us wireless market trends q2 2015
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Jan Dawson Chief Analyst
(408) 744-6244 jan@jackdawresearch.com
@jandawson
US wireless market trends for Q2 2015
Introduction• This analysis mostly focuses on five players: AT&T, Sprint, T-Mobile,
Tracfone, and Verizon Wireless
• These are the four largest operators in the US wireless market, four of them network operators and Tracfone a mobile virtual network operator (MVNO), running on the other companies’ networks
• US Cellular is the only other wireless operator with several million subscribers, but there are many other smaller operators with less than a million subs
• As such, this analysis captures much of the total market, but not all of it. However, these players dominate, and are likely to take an ever-increasing share of the total market going forward
2
Note• This deck represents the bottom tier of Jackdaw
Research’s analysis of the US wireless market
• We also provide the underlying data behind these charts to clients who subscribe to a higher tier
• The highest tier includes custom presentations on market trends in addition to the data
• If you are interested in these options, please contact Jan Dawson at jan@jackdawresearch.com
3
Definitions 1• Postpaid: the majority of retail subscribers today are
described as postpaid, i.e. they pay a monthly bill based on a plan and overages. Postpaid subscribers traditionally signed two-year contracts, though this is starting to change
• Prepaid: around a quarter of retail phone subscribers, who add credit to their accounts before it is used. Prepaid plans increasingly resemble postpaid plans in certain ways, including monthly billing
4
Definitions 2• ARPU: average revenue per user. The average
monthly amount paid by a subscriber for services rendered. In the past, the major subscriber revenue metric, but increasingly being replaced by:
• ABPU: average billings per user. Whereas ARPU only includes service revenues, ABPU also includes payments for equipment installment plans, and so is a better reflection of total spend by customers
5
Definitions 3• Churn: the average percentage of subscribers who left
the carrier each month during the quarter
• Net adds: the net difference in the subscriber base from one quarter to the next, being the difference between the new subscribers added and those lost to churn
• Gross adds: the gross number of new subscribers (i.e. before those lost to churn is subtracted). Can be calculated roughly from churn and net add numbers but is generally not directly reported
6
Contents
• Financials - revenues, profitability, capital intensity
• Subscribers - total subs, net adds, churn
• Device trends - subsidies, penetration
7
Wireless revenues, $m
8Source: Company reporting, Jackdaw Research analysis
1. Financials
0
10,000
20,000
30,000
Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015
AT&T Sprint T-Mobile Tracfone Verizon
Revenue growth, year on year
9Source: Company reporting, Jackdaw Research analysis
1. Financials
-10%
0%
10%
20%
30%
40%
Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015
AT&T Sprint T-Mobile Tracfone Verizon
0%
10%
20%
30%
40%
50%
Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015
AT&T Sprint T-Mobile Tracfone Verizon
Wireless EBITDA margins
10Source: Company reporting, Jackdaw Research analysis
Note: TMO results in Q2 2014 adjusted to strip out the effects of a spectrum sale worth $731m. Sprint in Q4
2014 adjusted to remove impact of impairments
1. Financials
Wireless operating margins
11Source: Company reporting, Jackdaw Research analysis
Note: TMO results in Q2 2014 adjusted to strip out the effects of a spectrum sale worth $731m. Sprint in Q4
2014 adjusted to remove impact of impairments
1. Financials
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015
AT&T Sprint T-Mobile Tracfone Verizon
Wireless Capital intensity
12Source: Company reporting, Jackdaw Research analysis
1. Financials
0%
10%
20%
30%
Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015
AT&T Sprint T-Mobile Verizon
Sprint hasn’t reported wireless capex for Q2 2015 yet, and appears to have switched to reporting cash capex only
Total subscribers, 000s
13Source: Company reporting, Jackdaw Research analysis
2. Subscribers
0
25,000
50,000
75,000
100,000
125,000
Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015
AT&T Sprint T-Mobile Tracfone Verizon (retail only)
0
25,000
50,000
75,000
100,000
125,000
AT&T Sprint T-Mobile Tracfone Verizon
Postpaid PrepaidConnected Wholesale
Subscriber breakdown, 000s
14Source: Company reporting, Jackdaw Research analysis
Note: Verizon doesn’t report wholesale or connected devices (M2M) subscribers. In addition, since Sprint
reports its connected devices subscribers as part of its retail postpaid and wholesale subscribers, but also
reports these separately, we have broken them out and subtracted them from the postpaid and wholesale
subscriber totals to avoid double-counting
2. Subscribers
Total net adds, 000s
15Source: Company reporting, Jackdaw Research analysis
2. Subscribers
-1,000
0
1,000
2,000
3,000
Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015
AT&T Sprint (platform) T-Mobile Tracfone Verizon
-1,000
0
1,000
2,000
3,000
AT&T Sprint platform T-Mobile Tracfone Verizon
Postpaid Prepaid Connected Wholesale
Net add breakdown, 000s
16Source: Company reporting, Jackdaw Research analysis
Note: since Sprint reports its connected devices subscribers as part of its retail postpaid and wholesale subscribers, but also reports these
separately, we have broken them out and subtracted them from the postpaid and wholesale net add totals, In addition, Verizon doesn’t report
connected or wholesale subscribers or net adds so these are missing.
2. Subscribers
Postpaid net adds by device, 000s
17Source: Company reporting, Jackdaw Research analysis
2. Subscribers
-500
0
500
1,000
1,500
AT&T Sprint T-Mobile Verizon Wireless
Postpaid phone net adds Postpaid tablet net adds
Postpaid phone net adds, 000s
18Source: Company reporting, Jackdaw Research analysis
2. Subscribers
-750
-500
-250
0
250
500
750
1,000
1,250
1,500
Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015
AT&T Sprint T-Mobile Verizon
Postpaid tablet net adds, 000s
19Source: Company reporting, Jackdaw Research analysis
2. Subscribers
0
500
1,000
1,500
Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015
AT&T Sprint T-Mobile Verizon
Total net adds for big 5, 000s
20Source: Company reporting, Jackdaw Research analysis
2. Subscribers
-2,000
0
2,000
4,000
6,000
8,000
Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015
Postpaid Prepaid Wholesale ConnectedTotal Phones Tablets
Total subs for big 5
21Source: Company reporting, Jackdaw Research analysis
2. Subscribers
0
100,000
200,000
300,000
400,000
Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015
Postpaid Prepaid Connected Total
Total subs for big 5
22Source: Company reporting, Jackdaw Research analysis
Note: excludes wholesale to avoid double-counting. Figures
for end of Q2 2015
2. Subscribers
10%
21%
69%
Postpaid Prepaid Connected
Market makeup
23
Note: all numbers and percentages estimated. Totals only represent the five major operators
Source: Company reporting, Jackdaw Research analysis
2. Subscribers
10%
4%
6%
8%
9%
13%
50%
Total postpaid smartphonesTotal prepaid smartphonesTotal postpaid feature phonesTotal prepaid feature phonesTotal postpaid tabletsTotal other mobile broadband etcTotal connected devices (excl. Verizon)
Churn – postpaid
24Source: Company reporting, Jackdaw Research analysis
2. Subscribers
0%
1%
2%
3%
Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015
AT&T Sprint T-Mobile Verizon
Churn – prepaid
25Source: Company reporting, Jackdaw Research analysis
2. Subscribers
0%
2%
4%
6%
Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015
Sprint T-Mobile Tracfone
Losses implied by postpaid churn, 000s
26Source: Company reporting, Jackdaw Research analysis
2. Subscribers
0
1,000
2,000
3,000
4,000
Q2 2012 Q4 2012 Q2 2013 Q4 2013 Q2 2014 Q4 2014 Q2 2015
AT&T Sprint T-Mobile Verizon
Estimated postpaid gross adds, 000s
27Source: Company reporting, Jackdaw Research analysis
2. Subscribers
0
1,000
2,000
3,000
4,000
5,000
6,000
Q2 2012 Q4 2012 Q2 2013 Q4 2013 Q2 2014 Q4 2014 Q2 2015
AT&T Sprint T-Mobile Verizon
$45
$50
$55
$60
$65
$70
Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015
AT&T (phone-only)SprintT-MobileVerizon (ARPA/CPA)
ARPU – postpaid
28Source: Company reporting, Jackdaw Research analysis
Verizon’s ARPU is estimated from its ARPA (per account) figure, while others are as reported. These numbers do not include equipment
installment payments, whereas the ABPU figure on the next slide does
2. Subscribers
ABPU – postpaid
29Source: Company reporting, Jackdaw Research analysis
2. Subscribers
50
55
60
65
70
Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015
AT&T Sprint T-Mobile Verizon
ARPU - prepaid
30Source: Company reporting, Jackdaw Research analysis
2. Subscribers
$0
$10
$20
$30
$40
Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015
Sprint T-Mobile Tracfone
Smartphone sales as % of postpaid phone sales
31Source: Company reporting, Jackdaw Research analysis
3. Device metrics
60%
70%
80%
90%
100%
Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015
AT&T Sprint T-Mobile Verizon
0
3
6
9
12
15
Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015
AT&T Sprint T-Mobile Verizon
Number of smartphones sold, m
32Source: Company reporting, Jackdaw Research analysis
Note: for AT&T and Verizon, these numbers represent postpaid phone sales only. For Sprint and T-Mobile, they include prepaid
phone sales. Sprint has unfortunately stopped reporting this metric.
3. Device metrics
% of postpaid phone base on smartphones
33Source: Company reporting, Jackdaw Research analysis
3. Device metrics
0%
30%
60%
90%
Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015
AT&T Sprint T-Mobile Verizon
0%
2%
4%
6%
8%
10%
12%
Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015
AT&T Sprint T-Mobile Verizon
% of postpaid phone base upgrading in quarter
34Source: Company reporting, Jackdaw Research analysis
Note: Sprint and T-Mobile had identical numbers in Q4 2013 and Q1 2014. Hence, the lines representing them in the chart overlap each other during those two quarters. AT&T didn’t report this metric for several quarters but did again in Q4 2014.
3. Device metrics
Equipment revenue, $m
35Source: Company reporting, Jackdaw Research analysis
3. Device metrics
0
1,000
2,000
3,000
4,000
5,000
Q1 2012 Q3 2012 Q1 2013 Q3 2013 Q1 2014 Q3 2014 Q1 2015
AT&T Sprint T-Mobile Tracfone Verizon
Installment billings, $m
36
3. Device metrics
0
200
400
600
800
1,000
1,200
1,400
1,600
Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015
AT&T (actuals and estimates)Sprint (includes Lease plans)T-MobileVerizon (actuals and estimates)
0%
10%
20%
30%
40%
50%
60%
70%
Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015
AT&T Sprint Verizon
% of postpaid sales off subsidy system
37
Note: T-Mobile no longer reports this metric, but had passed 80% in Q1 2014, when it last reported.
3. Device metrics
% of postpaid base off subsidy model
38
3. Device metrics
0%
20%
40%
60%
80%
100%
Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015
AT&T Sprint T-Mobile Verizon
Jan Dawson Chief Analyst
(408) 744-6244 jan@jackdawresearch.com
@jandawson
Thank you
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