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In Q4 2009 the US wireless market witnessed its strongest quarterly connections’ growth in three years by amassing 5.9 million net additions. With 4.9 million additional connections gained alone by AT&T and Verizon, the country’s largest operators, competition between them and amongst the remaining players is as fierce as ever.

AT&T has recently held the upper hand through its exclusive tenure on the Apple iPhone. However, during the last quarter Verizon launched a major assault on its rival by focusing 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 was also expected to benefit 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 smartphone users.

Market leader Verizon reported that it ended Q4 with 91.2 million total connections following 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 – which now total 3.7 million connections – a 37 percent increase in the last quarter alone. Verizon’s wholesale connections figure remained around 2.4 million since 2008, until a rise of 300,000 in Q3 2009. Although Verizon gave no indication as to which of its resellers is driving growth, the majority of these are likely to be attributable to its exclusive MVNO agreement with TracFone Wireless’ Straight Talk prepaid brand – rolled-out nationwide in October through Wal-Mart.

AT&T, the country’s number two player, reported 2.7 million net additions – the operator’s second ever highest quarterly total – taking its total connections to 85.1 million. This figure was also boosted by the completion of the acquisition of Centennial Wireless in November, adding 863,000 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. Unlike Verizon though, resellers have long made up a small but significant proportion of AT&T’s connections base, largely through agreements with MVNOs. Significantly, however, reseller connections also include embedded (or M2M, machine-to-machine) 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 – representing 55 percent of net new wholesale connections.

Third-placed Sprint reported negative net additions of 148,000 in Q4 (inclusive of wholesale and affiliates); the tenth consecutive quarter of negative growth. Once again the bright point for Sprint was its 435,000 net prepaid additions, primarily from the Boost Mobile ‘unlimited’ prepaid offering. However, even this segment was down in comparison to the previous quarter as regional prepaid competitors (see below) and Straight Talk provided increased competition. During Q4 Sprint completed the acquisition of MVNO Virgin Mobile USA and affiliate iPCS, which resulted in the transfer of 5.4 million connections to Sprint’s retail subscriber base and a reduction of Sprint’s wholesale and affiliate connections by 59 percent and 75 percent, respectively.

Following a disappointing Q3 performance for T-Mobile (losing 77,000 connections), the situation improved in Q4 as the operator gained 371,000 net additions. However, despite the overall improvement, contract connection losses remain a problem, with 488,000 prepaid net additions being offset by the net loss of 117,000 contract connections.

Regional prepaid operators MetroPCS and Leap Wireless both reported improved sequential net additions in Q4 (317,000 and 298,000, respectively) – on the back of the introduction of lower-priced unlimited offerings – but remain below the levels seen 12 months earlier. America Movil-owned MVNO TracFone Wireless added 1.2 million net additions in Q4 following the launch of Straight Talk, taking its total connections to 14.4 million (greater than MetroPCS and Leap Wireless combined). Of particular interest is the late 2010 LTE rollout plans announced by MetroPCS’ CEO, Roger Linquist, who recently indicated that the company plans to use its deployment of the next-generation technology as a no-contract prepaid offering without device subsidies.

Churn improved to 2.09 percent in Q4 on aggregate for the top nine operators, from 2.14 percent in the previous quarter, with only two operators reporting increases. Verizon led the market in Q4 with just 1.42 percent churn, placing it just ahead of AT&T’s 1.44 percent, whose churn increased marginally; reversing the order of Q3. Sprint’s quarterly churn also edged up to 2.94 percent, while T-Mobile reported a small improvement to 3.30 percent. MetroPCS and Leap Wireless both also reported sequential improvements in churn (5.30 and 4.70 percent, respectively) but both remain higher than the corresponding period last year, reflecting intense price competition in the prepaid market.

ARPU was on the decline in Q4 for the market as a whole, though this is likely to also reflect consumers spreading their spending across multiple connections (as discussed in the recent analysis: North American consumers are spending more on mobile). On aggregate, the nine largest operators posted Q4 ARPU of US$49.31, down from US$50.61 the previous quarter. AT&T and Verizon both recorded sub-dollar declines to US$50.69 and US$50.23, respectively. T-Mobile’s ARPU fell by a dollar to US$46.00 while Sprint lost US$3.69 to US$49.26. Only the ARPU of second-tier operator US Cellular increased – by six cents – to US$53.55.

Jon Groves, Analyst, Wireless Intelligence:

 Organic growth in the US market is becoming ever-diluted by the wholesale and embedded (M2M) segments. Head-to-head after stripping out reseller and wholesale net additions, Verizon reported 1.2 million net additions in Q4 against AT&T’s 900,000. This compares favourably for Verizon to the quarter-ago picture of 1 million versus 1.2 million organic net additions for Verizon and AT&T respectively, indicating that Verizon had some success during the quarter in fighting back against AT&T’s smartphone and data-driven lead in subscriber acquisition. However, the iPhone yet again remained a very strong proposition for AT&T, with 3.1 million iPhone account activations reported for Q4 – the second ever highest quarterly total – of which more than a third were new AT&T subscribers. The remaining operators continue to feel the squeeze outside of the device exclusivity and coverage available from AT&T/Verizon in the contract market and the ‘unlimited’ offerings from the likes of Straight Talk in the prepaid segment. The growth in prepaid connections that has been the bright point for operators outside the big two has become much more competitive in recent quarters and we expect pressure on pricing of ‘unlimited’ plans to continue in the coming months as operators battle for market share. However, they will soon approach a limit to profitable growth and we expect prepaid offerings to focus increasingly on offering low-end smartphones and data-driven devices to propel further growth and offset declining voice and messaging pricing. The increasing prepaid segment competition is also responsible for Leap Wireless recently hiring advisors to sound out sale options, with long-time rumoured suitor MetroPCS still the most likely acquirer if a deal is to be agreed. Meanwhile, AT&T – through its M2M partnership with Jasper Wireless – and Verizon – with its ‘nPhase’ joint venture with Qualcomm –  will increasingly be focussed on connected consumer electronics in the shorter term and the automotive, healthcare and energy (smart-metering) industries in the medium to longer term to sustain growth. Sprint and T-Mobile will also increasingly be looking to these areas to turn their fortunes around.