Us wireless market q1 2011 may 2011 - chetan sharma consulting


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US Wireless Data Market Update Q1 2011 from Chetan Sharma Consulting

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Us wireless market q1 2011 may 2011 - chetan sharma consulting

  1. 1. US Wireless Data Market Q1 2011 Update
  2. 2. US Wireless Market – Q1 2011The US wireless data market grew 4% Q/Q and 23% Y/Y to reach $15.4B in mobile data service revenues in Q1 2011 and is on course toincrease Y/Y by 22% to $67B in 2011. Of all the segments, the connected device category registered the highest growth at 9.6% Q/Q whilethe postpaid subscriptions growth was almost flat for the quarter. Connected devices (including tablets, M2M, telematics, eReaders, etc.)now account for 8% of the subscription base. For the first time, the smartphone sales crossed the 50% share mark in the US. Also, the USnow accounts for approximately one-third of all smartphone sales in the world.The Big News - AT&T’s proposed acquisition of T-MobileThe big news during Q1 2011 was of course the blockbuster announcement of the acquisition of T-Mobile USA. We had pondered on theviability of 4 operators in the US market in the past. All the major mobile market eventually settle with three main players controlling themarket. So, the news wasn’t a surprise as we had expected something to break loose and conform to the natural market evolution. T-MobileUS has been under tremendous pressure for the last 2 years being unable to expand its postpaid base despite modernizing itsnetwork/backhaul and introducing a slew of impressive handsets. It was getting squeezed both from the top (Verizon and AT&T) and fromthe bottom (MetroPCS, etc.) while duking it out with Sprint in the middle. The decision window was closing as Deutsche Telekom had todecide if it wanted to invest in LTE or not (in the US market). Given that the parent business has been under pressure as well, it decided totake the most attractive available option.The proposed merger will obviously have an impact on the market structure. The market power will get concentrated in the top 2. The HHI3Index will go from .22 to .31 but the HHI3 value will be at par with UK, Canada (though the Canadian market is not a good proxy for acompetitive market), and some of the other markets. The biggest task for the US regulators will be to analyze the impact on the consumerinterest and service pricing on a market-by-market basis.Putting things into perspective, this move is not unusual for a developed market. On average, the top 3 operators in the developed marketsaround the world control 94% of the market. The proposed merger roughly resembles the merger that took place in UK last year when T-Mobile and Orange, the number 3 and 4 player (each having approximately 19% of the share) respectively in the market merged to formEverything Everywhere and become the number 1 player in the market with 38% market share.However, if we look at the history of competitiveness in the US mobile market, the market and revenue concentration will be at its highest inthe history of the US wireless industry. Such a move is likely to have an impact on the ecosystem depending on the regulatory policies.Last month, we published a first of its kind in-depth study on competition in mobile markets - “Competition and the Evolution of MobileMarkets - A Study of Competition in Global Mobile Markets”. The paper presents the analysis and an in-depth analytical framework to studythe competitive landscape in the global mobile markets. 2 © Chetan Sharma Consulting, All Rights Reserved May, 2011
  3. 3. US Wireless Market – Q1 2011Transparency as a competitive advantageAn unfortunate side effect of an industry moving too fast is that regulations are often behind the curve (we discuss the role of regulators inour Competition paper mentioned above). Q2 will see a lot of heated debates around privacy and competition. Current regulatory frameworkin the US seems ineffective to meet the demands of the digital age. The indecision and a weak regulatory framework can be harmful to theecosystem. While the industry has done a poor job of explaining targeting and relevancy and the associated consumer benefits, by overreacting, regulators can mess up the potential for better services. It is not the mechanics they need to regulate but the “transparency” ofservices and policies in plain English. Regulating transparency seems to be a more effective way. The ecosystem players will do better if theyuse transparency not as a threat but as a competitive advantage.The new troika - AAGA couple of years back, I gave a talk about the changing mobile ecosystem and what it means to compete in an environment where theecosystem stacks get reshuffled every few months. I wrote about that in an essay that was published in the Mobile Future Forward book lastyear. While innovation is coming from all angles - fast and furious - the troika of Apple, Amazon, and Google is leading the way right now.Their interests are clashing in multiple dimensions - device, user data, cloud, advertising, local, commerce, books, etc. In a fast changingenvironment, either you define the market or be defined by it. The journey from being an arch-rival to a frenemy (and vice-versa) can be ashort one.A significant shiftAs we mentioned in our last research note, 2010 marked the milestone of the start of a new computing and communications era. For the firsttime in the US, the smartphones shipments exceeded the traditional computer segments (that consists of desktops, notebooks and netbooks).Smartphones and the connected devices now account for 51% of the computing devices revenue in the US (devices include desktops,notebooks, netbooks, tablets, eReaders, and conventional feature and smartphones)The growth in of connected devicesThe connected devices category is the fastest growing segment of the market and while the ARPUs are low, due to the higher margins thissegment will prove to be the most profitable in the coming years. By the end of 2011, connected devices will be commanding double digitmarket share. However, not all sub-segments are going to be successful in the operator channel until multi-device data pricing plans areintroduced. Apple’s iPad has been, as expected, a runaway success. Several other tablets launched in 2011 but none has come close to being acredible challenge. OEMs will do well to segment the market and price accordingly rather than follow Apple in performance and pricing.Market is fairly young and there is tremendous room for growth. Another trend that is obvious is the development of an alternate ecosystem.85% of the tablets use primarily use WiFi for connectivity meaning that OEMs need more diverse distribution channels. Operators who startto bundle multiple devices by single data plans and data buckets are going to see a better yield in this category.We do expect multi-device or family data plans to start being introduced in the US market in 2011. Also, the $200-250 Android tablets will 3start to emerge during the second half of the year to broaden the choices for the consumers. Sharma Consulting, All Rights Reserved © Chetan May, 2011
  4. 4. US Wireless Market – Q1 2011Turmoil in the OEM landAnother headline grabbing event in Q1 2011 was that of Microsoft’s partnership with Nokia. Nokia’s lack of a credible response to Apple and Androidhas left the company scrambling for survival. Nokia still dominates the unit sales but the domination of Apple and the Android OEMs has taken awaysignificant profits and ecosystem mindshare. Industry is awaiting the first release of the Windows phone from Nokia which will have a lot riding on it.If the release of iPhone 5 coincides with this release, the Christmas selling season will be interesting.The OEMs that have impressed the most are HTC and Samsung. The collapsed release cycles and the fierce pace of introduction of new devices havecaught many of the traditional players unprepared. These things have a tendency of going in cycles so we expect the pendulum to swing again in thenext 12-24 months.There is a fight for the #3 spot and it is likely that Windows will fill that void. However, for developers, iOS and Android are the only platforms theyneed to worry about right now.Verizon finally got its iPhone and as expected it didn’t make a big dent into the AT&T’s financials.Platforms - Horizontal vs. VerticalOver the past few quarters, we have seen a fascinating battle brew between the horizontal (Android and Windows) and the vertical (Apple, RIM,Nokia) device platforms. In the US, in the smartphone category, the horizontal platforms (primarily Android) has been gaining significant share sinceQ1 2010 and now have over 65% share of the new devices sold while the vertical platforms’ share has declined to 35%. However, the revenues andprofits are still dominated by the vertical platforms.What to expect in the coming months?All this has setup an absolutely fascinating 2011 in the communication/computing industry. Convergence is everywhere and is leading to afundamental 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 nextdecade in our Sept 12th mobile thought leadership summit – Mobile Future Forward which is bringing exceptional industry thought-leaders, inventors,and doers to brainstorm, discuss, and debate what’s next. Hope you can join us.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 andpublic settings. 4 © Chetan Sharma Consulting, All Rights Reserved May, 2011
  5. 5. US Wireless Market – Q1 2011Service Revenues• The US Wireless data service revenues grew 4% Q/Q and 23% Y/Y to $15.4B in Q410. The mobile data services revenues for the US market are expected to reach $67B in 2011.• Verizon and AT&T had a good mobile data quarter accounting for 76% of the increase in data revenues in Q1 2011.• T-Mobile’s HSPA+ drive is starting to pay dividends. While the postpaid net-adds were still in the red, its data growth is starting to match with its peers. The 27% smartphone base definitely helps.• For the quarter, AT&T and Verizon accounted for 69% of the market data services revenues and 65% of the subscription base.• AT&T edged past China Mobile to become #3 operator by mobile data revenues. Verizon is already at #1 followed by NTT DoCoMo. Sprint and T- Mobile maintained their #6 and #8 rank in the top 10 mobile data operators list for Q1 2011. The proposed merger of AT&T and T-Mobile will make AT&T #1 by a distance and place 20% of the global mobile data revenues in the hands of the top two US operators.ARPU• The Overall ARPU increased by $0.11. Average voice ARPU declined by $0.36 while the average data ARPU grew by $0.47 or 3% Q/Q.• The average industry percentage contribution of data to overall ARPU was 35% in Q111 and is likely to touch 40% by year’s end.• Verizon and Sprint were neck-and-neck in data ARPU followed by AT&T. In terms of % contribution, all the top three operators exceeded the 30% mark. T-Mobile ended the quarter with approximately 29% of its revenue coming from the data services.• We expect data revenues to exceed voice revenues in the US market before Q2 2013.Subscribers• Helped by the growth in connected devices, the overall net-adds increased by 4.9M.• For the sixth straight quarter, AT&T reported more net-adds from connected devices than postpaid subs. Connected devices are now almost 12% of AT&T’s subscription base.• Overall, AT&T has 43% of the connected device share of the market. The connected device segment grew 9.6% Q/Q and 48% Y/Y.• Sprint is on good comeback adding over million customers. Sprint extended its streak of positive net-adds to four quarters by adding over a million subs for the second straight time since Q1 2006.• T-Mobile however continues to be sandwiched between the top three and the next three and is having a hard time adding postpaid subscribers.Applications and Services• While the percentage share of the data revenues is declining for messaging, the revenue growth stays strong with almost $5B in revenues.• 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 fight for the 3% block is finally in the open. Operators, financial institutions, and the internet players are all vying for a piece of the mobile wallet. Much more to come in 2H 2011. 5 © Chetan Sharma Consulting, All Rights Reserved May, 2011
  6. 6. US Wireless Market – Q1 2011Handsets• Nokia sold 108.5M units in Q1 2011 accounting for 28% of the market share. Samsung continues to be one of the most agile players in the device business shipping 70M for a 18% share of the market. The nimble team at HTC outclassed its bigger peers and edged past Nokia in market cap.• In the US, for the first time, 51% of the devices sold were smartphones. Global average is at 26%. One-third of all smartphones sold were sold in the US making it the hot bed for consumer devices.• Smartphones now account for 80% revenue of all phones sold in the US.• In the vertical vs. horizontal platform battle, the ecosystem is shifting towards horizontal domination in the near-term (units sold) while a majority of the profits reside in the vertical column.• 85% of the tablets use WiFi only (some have inactivated cellular chipset) meaning the operator channel is not a necessary distribution channel. Operators who start to bundle multiple devices by single data plans and data buckets are going to see a better yield in this category.Global Update• Race to a billion - India went past 800M in Q1 2011 subs and is closing on China and we expect that by the end of the year, India will become the largest mobile market on the planet. By early 2012 both India and China will have more than a billion subscriptions.• China Mobile crossed the 600M subscription mark however its 3G introduction has had a tepid response thus and its 4G strategy remains in flux.• More details to come in our global market update.Your feedback is always welcome.Thanks.Chetan SharmaWe 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 Aug 2011. The next Global Wireless Data Market update will be issued in Jun 2011.Disclaimer: Some of the companies mentioned in this paper are our clients. 6 © Chetan Sharma Consulting, All Rights Reserved May, 2011
  7. 7. US Wireless Data Service Revenues 7 © Chetan Sharma Consulting, All Rights Reserved May, 2011
  8. 8. US Wireless Carriers: Data ARPU Trends 8 © Chetan Sharma Consulting, All Rights Reserved May, 2011
  9. 9. US Wireless Carriers: Data ARPU Trends 9 © Chetan Sharma Consulting, All Rights Reserved May, 2011
  10. 10. US Wireless Carriers: Data ARPU Trends 10 © Chetan Sharma Consulting, All Rights Reserved May, 2011
  11. 11. US Wireless Carriers: ARPU Trends 11 © Chetan Sharma Consulting, All Rights Reserved May, 2011
  12. 12. Connected Device Growth 12 © Chetan Sharma Consulting, All Rights Reserved May, 2011
  13. 13. US Wireless Carriers: Net Adds Share 13 © Chetan Sharma Consulting, All Rights Reserved May, 2011
  14. 14. US Market: Carrier Market share (2011) 14 © Chetan Sharma Consulting, All Rights Reserved May, 2011
  15. 15. Mobile Network Traffic Growth 15 © Chetan Sharma Consulting, All Rights Reserved May, 2011
  16. 16. Impact of iPhone 16 © Chetan Sharma Consulting, All Rights Reserved May, 2011
  17. 17. Connected Devices providing majority of the unit growth 17 © Chetan Sharma Consulting, All Rights Reserved May, 2011
  18. 18. Mobile devices dominate the computing ecosystem 18 © Chetan Sharma Consulting, All Rights Reserved May, 2011
  19. 19. Comparing Mobile MarketsThis is from our extensive research study – “Competition and the Evolutionof Mobile Markets” available at 19 © Chetan Sharma Consulting, All Rights Reserved May, 2011
  20. 20. Evolution of the US Mobile MarketThis is from our extensive research study – “Competition and the Evolutionof Mobile Markets” available at 20 © Chetan Sharma Consulting, All Rights Reserved May, 2011
  21. 21. Majority of the devices sold in the US now are smartphones 21 © Chetan Sharma Consulting, All Rights Reserved May, 2011
  22. 22. Horizontal platforms dominate 22 © Chetan Sharma Consulting, All Rights Reserved May, 2011
  23. 23. Top Carriers by Wireless Data Revenues 23 © Chetan Sharma Consulting, All Rights Reserved May, 2011
  24. 24. Race to the first billion 24 © Chetan Sharma Consulting, All Rights Reserved May, 2011
  25. 25. Sept 12th 2011 Inspiration to What’s Next Exceptional People, Extraordinary Insights Inquiries: facebook: chetansharma 25 © Chetan Sharma Consulting, All Rights Reserved May, 2011