Us wireless market q4 2010 and 2010 update feb 2011 - chetan sharma consulting


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US Mobile Market Update for 2010 by Chetan Sharma Consulting

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Us wireless market q4 2010 and 2010 update feb 2011 - chetan sharma consulting

  1. 1. US Wireless Data Market Q4 2010 and 2010 Update
  2. 2. US Wireless Market – Q4 2010 & 2010 UpdateThe US wireless data market grew 5% Q/Q and 23% Y/Y to reach $14.8B in mobile data service revenues in Q4 2010. The final tally for the2010 year was $55B and we expect this to increase by 22% to $67B in 2011.The US mobile subscriptions officially crossed the 100% penetration mark in Q4 2010.Of all the segments, the connected device category registered the highest growth at 55% while the postpaid subscriptions grew by only 3%for the calendar year. Connected devices (including tablets, M2M, telematics, eReaders, etc.) now account for 7% of the base.A significant shift2010 marked the milestone of the start of a new computing and communications era. For the first time in the US, the smartphonesshipments exceeded the traditional computer segments (that consists of desktops, notebooks and netbooks). In 2011, the smartphonesegment along with the connected devices (tablets and eReaders) will not only exceed the computer segment in unit shipment but moreimportantly in the overall revenues as well. Of course, these categories are merging and the lines are blurring but it is good to take stock ofthe transition which will create new ecosystems and decimate the old ones over the course of this decade.The evolution of connected devicesThe connected devices category is the fastest growing segment of the market and while the ARPUs are low, due to 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. Most of the tablets and eReaders can work well with only WiFi most of the times. Monthly data plans make sense for enterpriseusers but not for consumers who might use these devices occasionally. As such tablets will be more successful in direct and traditional retailchannels.Operators who start to bundle multiple devices by single data plans and data buckets are going to see a better yield in this category (We willbe discussing the connected devices universe in our upcoming Mobile Breakfast Series event in April).Similarly, OEMs who rely on the operators for sell-through of tablets/eReaders will see low volumes vs. players who have more diversedistribution channels (Apple and HP). We do expect multi-device or family data plans to start being introduced in the US market in 2011.As we had mentioned in our last research note, iPad (and other tablets) are making Netbooks irrelevant. In fact, tablets are starting to eatinto the laptop category as well. As expected, the device has been a hit with many enterprises with mobile workers. Many enterprises aregiving out iPads to their workforce instead of laptops or Netbooks.At CES 2011, hundreds of tablets were introduced. While the total number of releases was noteworthy, we expect iPad to dominate thespace in 2011 as competitors will find it hard to compete across all dimensions - price, performance, ecosystem, distribution, and brandpower. 2 © Chetan Sharma Consulting, All Rights Reserved Feb, 2011
  3. 3. US Wireless Market – Q4 2010 & 2010 UpdateMobile Data ConsumptionMobile data consumption continued to grow across all networks increasing 2-5 times on major US networks. Many of the superphonesintroduced in 2H10 are clocking 1-1.5GB/mo average. The average data consumption in the US at the end of 2010 was 350 MB/mo. Thus,while the data revenues for the year increased 23%, the mobile data traffic grew 132%.The significant rise in the smartphones sales and usage in the US market (over 50% devices sold in the US in 2010 were smartphones almosttwice the global average) means that by the end of 2011, in the US, the smartphones will consume more data than the data cards for the firsttime. We also expect US to become the number 1 nation in mobile data consumption this year edging out Sweden. A detailed treatment of thesubject can be found in our "Managing Growth and Profits in the Yottabyte Era" paper. Another research update on the topic will be released in1H11.The center of gravity has shifted back to the USAs I mentioned in my Time magazine interview earlier this month, there is no question that the center of gravity of the mobile market hasshifted back to the US. The Nokia-Microsoft announcement was a wake-up call to many in the industry who were in denial. The innovation ishappening all around the world and in many areas other countries are years ahead. The markets are growing faster in India, China, andelsewhere. However, the coordinates of what’s next have clearly changed in the last three years. The software innovation and the nextgeneration network launches in the US are laying the foundation of a solid mobile decade.US is also the most dominant market in terms of revenue generation for the industry. While the US represents less than 6% of thesubscription base, it accounts for over 21% of the data revenues with Verizon Wireless becoming the number one mobile data operator in2010 edging past the decade long leader NTT DoCoMo. AT&T also went past China Mobile to gain its current number three ranking. By theend of 2013, the US market will account for 25% of the global mobile data services revenues (We will have a detailed analysis of the globalmarkets in our upcoming research note in march).Nokia-Microsoft partnershipNokia’s market problem can be summed up thusly - “While Nokia sold 10 times more devices than Apple in 2010, its market cap is 1/10th that ofApple.” It has been clear for some time that things had to change at Nokia.Weeks leading up to the Mobile World Congress were rampant with curiosity of who will Nokia marry to continue its next phase of devicejourney. The multi-billion dollar offering from Microsoft proved too hard to resist for Nokia. This news completely dominated the MWCchatter and the topic comes up invariably in many conversations since then. One has to give points to Nokia for decisiveness and for movingquickly under the pressure.It is also indisputable that the deal is a significant win for Microsoft who has been looking to come back into the game. However, impact onNokia remains uncertain. While there were risks with Android, going with Win7 is not an assured path to resurrection either. It all comesdown to execution. Can the troops be rallied to produce a slew of competitive devices quickly that consumers and operators will findattractive? 3 © Chetan Sharma Consulting, All Rights Reserved Feb, 2011
  4. 4. US Wireless Market – Q4 2010 & 2010 UpdateMicrosoft understands developers better than most and the two companies can bring in tremendous scale and complementary toolsets to attack themarket. Nokia has significant talent and it’s a proud company but jumping into the shark-infested cold waters miles away from the shore will requireall the stamina, good weather, and skill it can muster to make landfall before thanksgiving.MeeGo is likely to go back into Intel’s camp and might look interesting to the likes of LG, Samsung and even Motorola though creating a new ecosystemis a tall order. Never a dull moment in the industry, is there?Impact of iPhone on AT&TIt finally happened. The Verizon iPhone has kept the media busy for the last 3.5 years. It was quite an anticlimactic moment when the device finallycame to the 2nd operator in the US. It was inevitable that one of the longest exclusive relationship in the wireless world will come to an end. TheiPhone singlehandedly turned around AT&T relative to Verizon in the net-adds race. For 10 quarters leading up to Q2 2007, AT&T was adding less net-adds compared to Verizon, in fact the cumulative net-add loss was 3.7 million subs on an average of 374,000 subs per quarter. As soon as the iPhonewas launched in Q2 2007, AT&T started adding more net-adds compared to Verizon with the 13 quarter cumulative net-add difference close to 6million subs on an average of 426,000 subs per quarter.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.Android and iOS are completely dominating the developer and ecosystem mindshare and the race to become a viable 3rd option is on. Operatorswould love to see another competitive force emerge in the market.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 15th 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. More details to come.US is also leading the way in smartphone sales. In Q4 2010, 48% of the devices sold in the US were smartphones compared to 25% globally. The fastpace of device introduction has catapulted the agile players like Samsung and HTC to the forefront while others like LG and Sony Ericsson have lostground. By singularly focusing on Android, Motorola did quite well in 2010 but 2011 is going to be challenging.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. The competition hasgrown fierce and companies are finding it hard to take ideas from R&D to products in market in a short amount of time.settings. 4 © Chetan Sharma Consulting, All Rights Reserved Feb, 2011
  5. 5. US Wireless Market – Q4 2010 & 2010 UpdateWhile 2010 started quite active on the regulatory front as the national broadband plan was unveiled in March little substantive progress has beenmade w.r.t. the spectrum, net-neutrality, and other broadband related issues. The matter has swiftly moved to courts where it will take monthsbefore anything useful comes out.Operators are starting to diversify more aggressively than in the past. AT&T’s mobile enterprise business is a leading indicator of this trend. Theirfocus by verticals has yielded new revenue streams and positioning them to become a one-stop shop for devices, access, and services in theenterprise market.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.Against this backdrop, the analysis of the Q4 2010 and 2010 US wireless data market is:Service Revenues• The US Wireless data service revenues grew 5% Q/Q and 23% Y/Y to $14.8B in Q410. The mobile data revenues for the US market reached $55B in 2010.• Verizon, AT&T, Sprint had a good mobile data quarter accounting for 86% of the increase in data revenues in Q4 2010.• T-Mobile’s 3G/4G 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 24% smartphone base definitely helps.• For the calendar year 2010, AT&T and Verizon accounted for 69% of the market data services revenues and 64% of the subscription base.• Verizon Wireless edged past NTT DoCoMo and AT&T went past China Mobile to become #1 and #3 respectively in operators by mobile data revenues in 2010. Sprint and T-Mobile maintained their #6 and #8 rank in the top 10 mobile data operators list for 2010.ARPU• The Overall ARPU decreased by $0.58. Average voice ARPU declined by $0.90 while the average data ARPU grew by $0.32 or 2% Q/Q.• The average industry percentage contribution of data to overall ARPU was 34% in Q410.• Verizon led in data ARPU with $18.79 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 28% of its revenue coming from data services.• We expect data revenues to exceed voice revenues in the US market by Q2 2013. 5 © Chetan Sharma Consulting, All Rights Reserved Feb, 2011
  6. 6. US Wireless Market – Q4 2010 & 2010 UpdateSubscribers• US crossed the 100% penetration mark in terms of total subscriptions.• Helped by the growth in connected devices, the overall net-adds increased by 4.9M.• For the fifth straight quarter, AT&T reported more net-adds from connected devices than postpaid subs. Connected devices are now almost 10% of AT&T’s subscription base.• Overall, AT&T edged past Verizon in total number of connected devices. The connected device segment grew 9% Q/Q and 55% Y/Y.• Sprint made a nice comeback in 2010 reversing the 11 quarter negative net-adds trend by adding three straight positive net-add quarters. Sprint extended its streak of positive net-adds to three quarters by adding over a million subs for the first 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. For the year, the operator ended the year 390K subscribers (postpaid) below the 2009 levels. It’s churn rate is almost 60% higher than the average of its top competitors and the cost of postpaid churn was over half a billion dollars in 2010. However, the increased smartphone penetration, quick HSPA+ deployment, backhaul upgrades, and a clever marketing campaign is helping on the mobile data front.Applications and Services• While the percentage share of the data revenues is declining for messaging, the revenue growth stays strong with almost $17B in messaging revenues.• In 2010, there was a significant shift that took place in terms of app revenues. There was 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 in 2011.• The usage and data consumption trends are enabling carriers to accelerate their 3.5G/4G plans and develop long-term business and technical strategies.• 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. Much more to come in 2011.Handsets• Nokia sold 123.7M units in Q4 2010 accounting for 31% of the market share. Samsung continues to be one of the most agile players in the device business shipping a whopping 80.7M for a 20% share of the market. Apple again edged past RIM to be in the top 5 along with the new entrant ZTE which broke into the top 5 for the first time. 6 © Chetan Sharma Consulting, All Rights Reserved Feb, 2011
  7. 7. US Wireless Market – Q4 2010 & 2010 UpdateData Traffic• As we noted in our previous updates, the data traffic is now significantly more than the voice traffic. By end of 2010, the average US consumer was consuming approximately 350 MB/mo up 132% 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.• Q4 10 also saw significant activity in the 4G space with Verizon launching its LTE network and after the ITU flip-flop, the HSPA+ deployments of T-Mobile and AT&T Wireless along with Sprint’s WiMAX made US the epicenter of 4G growth for the next few years.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 May 2011. The next Global Wireless Data Market update will be issued in Mar 2011.Disclaimer: Some of the companies mentioned in this paper are our clients. 7 © Chetan Sharma Consulting, All Rights Reserved Feb, 2011
  8. 8. US Wireless Data Service Revenues 8 © Chetan Sharma Consulting, All Rights Reserved Feb, 2011
  9. 9. US Wireless Carriers: Data ARPU Trends 9 © Chetan Sharma Consulting, All Rights Reserved Feb, 2011
  10. 10. US Wireless Carriers: Data ARPU Trends 10 © Chetan Sharma Consulting, All Rights Reserved Feb, 2011
  11. 11. US Wireless Carriers: Data ARPU Trends 11 © Chetan Sharma Consulting, All Rights Reserved Feb, 2011
  12. 12. US Wireless Carriers: ARPU Trends 12 © Chetan Sharma Consulting, All Rights Reserved Feb, 2011
  13. 13. Connected Device Growth 13 © Chetan Sharma Consulting, All Rights Reserved Feb, 2011
  14. 14. US Wireless Carriers: Net Adds Share 14 © Chetan Sharma Consulting, All Rights Reserved Feb, 2011
  15. 15. US Market: Carrier Market share (2010) 15 © Chetan Sharma Consulting, All Rights Reserved Feb, 2011
  16. 16. Mobile Network Traffic Growth 16 © Chetan Sharma Consulting, All Rights Reserved Feb, 2011
  17. 17. Impact of iPhone on AT&T 17 © Chetan Sharma Consulting, All Rights Reserved Feb, 2011
  18. 18. US Mobile Market Growth Rates (2010) 18 © Chetan Sharma Consulting, All Rights Reserved Feb, 2011
  19. 19. Connected Device growth surpassing Postpaid 19 © Chetan Sharma Consulting, All Rights Reserved Feb, 2011
  20. 20. Competing with iPad 20 © Chetan Sharma Consulting, All Rights Reserved Feb, 2011
  21. 21. Top Carriers by Wireless Data Revenues 21 © Chetan Sharma Consulting, All Rights Reserved Feb, 2011
  22. 22. Coming Sept 2011 Inspiration to What’s Next Inquiries: facebook: chetansharma 22 © Chetan Sharma Consulting, All Rights Reserved Feb, 2011