The US mobile data market grew by 3% QoQ and 14% YoY. The overall services revenue declined again by 1%. The device revenue increased by 21% which helped the overall revenue to grow by 3%.
The biggest news of the quarter was as we had suggested last year – T-Mobile finally going past Sprint to become #3 for the first time. TMO continues to add the bulk of postpaid phone subs and it helped the company reverse the declining postpaid ARPU trend that had been so prevalent for the last three years. AT&T’s postpaid ARPU also stabilized
All four operators delivered historic low churn rates and are running much tighter operations. Net income improved 11% YoY.
After seeing steep declines in 2014, the mobile data pricing has started to inch up in 1H 2015. The emphasis of unlimited is paving way for shared data plans and the data buckets per account keep on inching up. In fact, many low-to-mid tiers have seen a price increase. Some of the upper enterprise tiers have seen the prices double. This bodes well for the margins and revenue in 2H 2015.
Smartphone penetration increased to 78% and roughly 95% of the devices sold now are smartphones. The smartphone penetration amongst postpaid users is now 84%.
The iPhone again dominated with 75% of the smartphone profits. While the Android profits improved 41% QoQ, the smartphone business remains a challenge for a number of Android OEMs.
As we have suggested for the last couple of years, Microsoft finally got rid of Nokia and is focusing its energy on software and services.
4th wave services continue to grow at a very past face around the globe. IoT as a category is also making steady progress with a number of players reporting multi-million dollar revenue quarters most notably Intel with over a billion dollars in revenue in the first six months. Fitbit reported $736M in 1H with a whopping 49% margin.
T-Mobile Ascension to #3 – a historical perspective
One year ago, we suggested that T-Mobile is likely to become the #3 operator in early 2015. Given the current trends, the T-Mobile’s ascension to the #3 spot was rather anticlimactic.
In the service provider land, switching rank based on organic growth is rare. Most of the times, the rank switches because of M&A. This has been true for most part for US mobile operators over the last 30+ years. The top two positions in the last 20 years have been held by AT&T and Verizon who have taken turns to hold the #1 spot. The #3 and #4 rankings haven’t changed since 2004. In fact, when Sprint acquired Nextel, T-Mobile had less than half the customers of Sprint Nextel. However, aided by the Metro PCS acquisition, while Sprint added only 13M subs in 11 years, T-Mobile added more than 3x – 37M. Nextel proved to be a really bad operator acquisition – the company is still reeling from that decision.
At the time of the Nextel acquisition, T-Mobile’s share of the market was roughly 10%. By the end of 2015, T-Mobile’s share will increase to almost 17%. During the same 10 year period, Sprint’s share has declined from 23% to 16%. Verizon and AT&T controlled 51% of the market in 2005. Now that share stands at 68%. Rest of the market has virtually dissipated in light of the fierce competition.
US mobile operator consolidation – what’s next?
Like any other market and like what you would expect in a maturing industry, the US mobile operator segment has consolidated in predictable ways. 20 years ago, AT&T fresh from its McCaw Cellular acquisition led the market with 3.95M subs at 14.5% share. Today, it still leads the market with 124M subs at 34% share. In the last 20 years, the market has whittled down to four national players. As we discussed back in our 2011 paper, in every market, the competitive and regulatory forces narrows down the field to 3 players. The top 3 players controlled 40% of the market in 1995. With T-Mobile ascending to #3, by the end of 2015, the top 3 will have almost 90% of the market. This is no different than other major mobile markets. Barring India (which will follow this trend soon as well), each market either by design or by market forces has consolidated to three major players.