Wireless analyst Chetan Sharma rolled out his numbers on the US mobile market a couple weeks ago, with some indicators of where future growth might come for the carriers. Spoiler alert: It’s not in the smart phone market.
Smartphone penetration increased to 81% and roughly 97% of the devices sold now are smartphones. The smartphone penetration amongst postpaid users is now 87%……
….Back in 2002, very few in the industry saw what was coming in mobile data. IoT is at the same stage though mobile data was growing faster – mobile data was almost doubling in revenue every year. IoT is growing at a quarter of that rate currently. But the big two are pushing to create a larger ecosystem to accelerate the growth. AT&T already had an active IoT developer program. Verizon introduced its ThingSpace platform to the developers last month. It is already selling complete IoT solutions in energy, transportation, security, and several other industry segments. The sale of IoT solutions is quite different than selling mobile data which sells itself for most part. As we mentioned before, Verizon is on track to crack the billion-dollar mark in IoT next year. For trivia buffs, Verizon passed the billion-dollar mark in mobile data revenues back in 2004 which at the time made only 5%of the overall wireless revenues for the operator.
It’s abundantly clear that smart phone saturation is around the corner and that everyone from the handset makers to the carriers to the chip makers are looking for the next big market. The question at this point isn’t really whether IoT can be the next big thing but how big a thing will it actually be.
Shartan points out that IoT growth measured by revenue is a quarter of the growth rate that mobile data experienced at the same stage and points out that mobile data was easier because it “sells itself for the most part.”
The broad challenge in IoT is making products relevant to consumers, the enterprise and industry. ROI has to be proven, even at the consumer level (think energy saving thermostats), while mobile data seems to have started by addressing basic communications needs and then accelerated into today’s world in which mobile data provides everything from a restaurant reservation to a ride home. This core difference is what, in my view, differentiates IoT growth from historical mobile data growth for the carriers.
Shartan’s analysis continues:
……..Connected devices (non-phones) accounted for almost 60% of the net-adds in Q3 2015. This means that while there is a healthy smartphone sales pipeline, it is for the existing subs and as such net-adds for the phone business is tapering off and we can expect that new net-adds will continue to be dominated by the connected devices segment…….For AT&T, connected cars started to form a significant base of the connected devices segment with 40% of the new connections coming from cars.
While the carriers may try to squeeze revenue out of mobile data, particularly as consumer behavior shifts toward high bandwidth activities like video streaming, the writing is on the wall that they need a strategy for IoT.
The fact that 60 percent of net adds in Q3 came from connected devices and not phones is impressive. Yes, 28 percent of that is tablets but the rest was cars and M2M.
It’s unlikely that IoT will provide the kind of revenue growth that mobile data provided for the carriers, and there are challenges in selling IoT because they must deal with lots of different connected devices, often using small amounts of data.
On the consumer product end, manufacturers often want low cost bandwidth with even lower power requirements. Given that households already spend the bulk of their connectivity charges on their smartphones and wired services, IoT products have to become valuable and relevant. Though the fact that connectivity costs are typically bundled into the product itself and not bought directly from the carrier by the consumer may help. That hasn’t stopped the carriers from trying to sell their own direct to the smart home product suites.
So with all the caveats said, there should still be some excitement about the fact that IoT is emerging as a market for carriers. Because one things seems inevitable: growth in the smart phone market is nearing its end.