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US wireless market trends Q2 2014

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An overview of trends in the US wireless market in Q2 2014, covering AT&T, Sprint, T-Mobile, Tracfone and Verizon Wireless. Includes analysis of financials, subscribers, net adds, ARPU and churn. Also, the impact of device installment billing on both the carriers and OEMs.

Analysis of the content in this deck is available here: http://www.beyonddevic.es/2014/08/12/analysis-of-q2-2014-us-wireless-market/

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US wireless market trends Q2 2014

  1. 1. Jan Dawson Chief Analyst (408) 744-6244 jan@jackdawresearch.com @jandawson US wireless market trends for Q2 2014
  2. 2. Introduction • I’m making this slide deck available as a public service • The previous quarter’s deck is available at: http://www.slideshare.net/ JanDawson2/us-wireless-market-trends-q1-2014 • Analysis accompanying this deck is at:
 http://www.beyonddevic.es/2014/08/11/analysis-of-q2-2014-us-wireless- market • Journalists and bloggers are welcome to embed the deck from Slideshare and are also free to use individual slides / graphics with attribution and links - contact me for high res versions • This deck forms part of the Jackdaw Research subscription research service - for more information see http://jackdawresearch.com/services/ 2
  3. 3. Contents • Financials - revenues, profitability, capital intensity • Subscribers - total subs, net adds, churn • Device trends - subsidies, penetration Unlike last quarter, this deck doesn’t include analysis - for that, please see http://www.beyonddevic.es/ 2014/08/11/analysis-of-q2-2014-us-wireless-market 3
  4. 4. Wireless revenues 4 Source: Company reporting, Jackdaw Research analysis Wireless revenues 0 10,000 20,000 30,000 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 AT&T Sprint T-Mobile Tracfone Verizon
  5. 5. Revenue growth 5 Source: Company reporting, Jackdaw Research analysis Year on year wireless revenue growth -10% 0% 10% 20% 30% 40% Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 AT&T Sprint T-Mobile Tracfone Verizon
  6. 6. EBITDA margins 6 Source: Company reporting, Jackdaw Research analysis Wireless EBITDA margins 0% 10% 20% 30% 40% 50% Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 AT&T Sprint T-Mobile Tracfone Verizon
  7. 7. Operating margins 7 Source: Company reporting, Jackdaw Research analysis Wireless operating margins -10% 0% 10% 20% 30% 40% Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 AT&T Sprint T-Mobile Tracfone Verizon
  8. 8. Capital intensity 8 Source: Company reporting, Jackdaw Research analysis Wireless capital intensity 0% 10% 20% 30% Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 AT&T Sprint T-Mobile Verizon
  9. 9. Total subscribers 9 Source: Company reporting, Jackdaw Research analysis Total subscribers 0 30,000 60,000 90,000 120,000 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 AT&T Sprint T-Mobile Tracfone Verizon (retail only)
  10. 10. Total subscriber breakdown, Q2 2014 0 30,000 60,000 90,000 120,000 Postpaid Prepaid Connected Wholesale Subscriber breakdown 10 Source: Company reporting, Jackdaw Research analysis Note: Verizon doesn’t report wholesale or connected devices (M2M) subscribers. In addition, since Sprint reports its connected devices subscribers as part of its retail postpaid and wholesale subscribers, but also reports these separately, we have broken them out and subtracted them from the postpaid and wholesale subscriber totals
  11. 11. Total net adds 11 Source: Company reporting, Jackdaw Research analysis Wireless net adds -1,000 0 1,000 2,000 3,000 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 AT&T Sprint T-Mobile Tracfone Verizon
  12. 12. Net add breakdown 12 Source: Company reporting, Jackdaw Research analysis Net add breakdown for Q2 2014 -1,000 -500 0 500 1,000 1,500 2,000 AT&T Sprint T-Mobile Tracfone Verizon Postpaid Prepaid Connected Wholesale Note: since Sprint reports its connected devices subscribers as part of its retail postpaid and wholesale subscribers, but also reports these separately, we have broken them out and subtracted them from the postpaid and wholesale subscriber totals
  13. 13. Postpaid net adds by device type -1,000 -500 0 500 1,000 1,500 AT&T Sprint T-Mobile Verizon Wireless Postpaid phone net adds Postpaid tablet net adds Net adds by device 13 Source: Company reporting, Jackdaw Research analysis Note: Verizon added 1 million 4G smartphones, but lost about 700,000 feature phones and 3G smartphones
  14. 14. Churn – postpaid 14 Source: Company reporting, Jackdaw Research analysis Postpaid churn 0% 1% 2% 3% Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 AT&T Sprint T-Mobile Verizon
  15. 15. Churn – prepaid 15 Source: Company reporting, Jackdaw Research analysis Prepaid churn 0% 2% 4% 6% Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Sprint T-Mobile Tracfone
  16. 16. Losses implied by churn 16 Source: Company reporting, Jackdaw Research analysis Estimated posptaid subscriber losses, based on postpaid churn rates, 000s 0 1,000 2,000 3,000 4,000 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 AT&T Sprint T-Mobile Verizon
  17. 17. Gross adds 17 Source: Company reporting, Jackdaw Research analysis Estimated postpaid gross adds, based on churn and net adds, 000s 0 1,000 2,000 3,000 4,000 5,000 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 AT&T Sprint T-Mobile Verizon
  18. 18. Gross adds vs losses 18 Source: Company reporting, Jackdaw Research analysis AT&T gained vs. lost postpaid subscribers 0 500 1,000 1,500 2,000 2,500 3,000 3,500 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Lost Gained
  19. 19. Gross adds vs losses 19 Source: Company reporting, Jackdaw Research analysis Sprint gained vs. lost postpaid subscribers 0 1,000 2,000 3,000 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Lost Gained
  20. 20. Gross adds vs losses 20 Source: Company reporting, Jackdaw Research analysis T-Mobile gained vs. lost postpaid subscribers 0 500 1,000 1,500 2,000 2,500 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Lost Gained
  21. 21. Gross adds vs losses 21 Source: Company reporting, Jackdaw Research analysis Tracfone gained vs. lost prepaid subscribers 0 500 1,000 1,500 2,000 2,500 3,000 3,500 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Lost Gained
  22. 22. Gross adds vs losses 22 Source: Company reporting, Jackdaw Research analysis Verizon Wireless gained vs. lost postpaid subscribers 0 1,000 2,000 3,000 4,000 5,000 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Lost Gained
  23. 23. ARPU – postpaid 23 Source: Company reporting, Jackdaw Research analysis Verizon doesn’t report ARPU so we use a calculation which is roughly but not entirely equivalent. T-Mobile ARPU doesn’t include equipment payments so we’ve included a second metric - average billings per user ARPU $50 $55 $60 $65 $70 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 AT&T (postpaid phone-only ARPU) Sprint T-Mobile Verizon (ARPA/connections per account) T-Mobile ABPU
  24. 24. ARPU – postpaid 24 Source: Company reporting, Jackdaw Research analysis AT&T ARPU - various measures $58 $60 $62 $64 $66 $68 $70 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Postpaid subscriber ARPU Postpaid phone-only ARPU Postpaid phone-only plus Next Derived Postpaid subscriber ARPU This chart is included to demonstrate the wide range of ARPU figures carriers now report, and those they’ve reported in the past. The yellow line represents the best indicator for AT&T going forward, as it includes Next payments, and is roughly equivalent to T-Mobile’s ABPU measure. It should rebound in the next few quarters
  25. 25. ARPU - prepaid 25 Source: Company reporting, Jackdaw Research analysis ARPU – prepaid $0 $10 $20 $30 $40 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Sprint T-Mobile Tracfone
  26. 26. Smartphone sales 26 Source: Company reporting, Jackdaw Research analysis % of postpaid sales that were smartphones 60% 70% 80% 90% 100% Q1 2012Q2 2012Q3 2012Q4 2012Q1 2013Q2 2013Q3 2013Q4 2013Q1 2014Q2 2014 AT&T Sprint T-Mobile Verizon
  27. 27. Smartphone sales 27 Source: Company reporting, Jackdaw Research analysis Number of smartphones sold (m) 0 1 2 3 4 5 6 7 8 9 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 AT&T Sprint T-Mobile Verizon
  28. 28. Smartphone penetration 28 Source: Company reporting, Jackdaw Research analysis % of postpaid base on smartphones 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 AT&T Sprint T-Mobile Verizon
  29. 29. Smartphone upgrades 29 Source: Company reporting, Jackdaw Research analysis Note: Sprint and T-Mobile had identical numbers in Q4 2013 and Q1 2014. Hence, the lines representing them in the chart overlap each other during those two quarters. % of base upgrading in quarter 0% 2% 4% 6% 8% 10% 12% Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 AT&T Sprint T-Mobile Verizon
  30. 30. Equipment revenue 30 Source: Company reporting, Jackdaw Research analysis Wireless equipment revenues 0 1,000 2,000 3,000 Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 AT&T Sprint T-Mobile Tracfone Verizon
  31. 31. Subsidies – Sprint data 31 Source: Company reporting, Jackdaw Research analysis 0 500 1,000 1,500 2,000 0% 10% 20% 30% 40% 50% 60% Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Percent of hardware cost covered by revenue Wireless subsidy
  32. 32. Subsidies – T-Mobile data 32 Source: Company reporting, Jackdaw Research analysis 0 500 1,000 1,500 0% 30% 60% 90% Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Value & Simple Choice as % of postpaid base Equipment sales revenues financed on EIP Equipment sales revenue % on EIP
  33. 33. Jan Dawson Chief Analyst (408) 744-6244 jan@jackdawresearch.com @jandawson Thank you

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