobile’s postpaid continued to see the positive growth for
the third straight quarter, though Verizon was a clear
leader of the quarter with 1.6M net-adds. However, T-Mobile
had more postpaid net-adds than both AT&T and Sprint.
Sprint continued its losses in the postpaid segment. In
2013, T-Mobile has started to break-away from Sprint in
cumulative postpaid net-adds with positive growth.
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. 46% of
postpaid accounts at Verizon are now on shared plans. 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 Wi-Fi solutions.
The mobile data consumption per capita grew from 690 MB to
4th Wave Progress
The number of players making $100M/quarter on mobile
continues to increase rapidly and these aren’t your
traditional wireless players. Mobile is now contributing 53%
or $1.24 Billion to Facebook’s quarterly revenues. Latest
addition to the club is Twitter which is now doing
$165M/quarter or 75% in mobile (of the total advertising
revenue). There are now dozens of such players and the list
is just growing. (for more discussion on the topic please
4th Wave: Evolution of the Next Trillion Dollars”)
In 2013, we are also seeing continued investments from the
operators especially AT&T and Verizon in non-traditional
segments like home security, healthcare, insurance,
automotive, enterprise mobility 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.
devices (non-phones) accounted for a whopping 89% of the
net-adds in 2013. 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 quite low, in
fact, the phone net-adds declined by 78% YoY while the
connected segment (including tablets) grew 42%.
Tablets form 49% of
the connected devices sold.
For the year,
connected devices segment grew 13%.
will be hosting
on IoT: IoT Americas in Seattle on March 18th and IoT
Europe in London on June 17th.
Smartphones continued to be sold at a brisk pace accounting
almost 92% of the devices sold in Q4 2013.
The smartphone penetration in the US is now 66%.
As expected, iOS bounced back and edged past Android with
49% share of smartphones sold in Q4 2013.
Due to changing operator policies, smartphone sales declined
YoY for the first time since 3Q 2012.
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 2%. (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 43M 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 69% of
its total data traffic is on the LTE network now, clearly
the fastest technology transitions we have seen in the US
Verizon and AT&T sell more iPhones than Android while it is
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. AT&T again bested its rivals by selling
roughly 39% of the iPhones in the US (Source: ITG Research).
In terms of Q/Q growth, Connected Devices segment grew 6%,
Wholesale -1%, Postpaid 1, and Prepaid 2%.
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.
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
May 2014. The next Global Wireless Data Market update will
be issued in May 2014.
Disclaimer: Some of the companies mentioned in this