Apple Catches Samsung in Smartphone Market Share

Apple has pulled nearly even with Samsung in smartphone shipments, International Data Corp. now reports.

Having spent 11 quarters prior to the fourth quarter of 2014 as the number two smartphone vendor in terms of shipments, Apple just 600,000 units fewer than Samsung in the fourth quarter.

In the same quarter of 2013, Apple trailed Samsung by more than 33 million units.

IDC also reported that smartphone vendors shipped a total of 375.2 million units during the fourth quarter of 2014, representing 28.2 percent growth year over year.

Sequential growth was about 12 percent.

Samsung had 20 percent share while Apple had nearly 20 percent share in the fourth quarter. The next three suppliers in the top five are Chinese: Lenovo with 6.6 percent share; Huawei with 6.3 percent share and Xiaomi with 4.4 percent share.

For the full year, the worldwide smartphone market saw a total of 1,301.1 million units shipped, up 27.6 percent from the 1,019.4 million units shipped in 2013.

Top Smartphone Vendors (Units in Millions)
Vendor	4Q14 Shipment Volumes	4Q14 Market Share	4Q13 Shipment Volumes	4Q13 Market Share	Year-Over-Year Change
1. Samsung	75.1	20.01%	84.4	28.83%	-11.0%
2. Apple	74.5	19.85%	51.0	17.43%	46.0%
3. *Lenovo	24.7	6.59%	13.9	4.75%	77.9%
4. Huawei	23.5	6.25%	16.6	5.66%	41.7%
5. Xiaomi	16.6	4.42%	5.9	2.03%	178.6%
Others	160.9	42.9%	120.9	41.31%	33.1%
Total	375.2	100.0%	292.7	100.0%	28.2%
source: IDC

AWS-3 Auction Ends: Prices Arguably are at "Bubble" Levels

It isn’t yet clear precisely how much the price of one MHz-pop of mobile spectrum in the U.S. market has changed, now that the AWS-3 spectrum auction has concluded.

But it is fair to say the amounts bid likely will represent prices that are as much as 250 percent higher than the last auction of AWS-2 mobile spectrum.

Few, if any, expected the spectrum prices to be bid at such levels. Even in the early bidding rounds, prices grew exponentially.

It is hard to say how the sharp rise in prices might affect future auctions, such as the 600-MHz TV spectrum auctions scheduled for 2016.

Some might argue the AWS-3 prices were so high because many bidders think the 600-MHz auctions now are too uncertain, both in terms of spectrum that might be released, and the uniformity of released spectrum in the major markets where the need for spectrum is greatest.

AT&T and Verizon, the expected big winners of AWS-3 spectrum, reasonably would be working under the assumption they cannot gain big chunks of new spectrum by buying other mobile service providers, as regulatory authorities clearly have signaled they will not allow that to happen.

So even if other entities (Comcast, Sprint, T-Mobile US and others) might have other options, neither AT&T nor Verizon can hope to acquire lots of new spectrum by buying another large U.S. mobile service provider.

There is the potential chance to acquire spectrum, but no other assets, from Dish Network, which, with the recent prices bid for AWS-3 spectrum, might conclude it can sell its spectrum and avoid getting into the mobile business at all. Some have speculated that has been Dish Network’s possible objective all along.

One might note that the AWS-3 prices are higher than anything seen since the Internet and telecom bubble days leading up to 2000. That will hardly be reassuring for many observers.

FCC Adopts New 25-Mbps Definition for High Speed Access

The Federal Communications Commission has upped the definition of “broadband Internet access” to a minimum of 25 Mbps downstream and 3 Mbps upstream. In one sense, the revision makes sense: high speed access speeds are climbing about as fast as Moore’s Law would suggest.

The definitional change will be reflected in FCC and other policies to spur faster broadband deployment in rural areas. The last revision was made in 2010, when the FCC redefined broadband as 4 Mbps downstream and 1 Mbps upstream.

In other words, in five years, the FCC has boosted the definition of broadband by an order of magnitude. That, the agency says, reflects “advances in technology, market offerings by broadband providers and consumer demand.”

And yet the FCC also maintains that broadband deployment in the United States is failing to

keep pace with today’s advanced, high-quality voice, data, graphics and video offerings.”

Using the updated service benchmark, the FCC argues that 55 million Americans, representing 17 percent of the population, lack access to advanced broadband.

Some might say this is a “moving of the goalposts” scenario, however reasonable the change of definition might be. Oddly, 10 Mbps Ethernet access now does not qualify as “broadband,” either, which sort of complicates analysis.

Laudable though boosting the minimum targets and definitions, some might say a necessary consequence is that the government might keep claiming no progress is being made, because it keeps redefining the definitions to create the very “gap” the government then decries.

That is true even if one agrees that 25 Mbps is not a bad lower limit, in some respects, as speeds keep increasing. The new definitions will have to scale as the top bandwidths start to routinely be offered at 100 Mbps to 1 Gbps, some might argue.

The issue, though, is that there no longer is any fixed definition of speed, only relative definitions. Some might say it is nonsense to effectively redefine 10 Mbps Ethernet as narrowband.

The revisions also mean a longitudinal comparison of progress is complicated, since the definitions keep changing.

Also, using the new definition, a Comcast that had acquired Time Warner Cable would have perhaps 50 percent market share of high speed access connections in the United States, a number so high it would trigger antitrust concerns.

In 2012, for example, the FCC reported that 19 million U.S. residents, about six percent of the population, lacked broadband access.

The latest report, using the new definition, suggests that 55 million U.S. residents, or 17 percent of the population, lack broadband access.

But the 2012 report also indicated that 27  percent of U.S. residents already had access to networks providing 100 Mbps service.

In fact, the 2012 report indicated that 89 percent of U.S. residents could buy service at 10 Mbps. Some 64 percent of U.S. residents could buy service at 25 Mbps and 55 percent already could buy service at 50 Mbps.

The new definition suggests high speed access has gone backwards. It clearly has not, though we will not have the FCC’s own analysis of how much faster speeds have gotten, until the full report is released.

How Big are M2M Connection Revenues, Today?

Machine-to-machine communications are the plumbing for the Internet of Things, and therefore underpins communication service provider interest and revenue potential from the IoT, one might argue.

For that reason, IoT is the larger of the two markets. The analogy is the current relationship between Internet access and Internet application revenue streams, where application companies earn multiples of access revenue.

If global mobile revenue is about $1.2 trillion, as estimated by the GSMA, total mobile ecosystem revenues are about $2 trillion, roughly 15 percent of global mobile revenues are generated by Internet access and M2M represents an incremental one percent of present revenues, then

M2M revenue might represent something like $1.8 billion, annually, for the mobile industry.

Some estimate mobile M2M connection revenue at perhaps $1.5 billion to $2.4 billion, depending on the assumptions about recurring monthly revenue for an M2M connection.   

Why AT&T 4Q 2014 Results Really Don't Matter

One might argue fourth quarter 2014 AT&T results almost do not matter, if U.S. regulators approve AT&T’s acquisitions of DirecTV, Iusacell and Nextel Mexico. The reason is that the revenue and customer profile will change, overnight.

AT&T now faces shrinking legacy services revenue, in both consumer and business segments. In the consumer segment, new services continue to grow, but AT&T is reaching saturation in the consumer segment.

In the business segment, new services likewise are growing, but not enough to offset losses in legacy services. The point is that, no matter how much effort or capital AT&T throws at those problems, the firm is unlikely to make gains commensurate with the investments and efforts.

So AT&T is making rational choices about where to invest for revenue growth. In fact, the collective impact of the three acquisitions will be to boost business segment revenue and also boost growth in the service that arguably drives most AT&T consumer revenue growth, namely video entertainment.

Granted, how one aggregates and reports revenue sources matters. But AT&T, post-acquisitions, arguably will have a different revenue profile than AT&T pre-acquisitions.

In the fourth quarter, AT&T broke its revenue sources into mobility, consumer and business. Mobility represented possibly 60 percent of total revenue. Business revenues represented possibly 25 percent of total revenue, All consumer revenue was about 15 percent.

After the acquisitions, AT&T estimates its revenue will be lead by business segment revenue, followed by U.S. video and high speed access. Consumer mobile will represent something more than 25 percent.

Collectively, the business segment and U.S. broadband (video and high speed access) will represent about 75 percent of total revenue.

That is a big change in revenue sources, in a very short time, and illustrates AT&T’s “growth through acquisition” strategy. Unlike some other firms, AT&T always has grown through acquisition more than organic growth.

In fact, fourth quarter 2014 results illustrate the reasons AT&T might want to make those acquisitions. Fixed line segment revenues were a little better than flat, even if consumer U-verse revenues grew about 22 percent.

Fixed network business segment revenues fell sequentially and year over year, though new product segments grew about 14 percent.

In other words, further revenue growth in the existing fixed network business is difficult.

Mobile revenues grew 7.7 percent, driven substantially by equipment revenues that increased 72 percent. But mobile service revenues dropped 3.7 percent. In other words, the existing mobile business also is mature.

AT&T added a net 1.9 million mobile accounts, led by gains in postpaid and connected devices.

The company added 854,000 postpaid subscribers, up both year over year and sequentially.

Connected device net adds were 1,296,000, including about 800,000 connected cars.

Postpaid net adds include 148,000 smartphones and 969,000 postpaid tablet net adds in the quarter.

Also, AT&T is nearing the end of what it can do to protect its customer base from churn, using shared data plans.

Mobile Share plans, including Mobile Share Value, now represent more than 52 million connections, or almost 70 percent of postpaid subscribers. That is significant because churn rates for such customers are lower than for single device or single user accounts.

At the end of the fourth quarter, half of Mobile Share accounts had 10 gigabyte or larger data plans, up from 27 percent in the year-ago quarter. That helped drive an 18 percent year-over-year increase in wireless data billings. In total, about 85 percent of postpaid smartphone subscribers are on usage-based data plans (tiered data and Mobile Share plans), compared to 75 percent a year ago.

New products are driving revenue growth, but arguably not as fast as legacy services are declining.

Total adjusted U-verse revenues grew 21.9 percent year over year. But total fourth-quarter wireline revenues were $14.6 billion, down one percent year over year and down slightly sequentially, p 0.4 percent year over year adjusting for the sale of some assets.

Total revenues from business customers were $8.6 billion, down 2.8 percent versus the year-earlier quarter, down 1.8 percent year over year when adjusted for asset sales.

New services including VPNs, Ethernet, cloud services, hosting, IP conferencing, VoIP, MIS over Ethernet, U-verse and security services grew 13.8 percent versus the year-earlier quarter and grew 14.3 when adjusted for asset sales.

During the quarter, the company added 31,000 U-verse high speed access subscribers, helping lift consumer fixed network revenue 2.4 percent.

U-verse, which includes high speed Internet, TV and Voice over IP, now represents 67 percent of wireline consumer revenues, up from 57 percent in the year-earlier quarter. Adjusted consumer U-verse revenues grew 21.1 percent year over year.

Overall, total wireline broadband subscribers decreased by 51,000 in the quarter but slightly increased for the full year.

Total U-verse high speed Internet subscribers now represent 76 percent of all wireline broadband subscribers, compared with 63 percent in the year-earlier quarter.

U-verse TV added 73,000 net subscribers in the fourth quarter.

And though bundling has become the primary offer for consumer customers, AT&T’s ability to grow by that method is waning.

More than 97 percent of AT&T’s video customers already subscribe to bundled services.

Nearly 66 percent of U-verse TV subscribers take three or four services from AT&T.

To supply revenue growth, AT&T has to make acquisitions.

Service Providers Could Lose Up to 1/2 of Their Customers in 12 Months

Telecommunications service providers might lose as much as half their current customers in one year, a new global survey by Ovum suggests.

The survey of 15,000 consumers and 2,700 enterprises in 15 major global markets found that only about half of surveyed customers definitely had no plans to leave their current suppliers.

About 25 percent of all users globally say they will definitely change providers within 12 months, while 25 percent reported they might do so.

Those findings are not necessarily unusual, even if, in markets where the triple play offer is standard, customer churn rates are far lower, on the order of 12 percent to perhaps 15 percent annually. That tends to be true, in the U.S. market, for example, for the largest service providers, including AT&T, Verizon and Comcast.

Churn rates for smaller service providers still are in the 24 percent to perhaps 36 percent range.

Two decades ago, churn rates for constituent triple play services--even at the biggest companies--could range as high as 36 percent annually.

But results vary widely by market, and likely are highly affected by the degree of product bundling.

The survey finds that almost twice as many customers of Airtel India or LG U+ in Korea plan to churn more than the global average of 23 percent. In contrast customers of Vodafone Germany or NTT DoCoMo in Japan are much more loyal, with only about 10 percent indicating they plan to switch operators, Ovum reported.

The survey shows that the quality of the mobile broadband experience is the leading driver for mobile customer churn rates, with 37 percent of consumers globally saying that they either have left or plan to move to another provider because of slow connection speeds.

“When we asked consumers to rate a range of activities on a scale from ‘essential’ to ‘unimportant’, browsing the Web came top, with nearly 6 out of 10 consumers rating it as essential,” said  Angel Dobardziev, Ovum practice leader.

Watching TV was rated by only three out 10 consumers as essential, scoring as less important than reading the news (50 percent of consumers), reading a book (45 percent) and listening to music (42 percent).”

The Ovum findings illustrate one leading problem for service providers in most markets, namely the impact of competition. The other, and strategically more dangerous problem, is abandonment of services such as fixed network voice and mobile text messaging, or the beginnings of a potential abandonment of linear subscription video.

Losing customers to a competitor is a key problem. Disinterest in a product category is more dangerous, long term.

Sky Becomes a Quadruple-Play Service Provider

U.K.-based Sky is about to enter the U.K. mobile service provider market, becoming a mobile virtual network operator using the Telefónica UK network in 2016.

The move will make Sky a quadruple-play services provider, as it already sells fixed line high speed access, fixed network voice and video entertainment.

Sky is the second-largest provider of consumer high speed access, with more than five million customers. Sky also sells a triple-play package to 40 percent of all its customers.

Telefónica UK will give Sky wholesale access to 2G, 3G and 4G services over its nationwide network.

Telefónica UK also is the wholesale supplier for the largest MVNO, Tesco Mobile. The latest move by Sky simply illustrates the fact that the consumer telecom market now is based on triple-play or quadruple-play offers, not discrete services.