What is Happening with Service Provider Mobile Phone Market Share?

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 represent connections of tablets, not 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.

But 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.

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.

U.S. Mobile Subscriber Share	Q2 2013 (ranking by subscribers, retail + wholesale)	source: Strategy Analytics
	Carrier	Subscribers (millions)
1	Verizon Wireless*	118.194
2	AT&T	107.884
3	Sprint	53.258
4	T-Mobile US	44.016

How Long Will U.S. Mobile Price War Last?

No price war ever lasts forever, in the communications business. So one might well ask how long the present U.S. mobile price war will last, though some might argue there is no real price war going on.

A reasonable expectation might be that we are less than half way through, with an ultimate duration of about two years of unusual efforts at price disruption, to be followed by a period when the leading contestants have adjusted enough to show they can weather the attack, and the attacker or attackers find they have gained share, but now have to switch to improving profits.

But that forecast also assumes no other major changes in U.S. market conditions, including such mundane occurrances as a major economic recession, major changes in regulatory policy or major merger activity in other parts of the communications market that intensify or diminish the importance of the mobile price war and market share positions.

One might also argue the price war will last as long as T-Mobile US believes it should continue to attack. So long as T-Mobile US can continue to add a couple million net new customers every quarter, the war is likely to continue.

If the rate of net additions starts to flatten, then T-Mobile US will have to begin weighing a shift in strategy from price disruption to earning profits. Right now it is too early to say T-Mobile US has any reason to change course.

In fact, T-Mobile US might actually believe its rate of net additions is about to escalate.

What matters is the impact on consumer welfare and supplier strength, after such a price war. Ironically, even if number-four T-Mobile US has launched an attack aiming to vault higher in the market share rankings, history suggests the effort could well end with stronger positions for Verizon and AT&T.

Ironically, a price war launched by an upstart often ends with the top firms in a more dominant position. The reason is simply that price wars hit profit margins and gross revenue per account, something a leading service provider can afford to absorb.

Often, smaller providers simply find they are unable, at some point, to maintain profits at all, and go out of business, or are absorbed.

Also ironically, regulator and policy maker efforts to sustain a market structure with four national providers, to provide competition, however successful in the short run, likely will fail in the long run.

The argument is that any mergers between the two smaller U.S. mobile service providers should be opposed because such a move would reduce competition. But market forces alone, under conditions of a price war, will weaken both the smaller firms. True, earnings will be pressured at the two bigger carriers as well.

But AT&T and Verizon have the financial strength to take the blows. Sprint and T-Mobile US ultimately are likely not to withstand the financial pressure.

Price wars, typically launched by smaller and upstart firms, tend to reduce average revenue per account, even if generating more gross revenue.

Eventually, that tends to lead to most of the smaller firms disappearing, either through acquisition by other larger firms or bankruptcy.

Consumer welfare might also be worse, eventually, as the additional competitors leave the market.

The present price war launched by T-Mobile US therefore will not last forever, and the issue is what market structure will remain when the war ends.

Though U.S. antitrust authorities and communications regulators might well oppose any merger between Sprint and T-Mobile US, the ultimate result is likely to be no more than three larger competitors, under any circumstances.

Verizon and AT&T still will be the largest firms in the market. The surviving third carrier is likely still to be twice as small, in terms of subscribers or revenue, as either AT&T or Verizon. Nor would it be implausible that, eventually, the top provider could gain share double that of the second provider, while the second provider (in terms of market share) has double the share of the third provider.

Some idea of what could happen is provided by the French mobile market, which has endured a two-year price war, ignited by Illiad’s Free Mobile.

And Orange CFO Gervais Pellissier thinks the French mobile price war that began in January 2012 is about to taper off.

"We are maybe not totally out of the tunnel but we do see positive trends," Pellissier said.

To be sure, Orange has had to cut costs to hold profit margins steady on lower sales because of the price war. In its most-recent quarter, Orange earnings fell about 3.8 percent, but profit margins were steady at about 31 percent.

But that is the point: Orange seems to have survived the war. Illiad has gained share, but even Illiad might be reaching a point where it now wants to turn attention to profits, rather than market share gains.

These are not "Normal Times" in the U.S. Communications Market

Under normal circumstances, the unusual success T-Mobile US is having, in terms of gaining subscriber market share, would be a very big story. 

In the present context of fundamental reshaping of U.S. communications markets overall, T-Mobile’s notable successes would be almost a footnote, as we are on the cusp of a major reworking of U.S. market structure.

At the same time as Comcast wants to acquire Time Warner Cable, a move that would make Comcast a dominant power in U.S. high speed access markets, AT&T is possibly going to make a move to become a national provider of video services, while Sprint prepares to rearrange the structure of the U.S. mobile market.

And other megadeals are surely coming. At the same time, the Federal Communications is trying to finalize, once and for all, network neutrality rules that make sense, many would argue.

With all that going on, T-Mobile US operational performance might arguably have less significance.

But T-Mobile’s market share gains are notable.

T-Mobile US net subscriber growth continued in its most-recent quarter, including net additions of 2.4 million, the first quarter that T-Mobile US has added more than two million net additions.

Since launching its marketing assault on the U.S. mobile market, T-Mobile has had four straight quarters where its net additions have topped one million each quarter.

Since the U.S. mobile market is largely saturated, the obvious question is where those customers are coming from, even if some are tablet accounts, as is sustaining net subscriber growth at the other three national carriers.

In the first quarter of 2014, T-Mobile had 67,000 “mobile broadband” (not phones) branded postpaid net additions, principally composed of tablets, compared to 69,000 in the fourth quarter of 2013.

Importantly, T-Mobile US added 1.3 million branded postpaid net additions while also cutting its churn rate on postpaid accounts to 1.5 percent.

Revenue was up but earnings dropped 12 percent. And that is the key strategic issue for T-Mobile US. Its strategy requires continued high market share gains to offset the high marketing costs and lower average revenue per account.

Essentially, T-Mobile is trading gross revenue and profit margin to gain market share. As always in such cases, the strategy can work so long as the company can grow its customer base fast enough that the extra customers compensate for lower average revenue per account.

Gross additions were 23 percent higher, quarter-over-quarter, and 136 percent higher, year-over-year. No other national U.S. mobile service provider is adding that percentage of new customers.

But gross revenue also was boosted by the acquired value of MetroPCS customers T=Mobile US gained by acquisition.

Service revenues for the first quarter of 2014 grew by 33.3 percent year-over-year primarily due to the inclusion of MetroPCS results for the full quarter, T-Mobile US says.

Service revenues increased by 3.3 percent quarter-over-quarter, even though T-Mobile US service plans now reflect adoption of plans with lower monthly service charges.

Branded postpaid average revenue per user (ARPU) decreased quarter-over-quarter by $0.69 or 1.4 percent to $50.01, an improvement compared to the quarter-over-quarter decline of 2.9% in the fourth quarter of 2013.

The issue, many would say is how long T-Mobile US can support such rates of subscriber growth.

All of those questions could appear in quite a different context, though, should several major mergers succeed.

Though only the Comcast deal to buy Time Warner Cable has formally been announced, it appears virtually certain that Sprint will make a formal bid to buy T-Mobile US. And it seems likely AT&T will make an offer to buy DirecTV.

That will mean Dish Network also is in play.

With such wholesale potential changes in the U.S. market, T-Mobile US organic growth will be less the story. A fundamental reshaping of U.S. competitive dynamics will emerge as the bigger story.

After Comcast, AT&T and Sprint Moves, Even More Big Deals are Coming

Ironically enough, Sprint’s main competitors are going to make it easier to convince regulators that its acquisition of T-Mobile US should be approved. For the simple matter is that a major change in U.S. communications market structure is building.

Sprint Corp. plans to make a bid for T-Mobile US as soon as June or July 2014, Bloomberg reports. Many considered that a questionable possibility. But action by other contestants now makes possible an argument that the Sprint deal is only a smaller part of a wider consolidation.

And that will improve Sprint’s chances of winning approval. That isn’t to say it will be easy. But such a bid clearly will be situated differently now that other contestants are moving to consolidate market share as well.

AT&T has approached DirecTV about a purchase. And Comcast wants to buy Time Warner Cable.

If all those possible deals become actual offers, Dish Network is certain to move on its own to find a merger partner as well, as Dish needs to bulk up as its core video entertainment business slows and eventually shrinks, and also needs to find a partner to help it build its new mobile network.

With all of that happening, the Sprint deal to buy T-Mobile US looks less challenging, from a regulatory perspective.

Earlier, it had appeared that Sprint would argue that competition in the U.S. mobile market would be enhanced if Sprint could gain scale by acquiring T-Mobile US. Though Sprint will make that argument, it now has a wider argument, namely that the whole U.S. communications and triple-play market is consolidating in a major way, making its purchase of T-Mobile US less significant than it might otherwise have been.

AT&T, by acquiring DirecTV, would for the first time become a national retailer of video entertainment.

That would not directly help AT&T compete with cable TV companies in the high speed access business, but certainly would add key revenues that would support the investment in higher-speed Internet access capabilities, as AT&T has said it now will do.

Sprint likely will argue it will use the greater scale, after a T-Mobile US acquisition, to use much of its Clearwire spectrum--as orginally was Clearwire’s business model--to support fixed high speed access, adding another competitor to the fixed network high speed access business in many markets.

To be sure, regulators are likely to worry more about the impact of all the mergers on high speed access competition, not consolidation in the video entertainment services segment of the market.

So both AT&T and Sprint are likely to emphasize the ways their proposed mergers would do so.

And more is coming.

With the possibility of a merger with DirecTV off the table, Dish Network would face much more pressure to link up with a firm that could help it build its mobile communications network and help Dish escape being a “satellite-only” communications provider.

Which specific partners might be involved is yet to be determined. But Dish almost has to make a move to keep up.

Verizon would  be the only national service provider that was not involved in a major deal to gain scale, but Verizon has not be thought the best fit for Dish, and Verizon also would face more scrutiny on the spectrum front, as would AT&T, if it had decided to make an effort to acquire Dish Network.

Though many have argued both Dish and DirecTV eventually would be bought by one or more of the U.S. telcos, many had argued Dish would be more valuable for AT&T, because of Dish’s mobile spectrum holdings.

And though the most likely scenarios involve a Dish deal with another access provider, particularly a service provider with core interests in the mobile market, it is conceivable a non-traditional provider with lots of spare cash might decide it is time to make a bold move as well.

Dish has a fair amount of spectrum and no network. But Sprint has designed its own network to accommodate wholesale access by third parties with their own spectrum resources. So it always is possible a Dish asset buyer could turn to Sprint to launch a new network.

Sprint’s big gamble on T-Mobile US just might face fewer obstacles than once feared. With all the other activity, Sprint can argue the merger with T-Mobile takes place within an already consolidating industry.

And the potential turmoil might provide just the opening a new entrant could play to advantage. With the increasing consolidation, a new facilities-based contestant would be viewed as a counterweight to the heft the legacy players are acquiring.

Such market-transforming deals often occur in pairs or trios, the reason being that big deals often are easier to pursue when other big deals also are being considered by regulatory authorities.

Conversely, it often is considered more difficult to pursue follow-on mergers once a big deal has happened, for the simple reason that markets have become more concentrated.

In this case, other contestants would be right to view major moves as easier to accomplish now, rather than waiting for all the other deals to be reviewed and possibly completed.

So watch for more big deals to be attempted.

Consumers Have No Idea How Much They Would Buy of a Product That Isn't Available

Steve Jobs famously maintained that one could not predict consumer demand for a product they never had seen, which is one reason why Jobs never put stock in consumer research.

Likewise, one might argue, all present estimates of the amount of video subscription service “avoided” by consumers is nearly meaningless for predicting consumer behavior in some future market.

The reason is simply that It is difficult to measure demand for  a product that is not available yet.

A November 2013 survey by Verizon Digital Media Services found significant consumption of non-linear video by Millennials, something that likely is surprising to nobody.

source: eMarketer

The survey found 13 percent of Millennials making do without any linear TV service, while some nine percent of other people did so.

But the important questions of whether consumers will pay for some future form of on-demand video, and how much, cannot be determined on the basis of present consumption, since the content many would pay for is simply not available.

But there are other issues as well. At present, one reason many Millennials do not buy linear TV services is actual lack of interest in the value proposition. Some simply do not believe they need to have access.

Others might do so if the value-price relationship were different. In fact, if the price-value relationship changes, it is possible that behavior could shift significantly.

Mobile Internet Providers in Asia Face Demand Uncertainty

Source: Asiabriefing

One of the great challengers mobile service providers face in much of Asia is how much demand there will be, in the future, for mobile Internet access, and how to supply that demand at prices users can afford.

The other problem is that present trends might not predict future behavior.

Mobile data consumption patterns in Asian countries might show “mean” (arithmetic average) of about a gigabyte a month, but the median (half use more, half use less) consumption is more on the order of 300 MB to 400 MB.

On the other hand, present consumption trends are likely skewed by use of mobile devices or dongles to support PC usage. Also, usage is further skewed by users in some countries, compared to others, as Nielsen data suggests.

In the Asia-Pacific region, about one percent of subscribers account for 29.2 percent of upstream traffic and 18.5 percent of downstream traffic, as well as 18.7 percent of aggregate bytes each month, Sandvine reports.

So “average” consumption is skewed by dongles or tethered access to support PC operations.

Smartphone data consumption patterns arguably are quite different, at least for the moment.

Still, Ericsson predicts, smartphone usage could approach a gigabyte a month for smartphone users in Asia by about 2016.

Source: Statista, Sandvine

To be sure, even those patterns do not tell us much about how demand will change as more Asian users get smartphones and start to consume more data.

And patterns could be quite different between the more developed and still developing parts of the mobile market.

But it would be a reasonably safe bet that consumption will grow to match developed Asian norms, over time, even if not at quite identical volumes.

Nearly half of all the data was consumed by video features and apps, according to Sandvine’s second half 2013 report. And, without, a doubt, appetite for video is going to be key.

So unless one wishes to argue that consumers in South Asia and Southeast Asia will not consume much video entertainment, something few likely would be willing to build a business plan upon, demand eventually is going to grow to gigabytes a month.

Mobile ISPs therefore are going to have to craft new strategies to stimulate and supply demand at prices consumers can afford. That is always a challenge in any developing market, of course.

But it will be an important challenge to supply networks that match expected demand, with infrastructure costs as much as an order of magnitude or two orders of magnitude cheaper than is possible today, using traditional mobile or fixed networks.

Present forecasts likely are unable to capture the non-linear development of Internet access in the region, though. The shift from feature phones to smartphones, role of new access platforms, relentless development of affordable smartphones and even the rates of growth in household income all are going to render today’s assumptions incorrect.

Netflix Speed on Comcast Network Improves 65%

In the US, the average speed on the Comcast network for Netflix streams grew 65 percent, from 1.51 Mbps in January 2014 to 2.5 Mbps in March 2014, after the two firms agreed to interconnect directly.



Though speed and packet delay are two different issues, it arguably is the case that unpredictable packet arrival times cause more quality disruption of video streams than absolute bandwidth. 



Direct connections, caching and use of content delivery networks are a few of the standard ways ISPs and app providers work to ensure better end user experience. 



New proposed Federal Communications Commission network neutrality rules intend to allow voluntary commercial agreements between ISPs and app providers to extend content delivery networks all the way to the end user, where today CDNs operate over the backbone networks, but not in the access network.



The boost in Netflix performance on Comcast, after the direct connection, suggests that such techniques do matter, especially for voice and video services.