Although the worst is over in mobile, prepaid subscribers, may stay in prepaid lane, and carriers will need a multi-prong approx to accommodate the increased data load. Chetan Sharma looke at a lot of data in his latest report. There’s a slide show of his information at the end of this article.
The US wireless data market grew 7% Q/Q and 30% Y/Y to exceed $10.6B in
mobile data service revenues and thus exceeded $10B for the second
straight quarter, says Chetan Sharma.
Given
the strong growth in data revenues shown by the top carriers and the
increase in service revenues overall, the worst is over for the US
mobile industry. In summary, the recession has been all but a tiny blip
in its growth trend and the US mobile market has weathered the downward
spiral in economy better than its counterparts in other developed
nations. Of course, recession doesn’t treat all players equally, so,
some have had a negative impact and will need more resources and
effective strategies to claw back to the their previous market position.
The
US subscription penetration was approximately 90.4% at the end of Q209.
The current rate of net-adds (subscription) is approximately 3 every
second (compared to a net gain in population of one person every 10
seconds). While the flailing economy hit certain segments of the
wireless ecosystem hard esp. the infrastructure and handset segments,
consumers haven’t really pulled back on the mobile data overall
spending. Additionally, the CAPEX spending will stay strong in 2009
given the activity around 3G/4G deployments and trials. As expected,
there was an increase of prepaid subscribers which dropped the overall
revenues for some of the carriers.
The fate of the US mobile
industry is more closely tied to the overall economy compared to the
previous recessions. As the consumer sentiment improved over the last
3-4 months along with better than expected Q1-2 2009 earnings from
corporations, the mobile industry is back on track. While the
structural flaws in various industry segments remain, and the economy
is a crisis away from the double dip, the outlook for the remainder of
2009 remains bright and thy are expecting the overall data revenues to
now increase by 32% compared to 2008 with a record-setting Q4.
US Wireless Market Update.
Q2
2009 reported a much better 1% decline (compared to 6.4% in Q1). On an
yearly basis, the GDP is expected to change by 3.2% for 2009 and the
service revenues are expected to account for 1.13% of the US economy
by year-end.
While in the
past, the recession hardly impacted the wireless industry, this time
around; it is going to be more tied to the recession. In the past
couple of months, the consumer sentiment has improved and the Q109
earnings have been better than expected. While there are still many
structural flaws in the financial and housing industries and the
unemployment is at a 25 year high of 9.4% (though it dropped in July
from 9.5% in June), consumers are feeling better about the economy and
their own prospects in it.
So, what does this mean? Well, the
markets can still be volatile, but overall the market seems to be
feeling better about the economy than it was in February. The
Conference Board
Consumer Confidence Index though retreated from June
is at a healthy 46.6.
Given that consumer sentiment is improving, it
is clear that the US mobile data market is all but back from the
recession. While some segments within the mobile industry might be
suffering, there has been an increase in spending overall.
There are two
micro trends that are clear. First, as expected, due to the high
unemployment, the data card segment took a hit. It is starting to
recover in due course as more of the workforce comes back over in the
next 18 months.
Also, as expected, there was a shift from postpaid
to prepaid in some user segments. For example, for T-Mobile, prepaid
constituted 82% of the net-adds in Q209 up from 61% in Q109 and 21% in
Q208. It is not clear if the good times will bring back the prepaid
subscribers to the postpaid realm or like the consumers who are
canceling their landline connections and moving to mobile, these
customers will get used to savings and the prepaid lifestyle. The fight
for the low-end customer is also having an impact on the traditional
prepaid players and the price pressure is reducing their margins.
It
is quite likely that 50-60% of such consumers don’t go back to postpaid
thus permanently lowering the ARPU base for such customers and carriers
who have experienced more postpaid to prepaid shift will have to make
up for the lost revenues elsewhere.
The landline replacement by
Mobile trend continued now reaching almost 24% by Q209. Messaging
continues to grow. The messaging volume was up 15% and messaging
revenue was up 11% QoQ. The data access (excluding data card) including
flat rate data plan subscriptions have also show significant strength
lately. In addition to smartphones, we are also seeing increased mobile
data activity amongst feature phone users. With its expanding 3G
network, T-Mobile like its peers has started to benefit from smartphone
penetration reaching to 6% of its subscriber base. Overall, the US
market will exceed 25% penetration of smartphones in Q3 2009.
The
increased use of smartphones and datacards is putting a pressure on
carrier networks and accelerating their strategies to deploy LTE/WiMAX.
We estimate that by end of 2009, the US mobile data traffic is likely
to exceed 400 petabytes, up 193% from 2008. To truly tackle the problem
head-on, operators will need to adopt a multi-pronged strategy to
manage their traffic more effectively. We discuss mobile data traffic
in much more detail in our paper “Managing Growth and Profits in the
Yottabyte Era.” (I will be giving keynotes on the subject at the Mobile
Innovation Week in Sept and at the ISACA meeting in Oct)
The
positive factors are helping negate the negative factors and given the
strength of 3G and smartphone adoption, the increase in activity on the
appstores front, and in general, a better awareness of mobile data
services and applications amongst consumers, any decline due to the
loss of data card revenue and postpaid transition to prepaid accounts
has been taken care off. In particular, Verizon and AT&T have done
really well. Smartphones remain a bright spot, which in turn has a
direct positive impact on the data revenues. Even with the decline in
handset sales, smartphone segment will continue to increase in 2009
accounting for almost 30% of the overall device shipments.
There is
also a concerted effort underway to move beyond the traditional
subscriptions and expand the mobile universe to wireless-enable other
consumer devices (What did your refrigerator say to your microwave
while you were gone?)
.
Coming back to the 2009 forecasts, we are
raising our estimates for the mobile data service revenues to $45B for
the year. 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 Q209 US wireless data market is:
The US Wireless data service revenues grew 7% Q/Q to $10.6B in Q209. Compared to Q208, the data service revenues grew 30%.
- Verizon and AT&T accounted for 90% of the increase in data revenues in Q2 2009.
-
The
US mobile data service revenues crossed $10B for the second straight
quarter and stays ahead of Japan and China by a distance. - Verizon and AT&T experienced the most growth with over 8% increase Q/Q followed by T-Mobile at 6%.
- Verizon’s data revenues are now almost $4B/quarter only inches behind the global leader of over 10 years NTT DoCoMo.
-
AT&T
and Verizon now account for 69% of the market data services revenues
and 61% of the subscriber base. Sprint had the fifth consecutive
quarter of data revenue growth. -
The average industry percentage
contribution of data to overall ARPU is now $27%. US market is likely
to touch the 30% mark in 2009. -
The top four US carriers are now a
permanent fixture in the top 10 global operators by mobile data service
revenues occupying #3, #4, #6, and #8 spot respectively. Apart from NTT
DoCoMo and China Mobile, Verizon Wireless and AT&T are the only two
other operators generating more than $3B in quarterly mobile data
service revenues. - ARPU (Slides 13-15)
-
Overall ARPU decreased by
$0.23 thus reversing the trend of the last three quarters. Average
voice ARPU declined 13-15by $0.45 while average data ARPU grew by $0.68
or 5% and easily negated the drop in voice ARPU. -
Sprint led in data
ARPU with $15.5 followed by Verizon at $14.96. In terms of %
contribution, Verizon led with 29.28% followed by AT&T at 28.74%. - Subscribers (Slides 16-17)
- In Q209, the US market added approximately 2.8 M new subscriptions down 6% from Q109.
-
The
number of data subscribers has been on the rise with Verizon leading
the way. At the end of Q209, 65% of US subscribers were using some form
of data services. -
The messaging volumes in the US market now average
almost 540 messages/subscriber/month or at the frequency of almost at a
message/hour/sub thus reaching close to the messaging leader
Philippines. -
In terms of net-adds, thanks to the boost from the
iPhone, ATT led in Q209 with 1.4M net-adds, edging its friendly rival
Verizon which added 1.1M net subscriptions. T-Mobile net-adds reduced
to 325K while Sprint lost 214K. -
The 3G penetration in the US stays
at a healthy 40%+ in Q209. Verizon led the pack while T-Mobile is
slowly expanding its 3G coverage. The growth in 3G and smartphones is
helping offset some of the downward pressure on the data revenues and
overall ARPU. (I will be moderating a panel “Ultraband: A Fast Platform
For Innovation” at GigaOM’s Mobilize in Sept. We will discuss the
future of broadband and its implications) - Applications and Services
- Non-messaging services continue to grab 50-65% of the data revenues for the US carriers.
-
The
flat-rate pricing movement that was started by Willcom in Japan which
moved to Europe became more prevalent in the US market with industry
wide flat-rate pricing plans that included data. All the major carriers
seem to be offering flat-fee access plans for most of the new
smartphones being introduced in the market. Approximately 18% of the
consumers have flat-rate data plans. -
There are probably 18-20
sub-segments within mobile data services and consolidation looms. While
the valuations are still high for rapid consolidation, we think that
due to recession pressure, the M&A scene is starting to heat up. -
The
usage and data consumption trends are enabling carriers to accelerate
their 4G plans and develop long-term business and technical strategies
(We will be discussing the state of the industry and what lies ahead at
the inaugural “Mobile Breakfast Series” on Sept 22nd in the panel
discussion “State of the Union: Where do we go from here”)
The
appstores battle is intensifying with OEMs and carriers are announcing
their plans and some of them are opening their wares to woo the
developer community. In the midst of the appstores hoopla, Apple
announced the passing of the 1.5 Billion download mark with increasing
number of developers participating the ecosystem. The new functionality
being released with 3.0 is taking the battle up a notch. The clear-cut
business model of 30/70+ split is attractive to the long-tail of
developers. While there is no dearth of applications, findability
remains a challenge. Also, appstores are changing the monetization
strategies for content and application developers and the industry is
trying to figure out what “Open” means in the long-term. (Will be
discussing this and more at CTIA in Oct)
The App vs. Mobile Web
discussion reached a surprisingly new crescendo. The evolution is
pretty clear - for the applications that don’t require significant UI
resources, it will be better to develop in for the browser, for
intensive games, the native platform will be ahead of the browser
advances. The location API access on the iPhone browser is breakthrough
to have developers start thinking about the webapps. But, what does it
do to the revenue model? (I will be moderating two panels on the
subject in Nov at the Open Mobile Summit)
Handsets
After falling
below the 100M/quarter level in Q1, Nokia rebounded to sell 103M units
in Q2 09. Samsung also exceed 50M with a strong second finish at 52M.
LG finished a strong third with almost 30M in its bag and Motorola
showed signs of strength by selling close to 15M units.
The second
quarter was dominated by two blockbuster launches of iPhone 3GS and
Palm Pre. While iPhone continued to attract new customers, Pre suffered
from a less than stellar launch strategy. By lowering the 3G device
price to $99, Apple set the new bar in smartphone pricing leaving the
rivals scrambling for response. T-Mobile launched another Android
device last month.
The growth in smartphone usage is also putting
pressure on the networks which are not able to handle the load during
peak times in certain cities thus forcing carriers to look for
alternate strategies to satisfy the demand for broadband - usage
billing, UMA, Femtocells, Hotspot buys, WiMAX, LTE, and others.
Rest
of 2009 is eagerly awaiting the release of Palm Pre, several Android
handsets from HTC, Samsung, Motorola, and others, Windows devices along
with follow on of Danger devices, new model(s) of iPhone, and other
touch screen devices.
In a sign of convergence battles to
come, T-Mobile’s @Home and various Femto cell initiatives are taking
hold. Cable operators are also aggressively seeking triple-play by
providing the wireless component of the service.