Shifting Dynamics in the US Wireless Market

As I’ve mentioned before, one of the markets I follow closely is the US wireless market, with a focus on the four largest network operators. These operators continue to be by far the largest channel for smartphone sales in the US, and what I’ll share today is a mix of insights on the wireless market itself and the implications for the smartphone market. The data I’m sharing here comes from a much larger data set I maintain on the market, and the charts are also part of the quarterly wireless deck in my decks subscription service.

T-Mobile Continues to Win in Phones

Phones continue to make up by far the largest single chunk of the wireless market, for all the talk about an exploding IoT industry, so we’ll start there. The postpaid model continues to dominate phone subscriptions in the US, and T-Mobile continues to lead the market in growth there, as it has for the last several years:

T-Mobile has added the most postpaid phone subscribers of any US operator for the last four years straight, with Verizon the only operator really giving it a run for its money. Verizon’s growth, though, dropped precipitously during 2016 and Q1 2017 as Sprint and T-Mobile pushed unlimited offerings and Verizon and AT&T resisted that trend. Since reintroducing unlimited offerings at the end of Q1, Verizon has recovered well. Interestingly, AT&T hasn’t recovered nearly as well, and has continued to see shrinkage in its postpaid phone base for the last two-plus years. Sprint saw a big recovery starting in 2013, and has now plateaued around the middle of the market.

T-Mobile Also Sells More Than Its Fair Share of Smartphones

One of the other interesting outgrowths of T-Mobile’s growth leadership is that it punches well above its weight in phone sales. The three main drivers are its outsize share of new postpaid subscribers, strong performance in the prepaid segment, and the higher device upgrade rate among its base, as shown below:

As you can see, here too AT&T comes in last, and by a significant margin, with T-Mobile first for most quarters, though pipped by Sprint in Q3. That disparity and the mismatch in phone subscriber growth translate into a dramatically different share of smartphone sales versus installed base, given that T-Mobile and Sprint are still much smaller in terms of subscribers than Verizon and AT&T:

As you can see, although Verizon has over a third of smartphone subscribers in this group, it sells just 28% of the smartphones, while AT&T’s mismatch is even bigger at 30% to 22%. T-Mobile, meanwhile, sells sells the most smartphones of any of the four, off the back of just a 21% share of the market, and Sprint’s sales share is also well above its base share. All of this means that, if you’re a smartphone vendor, you shouldn’t be swayed by each operator’s share of the smartphone base as much as by its share of sales, which might be considerably higher or lower.

Smartphone Sales Overall are Down Due to Longer Upgrade Cycles

Beyond the competitive dynamics, the other big thing to note from a smartphone perspective is that upgrade rates continue to lengthen. In the chart below, I’ve averaged out the upgrade rate from one of the charts above to create a single number for the four major operators, and I’ve also added in total postpaid smartphone sales for each quarter. As you can see, there’s a strong correlation between the two:

Both are trending downwards, as people hang onto their phones for longer, and therefore buy fewer new phones each year. There are still spikes in sales in Q4 of each year, but the spikes have been getting lower. Those spikes are, of course, driven in part by Christmas present buying, but also to a great extent by new device launches towards the end of the year, notably new iPhones going on sale in late September. The 2014 “super-cycle” driven by Apple’s first large-screen phones drove by far the biggest Q4 of sales ever, and it’s quite likely that we’ll see the first meaningful growth in several years this quarter with the launch of the iPhone X.

But the overall trend will continue to be downward, driven by both that slowing upgrade cycle and by the fact that there are fewer and fewer new smartphone customers to be had – the industry added just 9 million new postpaid smartphone subscribers in the past year, versus 19 million three years earlier. That, in turn, means the market will be more competitive and closer to zero-sum, with any gains by individual vendors necessarily coming at the expense of others. In that context, we’re going to continue to see the push up-market by those vendors with credibility in the super-premium smartphone space, mostly Apple and Samsung, while other vendors are forced to fight for the mid-market.

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Jan Dawson

Jan Dawson is Founder and Chief Analyst at Jackdaw Research, a technology research and consulting firm focused on consumer technology. During his sixteen years as a technology analyst, Jan has covered everything from DSL to LTE, and from policy and regulation to smartphones and tablets. As such, he brings a unique perspective to the consumer technology space, pulling together insights on communications and content services, device hardware and software, and online services to provide big-picture market analysis and strategic advice to his clients. Jan has worked with many of the world’s largest operators, device and infrastructure vendors, online service providers and others to shape their strategies and help them understand the market. Prior to founding Jackdaw, Jan worked at Ovum for a number of years, most recently as Chief Telecoms Analyst, responsible for Ovum’s telecoms research agenda globally.

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