us wireless market_q1_2016_update_may_2016_chetan_sharma_consulting

US Wireless Market Update Q1 2016

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Page Title Goes HereUS Mobile Market Update Q1 2016

Highlights of the US Mobile Market 2015

• Mobile data revenues increased by 17% YoY and now contribute 73% of the overall service revenues.

• QoQ, the service revenues declined again for the third straight quarter.

• The overall ARPU dropped below $40 for the first time.

• The Capex is likely to contract for a third year in a row given that most of the LTE networks are built out and there is pressure to preserve the margins.

• Device revenues declined sharply as consumers are upgrading at a slower pace than before and new device launches haven’t really motivated consumers to upgrade.

• EBITDA and Net Income saw double digit gains indicating operators are running a much tighter ship than before.

• Churn is at historic lows. Despite all the commotion in the market, fewer customers are churning each quarter.

• US will cross 400M in subscriptions in 2016.

• The data prices remained pretty stable throughout Q1.

• Mobile data traffic grew again with per sub smartphone consumption going past 4.0 GB/user/mo however, overall data traffic is expected to slow down in 2016.

• In the first 4-5 months of Binge-on, T-Mobile users chomped away over enough PBs of data for free to account for almost entire data traffic for the operator in 2013. T-Mobile experienced a net traffic reduction of 10-15% but given that consumers are consuming 3x than before, overall traffic is likely to rise again.

• AT&T continues to add more connected cars than rest of the operators combined. The operator is optimizing its business around profits. One side-effect of this has been a decline in postpaid phone net-adds for the sixth straight quarter.

• Verizon’s IoT/Telematics accounted for $195M in Q1 and is likely to cross the $1B mark in 2016 making US the hotbed for Connected Intelligence activities, growth, and continued experimentation.

• Apple again dominated the device market with over 39% revenue share, 74% profits share however it saw its quarterly YoY growth saw a decline for the first time in 13 years. The law of large numbers is starting to catch-up. Apple needs a new market narrative and/or another blockbuster. Given the pickup in R&D spend, speculators are hoping for the iCar to surface but it could be something as pedestrian as a new iPhone.

• Apple’s services business was greater than Facebook’s Q1 revenue but in context of its $50B quarter, Wall Street doesn’t appreciate the 20% increase in services revenue. Street’s eyes are squarely positioned on the iPhone numbers.


http://www.mobilefutureforward.com/History_and_Future_of_Connected_Intelligence_Chetan_Sharma_Consulting.pdf

Page Title Goes HereUS Mobile Market Update Q1 2016• Intel abandoned its existing wireless efforts leaving its future strategy and its role in the ecosystem a big question mark.

• Android ecosystem revenues and profits improved slightly primarily on the back of Samsung’s quarterly results. Sony, HTC, LG and some other Android players suffered deep losses in Q1.

• Operator tablet net-adds growth declined sharply.

• AT&T and Verizon on average made $17 per sub/mo, T-Mobile stayed into positive territory with $2 profit/sub/mo while Sprint eked out a 20c profit.

We will be doing an in-depth analysis of the future of the mobile industry at our 7th annual mobile executive summit Mobile Future Forward in Sept 2016. Hope you can join us.

Service Revenue Decline, what does 2016 hold in store?

• The overall service revenue, postpaid revenue, overall and postpaid ARPU all declined again. After seeing the net-revenue decline for the first time in the history last year, there is a big question if 2016 will repeat itself or not. Q1 pointed downwards albeit only marginally. In general, the net-service revenue decline is not a good sign if it is market induced. In Europe, we saw net-revenue declines but the impact of the economic crisis was a big factor in determining the trajectory. After the economy has improved, we have seen the net revenue in effected countries rise again. In the US, the net-revenue decline is more market induced. The calculation of service revenue is a bit more complicated because device revenues are no longer part of the mix and as customers are weaning off the contracts, we have to adjust the service revenue for this accounting change. Regardless of the accounting distortions, there is continuous pressure on the postpaid revenues which is what is impacting the overall numbers.

• Given the competitive state of the market, we might see further service revenue declines in 2016. The reversal might come down to consolidation in the industry in 2017 and beyond. The pressure on the revenues has had a positive impact though – operators are running far tighter ships than before. The net income surged in Q1 2016. Churn is at historical lows.

Spectrum Auction

• FCC’s incentive auction will begin at the end of the month. It will be fascinating to see who beyond the usual suspects have aspirations in the mobile auction game.

Messaging – the Next Big Platform Shift?

• The last big platform shift in the computing space was the migration of attention, talent, and dollars from Windows to Android and iOS. The rise of the smartphones mirrored the rapid decline in Microsoft’s hold on the computing platforms. While Android and iOS have served us well, they haven’t evolved much. Despite having sensors and signals, some of the basic things like inter-linking of apps, contextual surfacing of app features and functions, and search remain complex and/or non-existent. The vacuum is being filled by the emergence of messaging as a platform. Messaging is primal. Consumers knew messaging before they knew smartphones. Given the availability of the processing power as well as the smarter software, some of the tasks can be moved to the messaging window is only natural. Asia has been the guiding light in this regard. How messaging emerges and how various players react to this phenomenon will be fascinating to watch in the coming days and months.




IoT Revenue Streams and what it means for the ecosystem

• Service provider IoT revenue passed the important $1B mark back in 2013. So far it is tracking the growth of the early days of mobile data. However, they are different curves influenced by different factors. Mobile data was relatively an easier curve to climb as the revenues went up as more data handsets came online. The sales, business case, and ROI was straight forward. IoT is a bit more complicated as it across multiple vertical areas and it is not just about the data network, it is about the complete solution. The sales cycle and execution strategy is different and requires patience and resilience.

• We will be doing an in-depth analysis of opportunities at the intersection of 5G and IoT at our upcoming Mobile Breakfast Series on June 7th.

Android vs. iOS: The fight for profit continues

• Amongst the prominent Android OEMs, HTC, Sony, and LG, all lost money in their device business in Q1 2016. This again highlights the difficulty in differentiating on an open platform. Some of these players might give up on their handset business in 2016. Apple again dominated with 74% of the profit share and 39% of the revenue share. Samsung’s revenues and profitability improved but it continues to face challenges both on the top and bottom end of the spectrum.

4th Wave Revenues

• 5 years ago, we put forth the theory of 4th wave to explain the upcoming changes in the mobile ecosystem. For the most part, the industry changes and tribulations have tracked the 4th wave curves. Last year, voice revenues fell down by 23%, messaging revenues declined by 18%, while data revenues grew by 23%. 4th wave revenues which now dominate the ecosystem now grew by a 60% YoY. We will have more analysis of the state of the 4th wave ecosystem later in the year.

Regulations for the new age

• Some of the regulations in the communications space are over a 100-year-old. Communications itself has drastically changed though the principle of transferring the bits from point A to B remains the same. T-Mobile reported that 54%+ of its voice calls are on VoLTE. IP messaging is many times the SMS global volume. Gradually, almost all voice and messaging will be on the IP layer – voice and messaging will just become apps on the data layer. So pretending and regulating these services as if it were 2000 doesn’t help. An ideal strategy for consideration should be that the IP layer gets regulated for fair pricing, competition, and consumer good while everything on the top of the IP layer gets regulated on a “same service, same rules” principle. The interconnection between apps to deliver services like connection to PSTN, E911, etc. can be addressed by fair market pricing principles. VR is going to become the next communication platform; IP messaging the next application development and commerce platform. To keep the regulatory regime simple and in with the times, by focusing on the access layer, one can guarantee that whatever takes place on the top has the opportunity to grow as the market desires. Similarly, data rules across all apps and services on top of the IP layer should be the same irrespective of the provider. This market shift is required to make the market more competitive and fair.


http://www.mobilebreakfastseries.com/

http://www.chetansharma.com/OperatorsDilemmaFourthWave.htm


Quad Moves

• AT&T is integrating its DirectTV acquisition. Verizon acquired AOL, launched Go90 and is looking to acquire Yahoo (who isn’t?). Similar moves are afoot in Europe and other regions. Regular readers won’t be surprised. Video is a key offering for many service providers and by bundling quad plays, operators can further lower the churn. Content will continue to play a big role in how various offerings get bundled. The traditional cable bundle is being pulled apart in favor of more al carte OTT offerings. Media companies will have to figure out how they play in the new converged world. The ones that have been sitting on the sidelines will have to make some moves in the wireless ecosystem to stay relevant in the long-term.

The licensed vs. unlicensed: frenemies

• Comcast is expected to launch its WiFi first MVNO with Verizon later this year. Google Fi hasn’t been a roaring success, perhaps it was never designed to be. Given that WiFi is carrying 75-80% of the traffic, it is easy to make the business case for a national WiFi operator. Companies like Republic Wireless have shown that this can be done.

• Seeing the success of WiFi, FCC has rightly made more unlicensed spectrum available and it will be interesting to see how the ecosystem around 3.5GHz and other bands develop. This in light of what’s happening in the higher bands of cm and mmwave for 5G deployments. Technologies and business models that take into account benefits and drawbacks of both types of spectrum bands across a different uses cases will win out in the end. Despite advances, WiFi calling still has quality issues so the need for traditional networks is not going away anytime soon.

5G Economics

• 5G is gaining steam. All the major players have outline their preliminary plans to do trials on 5G (code word for we don’t want to be perceived as being behind). However, there is some real progress being made in short-range ecosystem of 5G. I have been working with many companies and talking to many researchers on this subject. I think what’s lacking from the discussion is the role of economics in 5G – what will be the cost structures, ROI, and the TCOs that will make it worthwhile for the operators to deploy 5G profitably. We expect to explore this issue in more detail in the coming months. Our Mobile Future Forward Summit in Sept will tackle the questions in-depth.

• Our paper on 5G covers the past, present, and future of the network evolution.



http://chetansharma.com/5G.htm


What to expect in the coming months?

• 2016 has started with a bang. The ecosystem is getting very complex and we need better tools to understand the relative strength of players and strategies. 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 Q1 2016 and 2016 US wireless market is:

Service Revenues

• The US mobile data services revenues in Q4 2015 increased 2% QoQ and 17% YoY.

• Verizon and AT&T dominated the quarter accounting for 69% of the mobile data services revenue and had 67% of the subscription base.

• Verizon and AT&T are at #2 & #3 global mobile data revenue ranking respectively in Q1 2016. Sprint and T-Mobile also maintained their rankings in the top 10 global mobile data operators.

ARPU

• The Overall ARPU fell by 1.9%.

• Data contribution to the overall revenues is now at 73%.

• All operators saw their ARPU decline by with Sprint and Verizon experiencing the sharpest declines.

Subscribers

• The US market increased its net-adds to 5.6M. T-Mobile gained the most and Sprint added the least.

• Tablet netadds declined sharply leading to a decline in big decline in postpaid netadds.

• There were more Car net-adds than there were phone net-adds

• AT&T has approximately 8M connected cars on their network – probably the highest of any mobile operator in the world.

4th Wave Progress

• The number of players making $250M/quarter on mobile continues to increase rapidly and these aren’t your traditional wireless players. For example, Mobile is now contributing 80% (up from 30% in Q1 2013) to Facebook’s quarterly revenues. Even traditional players like Hertz, Sears, and Starbucks are generating meaningful revenues from mobile. There are now dozens of such players and the list is just growing. (for more discussion on the topic please see: “Mobile 4th Wave: Evolution of the Next Trillion Dollars”)

• The cloud and security segments have also gained significant traction with incumbents as well as startups launching new initiatives and technologies.

• Verizon reported $195 million revenue from IoT and Telematics. At the current run-rate, this will likely be a billion-dollar business by 2016.

• Overall, the IoT business is tracking the early days of the mobile data growth.© Chetan Sharma Consulting, 2016. All Rights Reserved

http://chetansharma.com/4thwaveandthenexttrillion.htm


Connected Devices

• Connected devices (non-phones) accounted for almost 69% of the net-adds in Q1 2016. This means that while there is a healthy smartphone sales pipeline, it is for the existing subs and as such net-adds for the phone business is tapering off and we can expect that new net-adds will continue to be dominated by the connected devices segment.

Handsets

• Smartphones continued to be sold at a brisk pace accounting almost 97% of the devices sold in Q1 2016. The feature phone category is practically becoming extinct in the US market.

• The smartphone penetration in the US is now at 84%.

• Verizon continues to sell more LTE smartphones as its LTE sub tally rose to 87M making it the #2 LTE operator behind China Mobile which has more than three times the LTE subs. Other three operators are also deep into their LTE deployments. Verizon reported that 92% of its total data traffic is on the LTE network now, clearly the fastest technology transitions we have seen in the US wireless industry.

• Your feedback is always welcome.

• 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, articles, and at our annual thought-leadership summit – Mobile Future Forward in Sept 2016. The next US Wireless Data Market update will be released in Aug 2016.

• Disclaimer: Some of the companies mentioned in this update are our clients.


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Page Title Goes HereUS Mobile Data Services Revenue


Page Title Goes HereSummary of the US Mobile Market Revenue Streams


Page Title Goes HereMarket will consolidate into 3 players


Page Title Goes HereRevenue will be made from existing customers, new customer

revenue approaching ZERO


Page Title Goes HereUS Mobile Market: Data Dominant


Page Title Goes Here


US Mobile Market: Subscriber Distribution

©Chetan Sharma Consulting, 2016

Segment Led by

Postpaid Verizon

Prepaid T-Mobile

Connected AT&T

Wholesale AT&T

Page Title Goes HereNet-Adds: Non-Phones continue to dominate


Page Title Goes HerePostpaid ARPU continues to fall


Page Title Goes HerePostpaid Net-Adds of Top 4 operators


Page Title Goes HereVerizon IoT Revenue is becoming quite meaningful


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Q113 Q213 Q313 Q413 Q114 Q214 Q314 Q414 Q115 Q215 Q315 Q415 Q116

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VERIZON TELEMATICS/IOT REVENUES

© Chetan Sharma Consulting, 2016

Page Title Goes Here US: Pickup in Net-Adds


Page Title Goes HereApple running away w/ profits


Page Title Goes HereChinese OEMs dominate the unit sales, Apple the revenue


Page Title Goes Here5G: The history of the future


Page Title Goes HereWe look forward to hearing from you


Chetan Sharma

[email protected]

TW: @chetansharma

http://www.chetansharma.com

Mobile Future Forward

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TW: @mfutureforward

http://www.mobilefutureforward.com

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


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