The US Wireless Industry’s Pivotal Quarter

The US wireless industry is going through an interesting period. T-Mobile has captured much of the attention with its Un-Carrier strategy, while Sprint has also been reinventing itself under its new CEO over the past year. Meanwhile, AT&T and Verizon are shifting their focus to new areas beyond the traditional phone business. Even with all this ongoing change in the industry however, Q4 2015 promises to be a pivotal quarter, for several reasons.

The biggest quarter for switching

The fourth quarter of the year has often been the biggest one for subscribers switching between carriers. Last year, this trend was especially notable, as some 9.4 million subscribers chose to leave one of the big four carriers’ postpaid services during the quarter, the highest number of switchers for years. The chart below shows the number of people leaving the big four carriers’ postpaid services in each quarter (“Losses”), the total number of new postpaid customers joining these carriers each quarter (“Gross adds”), as well as the net number of new postpaid customers these carriers added (“Net adds”) and the net new phone customers they added (“Phone net adds”):

Postpaid adds and losses

As you can see, Q4 last year was an anomalous quarter, with higher numbers in three of these four categories. Interestingly,, there wasn’t actually much growth in the number of phone customers across the industry – much of this activity was simply people switching between the carriers and people adding tablets and other non-phone devices to their plans. But the switching activity was intense, with churn rates for all four carriers higher than the year before. What drove all this switching? Well, two primary things: more aggressive marketing and promotions and the launch of the iPhone 6, which we’ll come back to. The aggressive marketing was driven primarily by T-Mobile and Sprint, both of which had major promotions towards the end of the year designed to win new customers from the other carriers. Verizon and AT&T fought back, of course, but that was largely a defensive maneuver, without a lot of aggressive promotions of their own.

Smartphone sales were also through the roof last year

As well as being a huge switching quarter, Q4 2014 was also the largest quarter ever for smartphone sales in the US. The big four carriers between them sold over 40 million smartphones in one quarter, far higher than any previous quarter, and around 10 million more than both the prior quarter and the same quarter a year ago, which was already that year’s high point:

Smartphone sales

What drove this enormous quarter for smartphone sales? The launch of the iPhone 6. That launch pulled in a lot of upgrade activity that would normally have happened in the first couple of quarters of the following year into the fourth quarter. But it also acted as a vehicle for a lot of switching between carriers. Sprint and T-Mobile in particular made a lot of hay over their great pricing and promotions on the new iPhones, as both carriers are very keen to increase the share of iPhones – and the kinds of customers who buy iPhones – in their base. Yes, all the carriers also sold plenty of other phones in the quarter, but the iPhone’s share rose significantly above even normal Q4 levels.

Questions for Q4 2015

All of that brings us back to the quarter we’re currently in. What does all this activity in the fourth quarter last year portend for this year’s big quarter? Well, we already know Android smartphone vendors seem to be suffering even worse this year than last year in terms of sales. We also know sales of the new iPhones are looking very healthy on a global basis, but it’s too early to know for certain how they’re faring in the US specifically. My hunch is, between iPhone sales around the same level or slightly down from last year and Android sales well down on last year, we’ll actually see the first meaningful year-on-year drop in smartphone sales in the US market. That’s a big shift, given that smartphone sales have grown by 3-5 million year on year in most recent quarters, and it may be the first of a number of quarters of slower smartphone growth in the US market. Apple should do fine, especially since its global growth is now driven by many other markets around the world, not the least of which is China. But it may well be a tough holiday quarter for Android OEMs.

The other thing that’s becoming clear now we’re roughly halfway through the quarter is that carrier marketing is going to be at least as full-on as last year, with T-Mobile announcing free lower-quality video streaming on many of its plans and Sprint announcing this past week it will halve any of the other three carriers’ service pricing. The Sprint promotion is something of a repeat of last year’s main offering, but this time around it includes T-Mobile, which should make it at least as effective as last time. Verizon and AT&T haven’t announced big new initiatives yet and it’s quite possible they won’t, but it is likely they’ll allow their telemarketing teams and in-store reps to present competitive offers to customers threatening to leave and to potential new customers. Overall switching will likely be a little lower than last year without the massive iPhone 6 driver, but I suspect we’ll still see a really significant quarter for switching. The big question is just which of the carriers make out best from all the switching – AT&T has struggled with its phone net adds recently while Sprint has just barely broken into the black in terms of quarterly growth. Verizon has largely held its own and T-Mobile has been king of phone growth for some time now, but even its growth has been slowing. This quarter could be a real boon for some carriers, and could put a real dent in other carriers’ numbers – it’s too soon to tell which will be which, but it’s certainly going to be an important quarter either way.

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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.

2 thoughts on “The US Wireless Industry’s Pivotal Quarter”

  1. In the paragraph just before the second graph, I think you meant to write “Q4 2014” instead of “Q4 2015”.

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