Where Has All the Mobile Revenue Gone?
For the first time ever in the US wireless industry, service revenue growth stagnated in the second quarter, and T-Mobile is partly to blame.
It's easy to blame the "uncarrier" for a lot of the dynamics of the second quarter, but here's why: T-Mobile US Inc. was the first to introduce new equipment installation plans in place of subsidies, causing the other operators to respond. As a result, service revenue was naturally lower, as hardware sales went up in its place. (See Tablets, Prepaid, Competition Shake Up Q2, T-Mobile Kills Contracts, Launches LTE Network and AT&T's Next to Shorten Wait for Device Upgrades.)
That isn't the whole story, however. Moffett Research analyst Craig Moffett points out that, adjusted for the effect of equipment installation plans, service revenue growth is up only 1.7% year-over-year -- less than half the growth rate of a year ago. And on a sequential basis, even after the adjustment, the growth rate is negative.
"Service revenue growth in the US wireless market dropped toÖ wait for itÖ 0.0% in the second quarter," Moffett wrote in a research note. "That's right. As measured by service revenue, the US wireless industry has not grown one iota in the past year. That has never happened before. Ever."
Instead, the growth story of the second quarter was mobile data services, according to industry analyst Chetan Sharma, who actually had service revenue declining in the second quarter, not just remaining flat. He notes that while US mobile service revenue declined 2%, or around $1 billion, in the second quarter, mobile data services continued to increase and are on track to exceed $100 billion this year. Data currently makes up 55% of overall revenue for the operators, driven by tablet usage and tiered data pricing.
Unfortunately for mobile operators, the growth in mobile data services isn't offsetting the effect of killing subsidies and declining voice revenue, at least not yet.
Verizon Wireless and AT&T Inc. (NYSE: T) dominated the quarter with 68% of mobile data service revenue and 68% of the subscription base, Sharma says. That makes them the number two (Verizon) and three (AT&T) mobile data revenue generators in the world, while Sprint Corp. (NYSE: S) and T-Mobile remain in the top 10.
It's likely that these second-quarter metrics are the start of a trend, rather than just a blip. Thanks in large part to T-Mobile's competitive moves, followed by a cascade of responses, the pricing dynamics have changed in the industry. Operators are turning toward driving more data usage, new pricing promotions and service partnerships to make up for it -- trends that you can also expect to continue going forward. (See Carriers Warm Up to Service Innovation, Sprint Plans More Bundled-Content Offers and AT&T Gets 81% of Subs Off Unlimited Data.)
— Sarah Reedy, Senior Editor, Light Reading