US Wireless Market Q4 2011 Update Mar 2012 Chetan Sharma Consulting

US Wireless Market Update Q4 2011 and Full Year 2011
Research. Technology. Strategy. Intellectual Property. Thought Leadership Summits.

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Copyright 2012, All Rights Reserved. Copying w/o permission is prohibited. 3/2012
US Mobile Data Market Update 2011

Summary The US market generated $67 billion in mobile data revenues in 2011 accounting for 39% of the overall revenues for the country. The mobile data market grew 4% Q/Q and 19% Y/Y to reach $18.6B for the quarter. For the year 2012, we are forecasting that mobile data revenues in the US market will reach $80 billion. The US market accounts for 5% of the subscriber base but 17% of the global service revenues and 21% of the global mobile data revenues. It also accounts for 40% for the global smartphone sales. If the Martians landed on earth in early 2012, they will conclude the following: there are only 3 things certain on earth death, taxes, and the direction of Apples stock price. Apple had a monster quarter with record sales of iPhone and iPad not only in the US but also around the world. Apple sold over 93M smartphones outpacing its nearest rival Samsung by a good distance. Its share of the profits is more than rest of the OEMs combined. Its stratospheric rise is legendary by any measure. Today Apple eclipsed the combined market cap of Microsoft, Google, and Amazon. Think about that for a minute. In 6-12 months, you could probably add Facebook to the equation as well. The question on rivals mind is when will Apple stop defying gravity, until then, better be a fast follower. Smartphones continued to be sold at a brisk pace accounting for 65% of the devices sold in Q4 2011. US Operators are averaging 80% of their postpaid sales as smartphones with Android dominating though iPhone leads in mindshare. The Obama administration formally placed featurephones on the endangered species list but either chamber is unlikely to pass any resolution to save it. Nokia launched its Lumia series of devices with good acclaim however it remains to be seen if it will be able to win back the customers in big numbers in 2012. The Post PC Era Ever since the iPad came into being, the chants of the post-pc mantra are getting louder. But what is it? Is it just the untethered devices? Isnt iPad a person computer too? What about the smartphones? They have more horse power than my first few PCs combined. Is the personal computing morphing into something else or is there a clear delineation between the Mesozoic era and the new tomorrow? While we in the industry get obsessed by these minutiae, what do the real consumers think about it? Clearly, tablets are selling better than the PCs (as our previous research has shown) both in units as well as the revenue. But so did the laptops compared to the desktops. So, does the miniaturization of a screen and computing power represents a big shift or is this just an evolution of personal computing. Consumers rarely think about what computing era they are in. Between the time they wake and go back to bed at night, there are a series of tasks they have to accomplish. The technology is their companion to accomplish them, from keeping calendars to creating corporate presentations to sending messages to watching TV for entertainment to socializing with family and friends.. the list seems endless. Often times, the time is too short. Technology finds a way to give the time back to us by reducing the distance between the tasks as well as compressing the duration. As I have said before, nothing collapses time and distance like mobile. Tablets, particularly, iPad and to some extent the smartphones, if seen through the eyes of the year 2000 make us superhumans providing us capability to process several tasks in parallel. We can even direct the computing device to figure things out while we sleep. Computing is morphing into a true companion, a wily butler who just knows whats needed next. Being untethered to a desk makes us more productive. Taking the computing evolution further what if we can create a desktop environment wherever we are instead going to a desk. For my work setup, I have 4 or 5 screens running at the same time and it does help. It is hard to see tablets in their current incarnation competing with that task environment. However, it does allow us to collapse the desktop and take it with us.
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Tablet+Network+Cloud is an enormously powerful value proposition. It should be noted that apps and services on the mobile platform are defining the desktop environment now. For the enterprise worker, many of the day-to-day tasks dont really need the real-estate of 3 big monitors; we can easily accomplish a lot with a smartphone or better yet the tablet. As such, we are seeing corporations de-investing in desktops and laptops and moving this investment into tablets, smartphones, apps and make their work force more nimble and competitive. This also means, apps that used to be written for Windows will be predominantly written on iOS and Android, at least for the near-term. Microsoft has a strong offering in 8 and the fact that it will work across the three screens gives it some chips to play in the new world. Whether we call it a post-pc era or the computing continuum doesnt seem that relevant. What matters most is the set of tools that help us accomplish the tasks at hand on a daily basis. The shift is tectonic in nature, and it is creating winners and losers at an incredibly fast pace. However, my sense is that we are finally entering into the ambient computing era where the computing capability is all around us, something that Mark Weiser of Xerox PARC envisioned more than 20 years ago and something we imagined growing up with the original Star Trek. We will be dealing with multiple connected devices which share a common identity, cloud, media, security layer, and most importantly the apps and services. The traditional PC wont disappear but our reliance on one single machine for creation or consumption will continue to dissipate. We will have scores of radios around us, multiple objects that can think and communicate from cereal boxes to security alarms; from windows to fabric shirts; from tables to automobiles; it feels more like the connected era - where objects with brains and energy are connected to create an unprecedented universe of intelligence and productivity. This will indeed impact purchasing behavior and the commerce flow. The social and computing interactions are more intimate, have more purpose, and are available everywhere. The work-life boundaries only exist in ones mind. A business can be started with an app on a smartphone, anywhere serving to any consumer on the planet. The impact on productivity, the shrinking human capital needed for a set of tasks, corporate and nations competitiveness is significant. In many developing nations, the PC era never arrived. They jumped right into the mobile computing era. They have always lived in the post-PC era. The implications are profound. More than anything else, the old guard is having a tough time adjusting to the new computing paradigm. HP, Dell, and others have tried but failed thus far to either launch a decent tablet or a smartphone. While Apple invented the new computing paradigm only Samsung has been able to stand up as a worthy rival. The success of a vertically integrated success strategy has seduced Microsoft and Google to the doorstep of a vertical strategy. Will they cross the chasm remains to be seen. Much depends on how Nokia performs for Microsoft and how long can Android juggernaut keeps growing for Google. Then, of course, there are Amazon and Facebook who are attacking the market from a services angle. With a strong entry of the likes of Huawei and ZTE, players caught in the middle are struggling for a viable long-term path to success. The engagement model with the computing resources is undergoing significant evolution as well. Keyboard and mouse seem relics of a bygone era. We are falling in love with gesture computing combined with a myriad of input and intelligence techniques. Data processing at the speed of light is the new competitive advantage at all computing layers.

In every shift, winners and losers are created. The ones who fail to recognize and adapt become the relic of the historical past duly replaced by the new creators and implementers. If we look at the US household IT spend, over 50% of that spend now goes to mobile. The life time value will increase for players who can tie experiences together across multiple screens in a seamless fashion. This will enable them to not only capture the device revenue but also the commerce and services revenue built on top of it. The battle for the consumer wallet is being fought on Apples turf; it is the one driving the industry narrative and the agenda for its competitors and the ecosystem at large. Am pretty sure we will stop using computer to define computing. Interesting times indeed.
Competition In any other year, the AT&T and T-Mobile merger would have likely gone through. The interconnection of policy, politics, and private enterprise was on vivid display. The failure of the merger forced Deutsche Telekom to resort to the only second viable option - to take the plunge and invest in the US market. Whether 4 competitors can survive 3 years from now is still questionable. Given that DOJ and FCC have set the precedent, the only way a major M&A can take place in the US service provider segment in the near term is if one of the tier 2 operators falters Q/Q. We still believe in our thesis as outlined in our research paper Competition and the Evolution of Mobile Markets last year that the US market cant support 4 large operators and we are likely to see further M&A activity in the sector before too long. Mobile Data Growth The Gigabyte Generation Mobile data traffic growth continued unabated doubling again for the 8th straight year. We expect the mobile consumption to double again in 2012. Data now constitutes over 85% of the mobile traffic in the US. Approximately 30% of the smartphone users average more than 1GB/mo. As new devices and new network technology roll-out keep pace in 2012, the data traffic will grow at the expected pace. The signaling traffic is expected to grow in even faster. Stay tuned for our research paper in the Yottabyte series of papers on the topic later this year. Mobile Patents Landscape 2011 was the most active year for mobile patents in terms of disputes. All the major players were active in filing and protecting their turf for the future battles. IBM topped the industry in the most number of mobile patents granted in 2011 in the US followed by Samsung and Microsoft. The rest of the top 10 in order included Sony, Qualcomm, LG, Ericsson, Panasonic, Broadcom and RIM. Of the major players, Nokia occupied #12, Intel #13, Apple #16, Motorola #21, and Google #23 spot in the top 50 ranking. Amongst the mobile operators, Sprint was the leader with 323 patents granted in 2011. We have more research coming out later in the year that shows the relative patent strength of the various mobile players. Connected Universe, Monetizing Opportunities While 2011 was the year of figuring what the opportunities are in the new connected era, 2012 is starting to focus on how to monetize those opportunities. That will be the theme of our Mobile Future Forward Thought-leadership summit in Sept. More details to come. Almost all the vertical industries are benefiting from the connected devices and ubiquity of broadband networks security, health, retail, utility, transportation, entertainment, and others. We will take a deep dive into the issues, the best case studies, the opportunities, and the players.

What to expect in the coming months? All this has setup an absolutely fascinating 2012 in the communication/computing industry. Convergence is everywhere and is leading to a fundamental reset of the value chains and ecosystems. 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 2011 and full year 2011 US wireless data market is: Service Revenues The US Wireless data service revenues grew 5% Q/Q and 19% Y/Y to $17.6B in Q4 2011. The mobile data services revenues for the US market hit our initial estimate of $67B for the year 2011, a growth of 22% over 2010. For the year 2012, we are forecasting that mobile data revenues in the US market will reach $80 billion. Verizon and AT&T dominated the year accounting for 68% of the mobile data services revenue and 66% of the subscription base. Verizon maintained its #1 ranking in 2011 ahead of NTT DoCoMo with a whopping $23.7B mobile data year. AT&T maintained its #3 position with $22B in data revenues. Sprint and T-Mobile maintained their #5 and #9 rank in the top 10 mobile data operators list for 2011. ARPU The Overall ARPU declined by $0.43. Average voice ARPU declined by $0.96 while the average data ARPU grew by $0.52 or 3% Q/Q. The average industry percentage contribution of data to overall ARPU was 38.9% in Q4 2011 and is likely to exceed 40% by Q1 2012. Now, all the top three US operators are above the 40% mark with Verizon leading the trio. (for reference, all three major Japanese operators are now above the 55% mark). We expect data revenues to exceed voice revenues in the US market in early 2013. Subscribers At the end of 2011, the mobile penetration in the US stood at approximately 110%. Helped by the growth in connected devices, the overall net-adds increased by 5.1M with AT&T accounting for almost 50% of the growth. For the year, AT&T was a clear leader in net-adds primarily driven by the success in the emerging devices segment. Despite losing the iPhone exclusivity, the operator was able to maintain solid growth throughout the year.

Verizon leads in postpaid net-adds. For the ninth straight quarter, AT&T reported more net-adds from connected devices than postpaid subs. AT&T now accounts for 43% of connected devices in the US (w/ cellular subscription of some sort). Overall, AT&T has 46% of the connected device share of the market. The connected device segment growth slowed down to 4% Q/Q and is still up 27% Y/Y. Sprint added more than a million subscriptions for the fifth straight quarter while T-Mobile subscriber woes continued as it lost 569K subscriptions. T-Mobiles postpaid growth has been especially troubling as it doubled its postpaid net-losses to 2.2M for the calendar year. Rebounding from the failed AT&T merger, Deutsche Telekom announced its investment in the US arm. T-Mobile will launch its LTE in 2013 in its attempt to catch-up with its stronger rivals. Applications and Services After unseating Philippines as the king of TXT messaging earlier in the year, US TXT messaging continues to grow albeit at a slower pace. US consumers are now sending messages at the rate of 680 messages/sub/mo. Most operators are seeing decline in messaging growth due to IP messaging. As expected, this transition will continue around the world at different rates. In the US, while the change is underway, we dont expect any dramatic declines like the Philippines market in the near-term. 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. Q4 2011 again saw tremendous activity in the mobile commerce and payments space with lot of announcements from the operators, Internet players, and startups as well as the retailers and the ecommerce players. All are vying for a piece of the mobile wallet. Much more to come in the next 12 months. Handsets Smartphones continued to be sold at a brisk pace accounting for 65% of the devices sold in Q4 2011. Operators are averaging 80% of their postpaid sales as smartphones with Android dominating though iPhone leads in revenue and mindshare. Nokias position in the market improved slightly with the launch of WP7 devices. 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. Apple had a monster Q4 with 37M iPhones sold and recaptured its global smartphone leader title from Samsung though the Korean rival bested it in the US market albeit barely. 40% of all smartphones sold globally in Q4 were sold in the US making it the most attractive market for the OEMs.

Smartphones now account for over 80% revenue of all phones sold in the US. 90% of the tablets use WiFi only (some have inactivated cellular chipset) meaning that only 10% of the tablets were cellular activated. 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 expect family data plans to be introduced in the US market soon. Verizon added another 2.2M LTE subscribers making it the leading LTE operator in the world. AT&Ts LTE plans are gathering steam and Sprint plans to offer LTE in 2012. There is always a beauty contest amongst operators as to who sold more iPhones. AT&T again bested its rivals by selling a whopping 7.6M units in the quarter more than Verizon and Sprint combined. T-Mobile is still waiting for its date with Apple. Mobile Data Growth Mobile data traffic growth continued unabated doubling again for the 8th straight year. We expect the mobile consumption to double again in 2012. Data now constitutes over 85% of the mobile traffic in the US. While the spectrum debate rages on, in addition to the network and backhaul upgrades, policy management and data offload have emerged as top two solutions that operators deploying around the world. Signaling management solutions like Diameter routing are also getting good traction. However, a long-term video solution is still elusive. As we have been saying in our Yottabyte series of research papers, a comprehensive solution strategy is needed to effectively manage margins/bit. We will have the 3rd edition of our Managing Growth and Profits in the Yottabyte Era research out early next year. Global Update Race to a billion China became the first nation (ok, there arent that many who are going to touch the billion mark) to go past a billion subscriptions. See our detailed analysis of the Chinese and Indian mobile market. For more details, please see our Global Mobile Wireless Market Update released in July 2011. The next global update will be released in April 2012. Your feedback is always welcome. Thanks. Chetan Sharma We 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 Feb 2012. The next Global Wireless Data Market update will be issued in Apr 2012. Disclaimer: Some of the companies mentioned in this paper are our clients.
http://www.chetansharma.com 7 Copyright 2012, All Rights Reserved. Copying w/o permission is strictly prohibited. 3/2012
US Wireless Data Services Revenue
US Wireless Carriers: ARPU Trends
US Wireless Carriers: Data Revenue Trends
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US Wireless Carriers: Data ARPU Trends
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US Wireless Carriers: Data ARPU Trends
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US Mobile Market The Big 4
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US Market: Carrier Marketshare (Q4 11)
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US Wireless Carriers: Net Adds Share
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Connected Device Growth
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Smartphone growth continues unabated
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Smartphones Rule
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Smartphones driving data growth
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Mobile Devices dominate the computing ecosystem
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US Tablet Landscape
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AT&T Connected Devices Growth
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SMS Growth US takes over Philippines
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US Patent Grants in 2011 (Mobile)
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Save The Date
Sept 10th, 2012 Seattle Ever wondered what the future of mobile looks like?
Contact info@mobilefutureforward.com for sponsorship and speaking opportunities www.mobilefutureforward.com
Mobile Breakfast Series
March 28th Seattle How Mobile is Changing Media, Commerce & Consumer Behavior May 29th Atlanta Fireside Chat with David Christopher, CMO, AT&T Mobility June 5th Seattle Topic TBD
Ever wondered what the future of mobile looks like?

Contact info@mobilebreakfastseries.com for sponsorship and speaking opportunities www.mobilebreakfastseries.com
We look forward to hearing from you
Chetan Sharma chetan@chetansharma.com TW: @chetansharma http://www.chetansharma.com
Mobile Future Forward info@mobilefutureforward.com TW: @mfutureforward http://www.mobilefutureforward.com
Research. Technology. Strategy. Intellectual Property. Thought Leadership Summits.
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US Wireless Market Q4 2011 Update Mar 2012 Chetan Sharma Consulting

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US Wireless Market Q4 2011 Update Mar 2012 Chetan Sharma Consulting

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US Wireless Market Update Q4 2011 and Full Year 2011

Research. Technology. Strategy. Intellectual Property. Thought Leadership Summits.

US Mobile Data Market Update 2011

US Mobile Data Market Update 2011

US Mobile Data Market Update 2011

US Mobile Data Market Update 2011

US Mobile Data Market Update 2011

US Mobile Data Market Update 2011

US Wireless Data Services Revenue

US Wireless Carriers: ARPU Trends

US Wireless Carriers: Data Revenue Trends

US Wireless Carriers: Data ARPU Trends

US Wireless Carriers: Data ARPU Trends

US Mobile Market The Big 4

US Market: Carrier Marketshare (Q4 11)

US Wireless Carriers: Net Adds Share

Connected Device Growth

Smartphone growth continues unabated

Smartphones driving data growth

Mobile Devices dominate the computing ecosystem

AT&T Connected Devices Growth

SMS Growth US takes over Philippines

US Patent Grants in 2011 (Mobile)

Save The Date

Mobile Breakfast Series

Ever wondered what the future of mobile looks like?

We look forward to hearing from you

Chetan Sharma chetan@chetansharma.com TW: @chetansharma http://www.chetansharma.com

Mobile Future Forward info@mobilefutureforward.com TW: @mfutureforward http://www.mobilefutureforward.com

Research. Technology. Strategy. Intellectual Property. Thought Leadership Summits.

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