U.S. Mobile Opportunities Over the Next Five Years

Nov 7, 2013

ATLANTIC-ACM just completed “Strategic Services Take the Stage: U.S. Telecom Wired and Wireless Sizing and Share 2013-2018,” its annual five-year forecasting analysis of the U.S. telecom market. With this iteration of the analysis, it again is readily apparent that the key element driving the U.S. market is postpaid data services. We forecast that revenue from these services will grow from $79 billion in 2013 to $130 billion in 2018, including both revenues from data access via smartphone and tablets, and from services bundled with that access.

The vast majority of this growth and revenue has been, and will continue to be, concentrated among the big four mobile operators – AT&T Mobility, Verizon Wireless, Sprint and T-Mobile US. If your firm is not one of the major four wireless providers in the United States, the question you and your management team should be asking is: “How can we capture revenue from this growing market and attach it to our model? (Taking a small share from a big pie could create a large, sustainable business.) This creates a fairly straightforward question in the space: Where is the opportunity, and how can providers outside the big four take advantage of it?

Consolidation creates opportunity in data-driven prepaid, no-contract services

Digging in deeper, several key opportunities exist to disintermediate and capture growth from the postpaid data ecosystem going forward. These opportunities have been created by the rapid pace of consolidation over the last year as the industry has seen four major deals shuffle the competitive deck – T-Mobile US and MetroPCS; Softbank’s acquisition of 70% of Sprint (along with the acquisition of Clearwire); AT&T’s pending acquisition of Leap Wireless; and Verizon’s pending acquisition of the remaining portion of Verizon Wireless owned by Vodafone. Several smaller deals by large players have been executed as well – largely to acquire spectrum – and Tracfone has acquired two small U.S. prepaid providers.

The largest impacts of these deals will be in the prepaid space, where the elimination of Leap, MetroPCS, Pageplus and Simple Mobile will shrink the number of players in the field and concentrate share in a small group of key players. This consolidation leaves the door open for new entrants to replace niche providers that have been bundled into larger parents. For example, both MetroPCS and Leap offered a wide range of plans catering to the needs of varying types of end users. Their new, larger parent companies are likely to streamline their prepaid offerings to focus on specific areas, such as prepaid unlimited plans. This streamlining creates orphaned market segments that can be addressed by niche players.

Along this same (prepaid) vein, alternative methods for data access have generated niche opportunities for new mobile virtual network operator entrants, though success has been minimal. Upstarts are still refining business models in the pursuit of scale, with entrants like FeedomPop, Ting, Zact and Republic Wireless, among others, pursing the opportunity with an arsenal of plans targeting data services. Look for these players to attack the space with innovative data offerings including bring-your-own-device plans targeting businesses and certain consumer groups, pay-per-use data plans, handsets with Wi-Fi offloading capabilities and ad-driven access. Here, as with all MVNO models, the key to success for providers that do not own network is the ability to gain scale both from within the current prepaid market and by capturing and moving postpaid revenues to the prepaid side of the playing field.

Application-fee-driven devices and services

At first glance, the concept of device and connectivity subsidy via revenue from applications seems a farfetched notion and complete reversal of today’s mobile model of connectivity fees and device subsidies with applications running freely over the top.

At some point, growth from connectivity and charging for bandwidth usage will plateau, driving carriers to seek new expansion models. The application-specific device market has had one success in Amazon’s Kindle, which subsidized carrier access to enable customers to download and read books. This application-driven service model could find its largest success in the enterprise space, where devices and connectivity could be subsidized by application- or software-driven subscriptions. For example, a device maker like BlackBerry, which pioneered secure enterprise mobile e-mail, could reposition its devices in the application platform realm to serve specific enterprise applications. BlackBerry, in essence, would reshape the mobile model by charging for applications while rolling in devices and bandwidth as part of the deal. This type of offer would strike a key with enterprises seeking finely-tuned, highly secure dedicated virtual networks for specific mobile applications of the future. An ecosystem shift like this represents a long shot in terms of mass-market potential but on a niche-market basis it could allow a mobile device or application/software provider to reposition itself in the value chain for key industry verticals, meeting specialized needs while also riding the larger wave of demand for all things mobile data.

Niche models from A to Z

Ultimately, increased consolidation will open more doors for all types of alternate mobile business models (or models ranging from A to Z). And while, as we’ve discussed, the streamlined product offerings of large providers will create niche opportunities for lower-cost data access/bandwidth consumption, other opportunities exist. In just the last couple of months, models surrounding specific user groups have driven the launches of several new offers in the MVNO space. For example, Defense Mobile Corporation is launching mobile services exclusively for members of the U.S. Armed Forces featuring a deep line of high-end handsets (e.g., iPhone 5 and Samsung Galaxy), along with service features tailored to the needs of active-duty soldiers. Other MVNOs have launched models around charitable giving and political giving. GIV, for example, is focused on using business proceeds to enable charities. Credo, the other widely known provider, is focused on political causes. These examples represent just a few of the niche opportunities available in the marketplace and are reminiscent of profitable, affinity-based revenue streams that have long dotted the telecom landscape – from competitive long-distance providers to ethnically-focused prepaid card providers.

The bottom line

All in, look for serial entrepreneurs and investors to capitalize on consolidation-driven market opportunities by launching MVNOs around niche market opportunities, seeking fat rewards by tapping tiny streams from a massive pool of recurring revenues – whether they ride out those residual earnings or capture-and-flip customers to well-heeled players playing the larger game of scale and margin. Similarly, look for lagging device makers and other market participants to rethink their business models for more focused opportunities. Given the strong, long-term growth prospects of the mobile data services market, ATLANTIC-ACM expects to see ongoing, targeted entrepreneurial and investment activity around disintermediation of the traditional postpaid mobile data environment for the foreseeable future.

This analysis originally appeared at RCR Wireless

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