The Devices on the US Mobile Networks

As part of work I’m doing for some of my clients, I created this chart which shows the makeup of the device base on the major US wireless networks. I thought I’d unpack it a little for Tech.pinions Insiders:

US mobile market makeup

The pie chart represents the devices on the five largest US wireless operators, including the four major network operators (AT&T, Sprint, T-Mobile and Verizon Wireless) and the largest mobile virtual network operator, Tracfone. It excludes the network operators’ wholesale subscribers (many of which are Tracfone customers), to avoid double counting.

Smartphones dominate

As you might expect, smartphones dominate the picture. I’ve actually separated out postpaid and prepaid smartphones, but together they constitute almost two thirds of the total. Among all phones, smartphones now account for around 75%, but 17% of total wireless connections among these operators are still feature phones. That may not sound like a lot, but when you realize the pie chart represents around 340 million devices, 17% is actually large — around 58 million subscribers. Given the rates of conversion to smartphones, it’s likely many of these 58 million will become smartphone users over the next two years, representing a significant additional opportunity for vendors during that time.

Phones aren’t growing

The pie chart is a snapshot of a moment in time: specifically, the end of December 2014. What you don’t see is how this picture is changing over time, or how fast the various pieces are moving. But the reality is phones as a total base are barely growing at all. There are about 200 million postpaid phones and about 75 million prepaid phones on these operators, and that number isn’t moving by more than a million or two per year. The rapid growth in smartphone adoption gives the impression of a dynamic market, but the main movement behind those numbers isn’t market growth but conversion from feature phones to smartphones. A year ago, there were around 190 million smartphones in this group, and now there are almost 220 million, with the decline in feature phones accounting for most of that growth.

“It’s all about not phones”

Back in January, during AT&T’s Developer Event at CES, PC Mag analyst Sascha Segan (who covers mostly phones) tweeted the following:

And that’s a pretty good summary of the growth prospects for the US wireless market: it’s all about not phones. Smartphones will grow, but the phones category as a whole won’t. That’s really what the rest of the pie chart is about. The light gray category really isn’t growing – that’s “other mobile broadband devices” and it’s mostly things like standalone WiFi hotspots, connected laptops, 4G dongles etc. Much of that market is being displaced by the hotspot functionality in smartphones and tablets, so it’s actually likely to decline over the next few years. But the other two categories are where the growth will be.

Tablets overtake phones as a source of growth

Tablets are already growing rapidly, albeit from a small base. The carriers have struggled historically to get consumers to buy cellular-enabled tablets as opposed to WiFi only ones, because of the combined cost of the modem ($129 for iPads) and the service fees associated with them. The price delta for 4G-enabled tablets hasn’t really come down, but carriers are starting to find ways around the high service fees. T-Mobile has been giving away a small amount of data with tablet sales, while AT&T and Verizon have been allowing subscribers to attach tablets to shared data plans relatively cheaply. Every carrier except T-Mobile added more new tablets to their subscriber bases in Q4 than they added phones and this trend is here to stay. Verizon continues to be the leader at adding tablets, mostly because it has a tablet it sells exclusively at a fairly low price as a way to drive adoption. But AT&T is in a strong second place, and the four major carriers between them added almost 3 million tablets in Q4, compared with just 1.4 million postpaid phone customers. Tablets will continue to be a source of overall growth for carriers, though not a huge driver in the grand scheme of things.

Connected devices are the real driver of growth

The thing that’s really going to drive most of the growth going forward is the connected devices category. For the uninitiated (or simply those wondering whether all the devices I’ve already described aren’t connected devices), “Connected Devices” is the term used by carriers to describe devices connected to the networks which aren’t sold with traditional service plans. This includes e-readers such as Kindles, which are sold to customers with the wireless connectivity built in for no fee. It also includes a variety of machine-to-machine (M2M) services which rely on cellular connectivity and the increasing number of connected cars hitting the market. For AT&T in particular, that connected car market has been a big deal. It added 1.3 million connected cars in the second half of 2014 alone and it has basically sewn up the major manufacturers for 4G connectivity in 2015 model year cars. Verizon, having missed out on selling to those car manufacturers directly, is launching Verizon Vehicle, an aftermarket solution that can target the millions of cars already on the roads. Sprint also has a dedicated automotive team going after both consumer vehicles and commercial transportation.

Connected home solutions, broader M2M services, and many other opportunities have the potential to drive the market well beyond its current size, even as traditional devices like phones and tablets barely move the needle. I believe AT&T is best placed to capture this future growth with its progress in Connected Cars, its Digital Life home services, and its broader enterprise base. While all the carriers continue to squabble over the same phone subscribers, it’s this area where all of the carriers should really be focused.

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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.

4 thoughts on “The Devices on the US Mobile Networks”

  1. Interesting, thank you. What surprises me most in “connected devices”, already higher than I thought.
    Is there any move from per-device model to per-user, or per-data ?
    Tablet contracts are a hard sell: most are sedentary (wifi), most can be tethered to a phone (might be France-specific: usually contractually allowed or at least not enforced against unless you abuse it. Not yet a legal right but might become one w/ net neutrality law), and data usage pattern (=when on occasional trips, mostly) doesn’t mesh with a fixed contract.

    1. In the US, the move is towards shared data plans, where you have a single data allowance shared across multiple devices, with a per-device fee in addition (lower for tablets than for smartphones, which come with unlimited voice and SMS).

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