It appears the U.S. mobile marketing war finally has caught up with Verizon Wireless. In fact, Verizon Wireless actually lost net contract customers for the first time in the first quarter of 2014.
Though mobile revenue was strong in the first quarter of 2014, Verizon Wireless also saw a sharp fall off in net new account activations, with most of the damage coming from feature phone and 3G accounts. One might speculate that most of those losses were to AT&T and T-Mobile US.
In fact, Verizon actually lost postpaid contract customers in the quarter, after gaining 1.6 million net postpaid accounts in the fourth quarter of 2013.
And though Verizon insists it will be “disciplined” in its approach to pricing and packaging attacks, Verizon already has started to respond, offering service discounts to customers who either buy a new device at full price or who bring their own device.
Despite the falloff in net subscriber gains, Verizon Wireless service revenue grew 7.5 percent, with profit margins up to 52.1 percent.
Total mobile segment revenues grew to $20.9 billion, up 6.9 percent.
Retail postpaid churn was 1.07 percent, up slightly, year over year, Verizon says.
Still, it is difficult to determine precisely how mobile phone share is changing in the U.S. market, in large part because a vast majority of actual new accounts in the market are connections of tablets, rather than phones.
But T-Mobile US is the clear winner in phone account market share.
Sprint and Verizon actually lost postpaid phone accounts in the first quarter of 2014, while AT&T gained about 312,000 net postpaid phone accounts.
T-Mobile US gained a net total of 1.8 million branded new accounts, including branded postpaid net additions of over 1.3 million. Only about 67,000 of those net adds were tablet connections. So T-Mobile US is the one service provider clearly gaining phone accounts.
In the first quarter of 2014, for example, Verizon Wireless, which had added more than two million net accounts in the fourth quarter of 2013, experienced a huge slowdown, adding just 539,000 net new accounts.
But note, Verizon actually lost 138,000 monthly postpaid phone customers in the first quarter. In other words, all of Verizon’s growth came from tablets, not phones.
AT&T gained about 625,000 net new postpaid accounts, of which about 313,000 were tablet connections.
The point is that account growth in the overall market was in the first quarter of 2014 driven by just two trends: T-Mobile phone gains and tablet connection gains at Verizon, AT&T and Sprint.
T-Mobile US, and to a lesser extent AT&T, were taking share of phone accounts while Verizon and Sprint were losing share.
To the extent there was net growth of subscribers at Verizon, it was because of tablet connections.
That suggests the T-Mobile US marketing attack is working, and that even Verizon, which had hoped to avoid losses, now has to react, as it also is losing phone market share.
The complicating factor is that two separate trends have to be separated, namely market share shifts in the crucial postpaid phone segment, as well as the growing connected tablet trend. “Net addition” trends, in other words, will have to be separated into phone and tablet accounts, to judge what is happening in terms of service provider market share.
That also applies to T-Mobile US expectations about its own market share growth. T-Mobile US CEO John Legere has suggested T-Mobile US, with 49 million customers, could reach 75 million subscribers in 12 months.
That would require adding about 26 million net new subscribers, about 6.5 million a quarter, something no mobile service provider has done since perhaps 2008.
Ignoring for the moment prepaid subscriber accounts or average revenue per account or average revenue per user, Verizon has something more than 95 million postpaid contract accounts.
AT&T has more than 72 million. Sprint has about 30 million customers, while T-Mobile US serves something more than 22 million postpaid accounts.
But T-Mobile US serves as many as 47 million accounts, including prepaid accounts.
In the second quarter of 2013, Verizon had more than 118 million total subscriptions in service, while AT&T had nearly 108 million. Sprint had more than 53 million.
Were T-Mobile US to even approach 75 million total accounts, it is likely that gains would be driven by prepaid and tablet net new additions.
On the other hand, if current net additions trends continue, T-Mobile will pass Sprint, for the first time, to take the third position for U.S. mobile market share, within a year.
But mobile share increasingly is not the same thing as phone postpaid accounts, phone accounts including both postpaid and prepaid accounts. And that means future analysis of U.S. mobile market share will have to pay attention to phone and tablet accounts, in addition to postpaid and prepaid accounts.
Those changes in device net adds will have revenue per device implications. There always is an important difference between postpaid and prepaid accounts. Now it also appears net subscriber growth is being driven by tablets, not phones.
That is significant because average revenue per device is going to be lower than if the new additions were phone accounts.
So far, T-Mobile US subscriber gains have not seemed to dent net growth at AT&T, but principally because net additions are driven by tablet connections.
It is likely AT&T has been losing phone subs to T-Mobile US. Only in the first quarter of 2014 does T-Mobile US seem to have taken subscribers from Verizon.