US market-leader Verizon Wireless reported the highest organic connections growth in 2Q10 with net additions of 1.6 million, ending the quarter with 99.7 million total connections. However, this was down from 100.1 million total connections reported the previous quarter following completion of the divesture of 2.1 million connections to comply with regulatory conditions imposed as part of its acquisition of Alltel. 

Second-placed AT&T Mobility hit 90.1 million connections in 2Q10, following organic net additions of 1.6 million. AT&T’s total connections were further boosted by the acquisition of 1.6 million of the connections divested by Verizon. AT&T intends to move these connections across to its 3G WCDMA network over the next 12 months by replacing subscribers’ existing CDMA devices with equivalent devices running on its network. 

After three years of quarterly connection losses, Sprint finally managed to post positive headline net additions of 111,000 in the latest quarter, taking its total connection count to 48.2 million. The operator benefited from the launch in June of the HTC Evo that runs over both Sprint’s CDMA network and the WiMAX network of its subsidiary Clearwire. Meanwhile the nation’s fourth largest player – T-Mobile – reported a decline of 93,000 connections for the quarter as its total connections fell to 33.6 million.

 

Contract connections
Despite the ongoing success of Apple’s iPhone, Verizon outpaced AT&T in organic contract net additions in 2Q10, largely thanks to its DROID branded line of Android smartphones including the HTC Incredible, launched in April. Verizon gained 665,000 contract connections for the quarter ahead of AT&T’s iPhone-inspired 496,000. Verizon noted that 35 percent of its contract subscriber base now has 3G devices. However, only a reported 20 percent of its retail subscribers are using smartphones. Rival AT&T reported that the number of contract subscribers with 3G integrated devices (handsets with QWERTY or virtual keyboards) increased by 2.9 million year-on-year to 29.7 million (representing 44 percent of its contract base), an increase of 98 percent year-on-year. Much of this increase has been driven by the iPhone. AT&T activated another 3.2 million iPhones during the quarter – the operator’s highest ever number of quarterly activations. These figures included just under a week of iPhone 4 activations at the end of June. AT&T noted that approximately 27 percent of iPhone activations were for new subscribers, underlining the importance of the device in driving AT&T’s connections growth.

Notwithstanding Sprint’s success in turning around its headline connections figure, the operator continued to bleed contract subscribers during the quarter with a loss of 228,000 connections. Despite a gain of 136,000 contract CDMA connections, Sprint’s iDEN contract subscribers continue to be a major drag on the operator with a decline of 364,000 in 2Q10. Meanwhile, despite the lack of a hero handset matching the status of it larger competitors, contract subscribers were the bright point for T-Mobile during the quarter as the operator picked up 106,000 contract net additions to post its first net increase in contract connections since Q209. The operator reported that 6.5 million subscribers were using 3G-capable smartphones, with them now accounting for 19 percent of total subscribers, up from 6 percent in 2Q09.

 

Prepaid connections
The most successful of the big four operators in the prepaid market during 2Q10 was AT&T, who added 300,000 organic net additions. However, this gain came almost entirely on the back of 3G iPad activations. With a reported 400,000 – 500,000 iPads connected during the quarter, AT&T’s traditional voice-centric prepaid connections base appears to have declined, as it has done for three of the last four quarters. Verizon reported the organic loss of 211,000 prepaid connections as it kept clear of vigorously competing in the price-sensitive prepaid segment, leaving the space open for its wholesale partners. 

Sprint, who has focused heavily on prepaid as part of it efforts to stem headline subscriber losses, reported 173,000 prepaid net additions for 2Q10. However, in a similar pattern to its contract offerings, a gain of 638,000 prepaid CDMA connections was offset by the loss of 465,000 prepaid iDEN connections. The period saw the operator roll-out its four prepaid brand strategy with offerings from its Boost Mobile, Virgin Mobile, Common Cents Mobile and Assurance Wireless brands. Boost continues to focus on unlimited plans, while Sprint also re-launched Virgin as a data-centric offering, expanded the government subsidised Assurance and launched Common Cents as a traditional pay-per-minute offering.

T-Mobile reported a decline of 199,000 prepaid connections during the quarter as its prepaid offerings struggled in a competitive marketplace. Prepaid specialist MetroPCS reported a strong quarter with net additions of 303,000 on the back of its ‘Wireless for All’ unlimited text/talk/web tax-inclusive plans. However, fellow prepaid specialist Leap Wireless also struggled, with a loss of 112,000 connections (comprised of 79,000 voice connections and 39,000 mobile broadband connections).

 

Wholesale connections
Verizon clearly dominated the wholesale market during 2Q10 with organic net additions of 896,000, taking its wholesale connections base to 5.9 million. This is still some way adrift of AT&T’s 10.6 million wholesale connections (after AT&T reported an organic decline of 130,000 connections in the quarter) but still a sizable achievement considering that Verizon only had 2.5 million wholesale connections in the year-ago period. Much of the success has come on the back of its wholesale agreement with TracFone’s Straight Talk unlimited prepaid offer that is distributed nationwide via Wal-Mart.

Sprint also gained wholesale connections in the period, with an increase of 166,000, taking its total wholesale connections to 3.8 million (including affiliates). However, this is well down from the 9.3 million reported in 2Q09 (largely due to its acquisition of Virgin Mobile USA late last year, which shifted Virgin’s subscribers directly into its retail subscriber base). Finally, T-Mobile disclosed that 2.1 million of its prepaid connections base came from its wholesale partners, unchanged from last quarter.

 

Embedded devices
For the first time all four major nationwide operators gave an indication of their embedded (connected) device connections, indicating the growing importance of these devices in carrier growth strategies.

AT&T reported that it added 896,000 ‘connected devices’ (e-readers, vehicle-tracking, alarm-monitoring and other emerging products) during the quarter, taking its total connected devices to 6.7 million. AT&T’s connected devices base increased by 3.6 million (115 percent) year-on-year, illustrating the growing importance of this market segment and its significant role in boosting connections growth.

Verizon has also been busy growing embedded device connections (or ‘Other’ connections as it prefers to call them) and reported 2Q10 net additions of 264,000, boosting its total to 7.7 million. No prior year comparisons were provided. Sprint includes embedded device connections in its wholesale figures and revealed that connected devices represent approximately half of its wholesale connections base. On the basis of Sprint’s current wholesale figures this implies that its connected devices portfolio currently represents around 1.9 million connections. Sprint also noted that, while ARPU for these connected devices is significantly lower than traditional subscribers, the cost is also significantly lower, resulting in higher margins. Not to be left out, T-Mobile reported that it has 1.5 million connected devices that are included in its contract connection figures despite noting that some of these may not have monthly recurring charges.
 
Jon Groves, Analyst, Wireless Intelligence:

The highlight of the quarter was undoubtedly Sprint’s first headline connections growth in three years thanks in part to the launch of the high-profile CDMA/WiMAX HTC Evo device running on the fast-growing Android platform. The impact of the Evo can be seen in Clearwire’s wholesale connections growth, which increased by 595,000 during the quarter (compared to only 111,000 in 1Q10). However, many challenges clearly remain for Sprint, including stemming ongoing iDEN connection losses and successfully implementing its multiple-brand prepaid strategy in a market that has become significantly more competitive in the first half of this year. The launch of Motorola’s i1, the first Android iDEN smartphone, should provide a fillip for its iDEN business but alone is unlikely to ease the decline in iDEN connections. Sprint will also face increased competition in the prepaid segment from TracFone’s Straight Talk service, which has recently expanded its wholesale agreements to offer devices from AT&T and T-Mobile. This will present a further challenge to Sprint’s unlimited Boost Mobile offering in particular. Additionally, Verizon appears set to enter the ‘unlimited’ prepaid market following trials launched in selected markets in July. Verizon’s connections growth has been significantly boosted by wholesale connections in recent quarters primarily due to its partnership with TracFone’s Straight Talk. However, with Verizon’s 2Q10 wholesale gains of 896,000 substantially outstripping those reported by TracFone (460,000 net additions across all four of its MVNO brands), it appears that Verizon also benefited from successful arrangements with other MVNO partners. A likely factor for its expected move into the unlimited prepaid retail segment is increasing competition in the wholesale market following the loss of Straight Talk exclusivity. These developments will also present a further challenge to value-centric T-Mobile’s retail business. The operator has continued with its recent struggles during the most recent quarter and its turnaround strategy remains unclear as does the operator’s upgrade path to LTE. Leap, on the other hand, has responded to a poor quarter by overhauling its plans (including rolling taxes into its pricing) and launching its first smartphone offerings. Leap also struck a MVNO agreement with Sprint to enable it to offer a nationwide service and provide new opportunities for growth. Leap’s rival MetroPCS has laid down the gauntlet by committing to launching LTE services by the end of the year, putting it in direct competition with number one player Verizon. For AT&T, who is not commercially deploying LTE until next year at the earliest, the continuing reliance on the iPhone leaves it vulnerable to the loss of its iPhone exclusivity agreement due to perceived issues with its existing network quality.

 

  Total   Contract   Prepaid   Wholesale   Embedded  
Verizon Wireless 99,737 1,614 81,573 665 4,603 -211 5,887 896 7,674 264
AT&T Mobility 90,130 1,562 66,970 496 5,881 300 10,597 -130 6,682 896
Sprint 48,169 111 33,161 -228 11,209 173 3,799 1 166 1 1,900 2 83 2
T-Mobile 33,620 -93 26,752 106 6,868 -199 2,100 3 0 3 1,500 4 –
MetroPCS 7,634 303 – – 7,634 303 – – – –
Leap Wireless 5,288 112 – – 5,288 112 – – – –

United States mobile connections and net additions (thousands), Q2 2010
Source: Company data, Wireless Intelligence

1 Including affiliates
2 Sprint wholesale connections inclusive of embedded
3 T-Mobile prepaid connections inclusive of wholesale
4 T-Mobile contract connections inclusive of embedded