Samsung Takes Global Lead in Mobile Phone Share

Samsung displaced longtime mobile device market share leader Nokia as the world's top mobile phone vendor. According to International Data Corporation, vendors shipped 398.4 million units in the first quarter of 2012 compared to 404.3 million units in the first quarter of 2011.

Nokia has been the global market leader in total mobile phone shipments since the inception of IDC's Mobile Phone Tracker in 2004.

Samsung's ascension to the market's top spot is largely a reflection of its gains in the smart phone market over the past two years, said Kevin Restivo,  IDC senior research analyst.

Meanwhile, the worldwide smartphone market grew 42.5 percent year over year in the first quarter of 2012.

Top Five Worldwide Smartphone Vendors, Shipments, and Market Share, Q1 2012 (Units in Millions) 

Vendor	1Q12 Unit Shipments	1Q12 Market Share	1Q11 Unit Shipments	1Q11 Market Share	Year-over-year Change
Samsung	42.2	29.1%	11.5	11.3%	267.0%
Apple	35.1	24.2%	18.6	18.3%	88.7%
Nokia	11.9	8.2%	24.2	23.8%	-50.8%
Research In Motion	9.7	6.7%	13.8	13.6%	-29.7%
HTC	6.9	4.8%	9.0	8.9%	-23.3%
Others	39.1	27.0%	24.5	24.1%	59.6%
Total	144.9	100.0%	101.7	100.0%	42.5%

Apple Churn Impact: 6 to 8 Times the Normal Rate Around 4S Launch

A study by Consumer Intelligence Research Partners over the three-month period between December 2011 and February 2012 suggests that the Apple iPhone does play a role in churn.

About 18 percent of iPhone buyers over that period report they had an iPhone already, and switched carriers. The obvious flip side of that story is that 82 percent of iPhone buyers stuck with the same carrier and only switched devices.

Some 24 percent of new buyers said they switched from another type of device to an iPhone, and also switched carriers. That means 76 percent switched devices, but stayed with their original service providers.

Those statistics cover a three-month period during the launch of the 4S, so likely will not be so pronounced for latter periods.

That suggests the iPhone was a significant driver of churn away from carriers that do not sell the iPhone, if you assume that the 24 percent of new iPhone buyers switched carriers just to get the iPhone.

But 18 percent of new iPhone buyers already had an iPhone, but still switched carriers. Some would suggest that represents AT&T customers switching to Verizon Wireless.

Either set of statistics--18 percent or 24 percent churn--are significant. If you assume monthly churn of about one percent a month, then either rate represents monthly churn of perhaps six percent to eight percent. That is six to eight times higher than either firm typically experiences.

Also, Wal-Mart has emerged as an important sales channel for Apple iPads, a survey by Consumer Intelligence Research Partners has found. In the month of February 2012, Wal-Mart represented about 11 percent of sales. Best Buy sold 24 percent, Apple sold 26 percent.

As you might guess, retail stores operated by mobile service providers were a bigger channel for iPhones. Over a three-month period, from December 2011 to the end of February 2012,retail stores accounted for 76 percent of iPhone sales; online stores, 24 percent. When the iPhone 4S first launched, retail stores and online outlets accounted for 67 percent and 33 percent of sales, respectively, largely due to online orders.

How Much Further Could U.S. Mobile Market Consolidate?

Is the share of market now characteristic of the U.S. market sustainable? Most would say "no." Among the common observations is that two of the top four national providers have market share two to three times greater than two of the others.


Many observers would say a market with four national providers is about one too many for a sustainable and stable market.


Could one of the top four U.S. mobile service providers get 50-percent market share. In principle, "yes." But regulatory intervention cannot be discounted. Some observers think the U.S. mobile market already has become substantially non-competitive.


The Department of Justice, for example, recently opposed the acquisition of T-Mobile USA by AT&T, citing a standard methodology for determining the competitiveness of markets.

One of the ways to measure market concentration is the Heffindahl-Hirshman Index or HHI, often used as a measure of market concentration. The HHI is the square of the percentage market share of each firm summed over the largest 50 firms in a market. Here is the pre-merger market HHI which already suggests that the market is uncompetitive. HHI is the problem

For some of us who just want a quick rule of thumb that tells you when there is potential antitrust concern, 30 percent market share tends to work.That has been the figure cable TV executives in the United States have worried about, and which the Federal Communication Commission at one point set as the limit of subscriber market share for any U.S. cable operator. Both AT&T and Verizon Wireless already have market share that exceeds that figure.

 

The Justice Department will generally investigate any merger of firms in a market where the HHI exceeds 1,000 and will very likely challenge any merger if the HHI is greater than 1,800. With a HHI over 2,300 any deal will be heavily scrutinized and most likely rejected. Even a merger between T-Mobile USA and Sprint, with a resulting 28 percent market share, would probably not be allowed on the same antitrust grounds.

The competitive equilibrium point in the mobile industry seems to when the market shares of the top three providers are 46 percent, 29 percent and 18 percent, argues Chetan Sharma says. In any country, that "rule of three" seems to hold.

That roughly corresponds with a rule of thumb some of us learned about stable markets. The rule is that the top provider has twice the market share of the contestant in second place, while the number-two provider has about twice the market share of the number-three provider.

That suggests the U.S. mobile market still has room to change. At the moment, Verizon Wireless has perhaps 34 percent share, while AT&T has about 31 percent share. Classic theory would suggest the ultimate market share could approach a market with the top-three providers having a market share relationship something like 50:25:12.

That would have highly-significant implications for the four current providers that today represent 93 percent of all subscribers. One of the leading contestants reasonably could hope to grab half of the available market, while two of the contestants could face significant losses.


All that assumes regulatory action did not occur before that market structure was obtained, though.

Only 5% of iPads Used Outdoors; 90% of iPhone 4 Traffic is Generated Indoors as Well

The vast majority of mobile traffic from smart phones and tablets comes from indoor usage, a study from Actix has found found. Even most casual observers, reflecting on their own usage, might not be surprised by either finding.

By analyzing data from a live 3G network in a major city, Actix found that just five percent of Apple iPads are used outdoors. About 90 percent of iPhone 4 traffic and 80 percent of BlackBerry traffic likewise is produced indoors.

While iPads account for just one percent of data sessions, they use four times more data than an average 3G device. That would not surprise observers who know the usage patterns for mobile dongle-using devices such as PCs, compared to smart phones. An order of magnitude more usage is not unexpected for a dongle-connected PC, for example.

Why Mobile Commerce Will be Big

That mobile commerce is expected to grow so much is not too surprising, in context. Keep in mind that more people now have mobile subscriptions than electricity, safe drinking water, bank accounts, credit cards, TVs or PCs.

Looked at on a household basis, mobile spending now represents nearly half of household spending on communications and entertainment services.

 Since 2001, when fixed-line phone service was more than 65 percent of total subscription spending on communications and video services, fixed-line spending now has fallen to a bit over 25 percent. The percentage of video entertainment and broadband access spending also has been growing, Sharma says.

Annual state of_global_mobile_industry_2012_chetan_sharma_consulting

View more presentations from Chetan Sharma

Why Fiber to the Home Costs So Much

Up to 80 percent of the total broadband investment cost is related to civil infrastructure works, the European Commission says. Another way of putting matters is to say that as much of 80 percent of the cost of building fiber-to-customer networks is not affected in a positive way by Moore's Law.

The fact that computing power and storage keep getting more powerful and cheaper is helpful for application providers. But those improvements don't affect the cost of digging trenches, stringing cable and undertaking other forms of construction.

But that's only part of the problem. The other issue is that the financial return from any FTTH project is becoming more challenging in a competitive environment.

Is the investment case for fiber to the home networks getting more challenging? Yes, Rupert Wood, Analysys Mason principal analyst, has argued  A shift of revenue, attention and innovation to wireless networks is part of the reason. But the core business case for triple-play services also is becoming more challenging as well.

All of that suggests service providers will have to look outside the traditional end-user services area for sustainable growth. Many believe that will have to come in the form of services provided to business partners who can use network-provided information to support their own commerce and marketing efforts. Those partners might be application developers, content sites, ad networks, ad aggregators or other entities that can partner with service providers to add value to their existing business operations.

Current location, type of device, billing capabilities, payment systems, application programming interfaces and communication services, storage services, profile and presence information might be valuable in that regard.
 
Fiber to the home long has been touted by many as the "best," most "future proof" medium for fixed access networks, at least of the telco variety. But not by all. Investment analysts, virtually all cable and many telco excutives also have argued that "fiber to the home" costs too much.

Over the last decade or so, though, something new has happened. Innovation, access, usage and growth have shifted to wireless networks. None of that is helpful for the FTTH business case. That is not to say broadband access is anything but the foundation service of the future for a fixed-network service providers. Fixed networks in all likelihood always will provide orders of magnitude more usable bandwith than wireless networks.

The issue, though, is the cost of building new fiber networks, balanced against the expected financial returns.

“FTTH is often said to be ‘future-proof’, but the future appears to have veered off in a different direction,” says  Rupert Wood, Analysys Mason principal analyst. Regulatory uncertainty, the state of capital markets and executive decisions play a part in shaping the pace of fiber deployment. But saturation of end user demand now is becoming an issue as well.

The basic financial problems include competition from other contestants, which lowers the maximum penetration an operator can expect. FTTH has to be deployed, per location. But services will be sold to only some percentage of those locations. There is a stranded investment problem, in other words.

The other issue is that the triple-play services bundle is itself unstable. FTTH networks are not required to provide legacy voice services. In fact, the existing networks work fine for that purpose. One can argue that broadband is needed to provide the next generation of voice (VoIP or IP telephony), but demand for fixed-line voice has been dropping for a decade. So far, there is scant evidence that VoIP services offered in place of legacy voice have raised average revenue per user. Most observers would note the trend goes the other way: in the direction of lower prices.

And though entertainment video services offer a clear chance for telcos to gain market share at the expense of cable operators, there is at least some evidence that overall growth is stalling, limiting gains to market share wins.

Broadband access also is nearing saturation, though operators are offering higher-priced new tiers of service that could affect ARPU at some point. So the issue is that the business case for FTTH has to be carried by a declining service (voice), a possibly-mature service (video) and a nearly-mature service (broadband access).

And then there is wireless substitution. Fixed-line voice already is being cannibalized by mobile voice. Some observers now expect the same thing to start happening in broadband access, and many note new forms of video could displace some amount of entertainment video spending as well.

The fundamental contradiction is that continued investment in fixed-line networks, which is necessary over time, occurs in a context of essentially zero growth.

Atlantic-ACM, for example, now forecasts that U.S. wireline network revenue, overall, between now and 2015, will be flat at best. Compound annual growth rates, in fact, are forecast to be slightly negative, at about 0.3 percent. Where total industry revenue was about $345 billion in 2009. By 2015, revenue will be $337 billion, Atlantic-ACM predicts.

That is not to argue against replacement of aging networks; in fact that is a necessary and normal part of any network deployment. The issue is the declining amount of revenue any such network can generate.

"Overall consumer spend on telecoms has long since ceased to grow in developed economies," says Wood.

And though FTTH promises dramatically-higher bandwidth, demand is a bit uncertain at the moment. "Even though many cable operators have been offering superfast fixed broadband connectivity for some time in Europe and North America, take-up of such services remains troublingly low."

Aside from some early adopters, Wood argues, new services that uniquely take advantage of FTTH are needed. Industry executives are aware of that need, and have been for quite some time.

The issue is that the scale and pace of innovation in wireless now outstrips what is happening on the fixed line network. That makes the revenue upside for FTTH a tougher challenge. In some markets, cheaper copper-based alternatives might continue to make more sense, Wood argues.

That is particularly true in Europe, says Wood, where consumer willingness to pay a premium for additional bandwidth is low and where broadband prices are already significantly lower than in North America.

"This level of commitment to FTTH looks unsustainable and fundamentally unreasonable, especially when VDSL networks will pass far more households," says Wood. "We therefore expect telcos that have opted for FTTH roll-out beyond proof-of-concept trials and greenfield sites to back away from further commitment and, in some cases, reduce the scale of their FTTH roll-out plans."

So the strategic issue now would seem to be whether continued FTTH momentum can be sustained. It would be an unexpected turn of events, if it turns out Wood is correct.

What "Showrooming" Could Mean for Service Provider Strategy

Telcos facing steadily declining voice revenues, the historic driver of the largest part of their business, now face challenges similar to what Best Buy faces with online competition. As consumers switch to use of mobile phones as the primary way they "use" voice, their need to buy landline voice keeps dropping.

Likewise, consumers looking for the latest in gadgets increasingly buy from Amazon.com, though using Best Buy as a place to check out those products. That "showrooming" problem is not going away.

Some analysts think Best Buy's long-term future might rely on turning its business model upside-down and embracing showrooming, and there are glimmers of insight for telecom service providers as well.

The radical notion is that, Instead of selling electronics gear, Best Buy could gradually become a supplier of  instruction, service, support, connections, returns and pickup. All those things are tricky or less satisfying operations online, some argue.

In a communications service provider context, the analogy might be a shift to greater reliance on providing "big data mining" and support for third-party partners who want access to huge service provider audiences.

As Best Buy shifts to third-party services for consumer electronics manufacturers, becoming physical support locations for those partners, and de-emphasizing product sales, so telcos and mobile service providers could grow their "big data" service businesses.

Best Buy could embrace being a showroom, welcoming price-checking shoppers into the store to play with the latest electronic gadgets, then helping them buy online, even from another seller. As crazy as that might sound, Best Buy executives say they make more profit from electronics product supplier payments than from the sales of gear.

In a similar way, communications service providers might someday find they make more money from services sold to business partners than to end users. That isn't to say it would be easy. But there are precedents.

Retailers can lease space to third parties. Think Apple Stores that already are inside Best Buy. Telcos know about wholesale. It's the same concept.