Tier 1 Q4 2012 Smartphone Growth and the iPhone

Now that three Tier 1 carriers have reported their Q4 results, here are some observations and commentary on smartphone growth.  As most industry people know, smartphones are the hot user commodity. Smartphones serve many purposes from a churn reduction tool, to ARPU uplift (offsetting voice revenue decline) to increasing operational efficiency (move data consumption to a more data efficient (capacity and throughput to the LTE network). But the old 3G network also has legs so for now, wholesale (MVNOs & M2M) and prepaid can extend return on old investment there.

iPhones have been a catalyst for increased carrier data revenue. AT&T's past  iPhone exclusivity has allowed it to accumulate a massive customer base that proven to be low-churn and loyal. With the exclusivity gone, other carriers (through Apple's deal-making and carriers' realization that an iPhone is competitive table stakes) also jumped on the iPhone bandwagon.  The notion that iPhone is such a powerful sales acquisition and retention tool has played out again in Q4 2012.

For the big three, AT&T, Sprint, and Verizon Wireless, smartphones sales/activations continue to be on a positive track.  AT&T reported 10.2 million smartphone sales in Q4, while Verizon Wireless came close at 9.8 million, and Sprint posting 6.1 million. These added up to 26.1 million smartphones.  The interesting observation is how many of these smartphones were iPhones.

• AT&T - 8.6 million
• Verizon Wireless - 6.2 million
• Sprint 2.2 million

As a percentage of the overall Q4 smartphone sales, iPhones activations accounted for:

• AT&T - 84%
• Verizon Wireless - 63%
• Sprint - 36%

On the whole among the three Tier 1 carriers, the iPhone accounted for 65% of smartphone activations. 

Impressive stats for sure. With contenders from BlackBerry (BB10 OS), Microsoft (Windows Phone 8) and Android, can the iPhone in the U.S. continue its run?  I submit that this hinges on Apple innovation.  As I've said previously, Apple needs to innovate, as its user interface (UI) is aging with incremental innovation.  Customers have a lofty expectation of radical things for each iPhone (and iPad) model.   Apple needs to deliver in 2013 or the early adopters (and then the mainstream) will move on.   

Substantive Switching Credit

I just caught this switching ad from Sprint. I found it through a Facebook ad.  The promise is to receive $400 credit for switching a family plan with 3-5 lines. It reprises a similar $400 effort reported in August 2012. While switching credits are nothing new, the $400 figure is notably high to entice. 

Sprint Switching Ad 

Sprint isn't the only carrier in the switching game for Q1 2013. US Cellular at the end of January launched a $300 switching promotion.   

What is the motivation?

• Postpaid Penetration - Carriers have long talked about the near saturation of the postpaid marketplace. In this world, organic growth has slowed and the only way to get net additions will be to steal it away from other carriers. 
• Quarterly (Q1) Performance - Both Sprint and US Cellular have been losing customers at a rapid rate.  Sprint's iDEN customer defections have been a thorn in its side for 3+ years.  US Cellular as a regional carrier has not been effectively competing against Tier 1 competitors despite upgrading to LTE and upgrading its device portfolio.
• Families are Low-churn & High ARPU-bearing - The promotion grabs 3-5 subscribers and the carrier locks them in for two years. The promotions specifically push customers into smartphones and data plans. Data is the monetary upsell and the sticky value-prop. 
• Promotion Credit Sunk Marketing Cost - In business, there needs to be promotion to draw interest to your product. Some companies have different tolerances for the cost to acquire a customer.  At the end of the day for Q1, Sprint and US Cellular need to beef up their gross adds.