While many of the mobile industry’s great and good spent much of last week trying to assess the potential impact of Apple’s latest gadget, the iPad, another significant event that occurred was the announcement of Q4 results from AT&T and Verizon Wireless.

The results of both US operators were eagerly anticipated due to their increasingly fierce subscriber battle. AT&T has recently held the upper hand through its exclusive hold on the Apple iPhone. However, during the last quarter Verizon launched a fierce assault on its rival by focussing on AT&T’s 3G coverage through the ‘There’s a Map for That’ campaign, together with a major marketing push using Motorola’s Droid handset that runs Google’s Android operating system. Verizon also benefitted from widespread reports of network congestion issues for AT&T caused by the exponential growth of data usage that has been driven largely by data-hungry iPhone users.

As it turns out, both operators reported strong mobile connections growth. This bodes ominously for the more valuable contract subscriber growth of the two smaller tier one operators in the country, Sprint and T-Mobile, who are both yet to report, and the regional operators who have found themselves increasingly left behind in recent times, unable to compete with the greater coverage and more attractive devices available from Verizon and AT&T. However, behind the headline net additions reported last week also lay some interesting trends that are starting to emerge. Head-to-head after stripping out reseller net additions, Verizon reported 1.2 million net additions in Q4 against AT&T’s 0.9 million. This compares to Verizon’s 1.0 million and AT&T’s 1.2 million non-reseller net additions in Q3, indicating that Verizon had some success during the quarter in fighting back against AT&T’s iPhone driven lead in subscriber acquisition. However, the iPhone remained a very strong proposition for AT&T, with 3.1 million iPhone activations reported for Q4, the second ever highest quarterly total, of which more than one-third were new AT&T subscribers.

Verizon ended Q4 with 91.2 million total connections and total net additions of 2.2 million, the operator’s highest pro forma net additions since Q3 2008. However, the Q4 figures included 1 million reseller net additions – that now alone total 3.7 million connections – a 37 percent increase in the last quarter. Until Q2 2009 Verizon’s reseller base remained at 2.4 million connections (since the beginning of 2008), prior to the reporting of a 0.3 million increase in Q3 2009. Although Verizon gave no indication of which of its resellers are responsible, it would be reasonable to assume the majority of these are the result of Verizon’s exclusive MVNO agreement with TracFone Wireless’ Straight Talk prepaid brand. Straight Talk was initially launched in selected markets in June by TracFone Wireless’ parent America Movil in partnership with retail giant Wal-Mart, offering ‘unlimited’ calls, texts and data for US$45/month. A second plan offers 1,000 minutes, 1,000 text messages and 30 MB of data for US$30/month. Initial success led to the expansion of Straight Talk nationwide in October through Wal-Mart’s 3,200 stores. The apparent success of Straight Talk presents a new challenge to Sprint whose recent focus has been on attracting prepaid subscribers through its Boost Mobile unit in an attempt to partially offset its declining contract subscribers. In addition to Straight Talk, a small but potentially significant number of Verizon’s reseller net additions are likely to have been from connected devices such as the IREX Technologies DR800SG e-book reader following the announcement in September that Verizon had agreed to support the device’s mobile connectivity.

Following the strong net additions reported by Verizon all eyes turned to the operator’s rival, AT&T. The country’s number two player did not disappoint by reporting 2.7 million net additions, the operator’s second ever highest quarterly total, taking its total connections to 85.1 million. The overall connections total was also boosted by the completion of the acquisition of Centennial Communications in November which added 0.9 million connections. However, like Verizon, AT&T also reported 1.8 million reseller net additions – its highest ever quarterly gain and an increase of 121 percent on Q3 reseller net additions. Unlike Verizon, resellers have long made up a small but significant proportion of AT&T’s connections base, largely through agreements with MVNOs such as America Movil’s TracFone Wireless and its TracFone and NET10 brands. Significantly, however, reseller connections also include mobile connected devices including Amazon’s Kindle, Sony’s Reader Daily Edition and Barnes & Noble’s nook. AT&T reported that the number of these devices connected to its network increased by over one million in Q4. Although Amazon has not provided sales figures for the Kindle (other than saying sales now total in the millions), it is probably reasonable to assume they made up a large percentage of the reseller net additions and account for the majority of the growth. The original Kindle and larger Kindle DX used Sprint’s CDMA network but, in another blow to the struggling operator, all Kindle 2 devices have been supported by AT&T since October – while the larger-screened Kindle DX’s also switched over to using AT&T in January. In addition, the highly anticipated Plastic Logic QUE proReader that was unveiled at CES last month will use AT&T’s network when it is released in April.

The success of AT&T in increasing mobile connected devices running on its network stems from the operator’s agreement with M2M partner Jasper Wireless announced in May last year that provided AT&T with the platform to capitalise on the emerging opportunity of connecting consumer electronics. Going forward, rival Verizon is also aiming to benefit from the explosive growth expected in connected devices. Last July Verizon announced the formation of a joint venture, later named as nPhase, with chip maker Qualcomm to provide M2M services. However, there would have been some disappointment last week that Verizon lost out to AT&T to provide mobile connectivity for the iPad 3G variants. Nevertheless, in addition to consumer electronics the new joint venture will target the energy and healthcare sectors whose long-term potential is even greater than e-book readers.

With a recent forecast by Berg Insight predicting that M2M connections are likely to grow at a CAGR of 26 percent to reach 187 million by 2014, it appears the mobile industry is set to enter a new phase of growth driven by connected devices. Apple’s latest innovation and other e-book readers, which Forrester recently predicted to sell 10 million units in 2010, will only be one small piece of an exciting new chapter for the industry.

 

Jon Groves, Associate Analyst, Wireless Intelligence

The editorial views expressed in this article are solely those of the author(s) and will not necessarily reflect the views of the GSMA, its Members or Associate Members