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USA - Slowing Growth Suggests a Need for Further Consolidation
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The US mobile market in Q1 2007 continued its slow trudge towards 100% penetration, with the best part of two percentage points added in the quarter, to take the total to 79.6%. In absolute terms, there are now an (estimated) 239m mobile customers in the USA, up from 233m at the end of 2006 and 214m one year earlier.
The market is now dominated by three operators, AT&T, Verizon and Sprint Nextel. Together, these three have 176m customers out of this total, or nearly three quarters of the total. If the fourth placed T-Mobile is added to this group, the aggregate rises to 202m, or 85%.
The rest of the market is shared by literally hundreds of smaller regional companies, the largest of which are Alltel Wireless, with over 12m customers and USC, which is just shy of 6m. This explains the fact that the US market total will only ever be an estimate - hard data is just not available from the vast majority of the tiny operators which together share around 3% of the national total. Indeed, even the US Cellular Telephone Industry Association only publishes estimates of the overall size of the market. These, it has to be said, vary considerably from the numbers published by the FCC (Federal Communications Commission), the US Government body that oversees all aspects of communications.
As well as being geographically fragmented, the market is also technologically diverse. The bulk of all customers still use the US domestic CDMA standard, but GSM has been growing in importance and now account for nearly 40% of all connections. The other main technology, iDEN, is proving surprisingly resilient and has actually increased its share of the total in recent quarters. AMPS and TDMA - the original analogue standard and its digital variant - have been in heavy retreat in recent quarters and seem set for extinction within the near future. The chart below shows the trend of recent quarters, by technology.
The news that Alltel Wireless has been bought by a private equity consortium comes as little surprise and highlights the other main theme in the US - M&A activity, leading ultimately to consolidation. This deal follows the acquisition of Nextel by Sprint and (what was) AT&T Wireless by Cingular and will surely not be the last. The second chart highlights the need for further consolidation - it shows the number of new customers acquired by US regional operators over the last 12 quarters. During a period when 70m net new connections were made, this group only managed to add 6.1m customers in aggregate - well short of the 10.6m added by T-Mobile and less than one third of the 20m+ that Verizon managed. Admittedly, the number is depressed by the presence of the "Others" category, which itself has been eroded by consolidation, but even without this, their total is still little more than one tenth of the total. A couple of smaller businesses - Qwest and Rural - have actually lost customers.
With US Cellular being majority owned by Telephone & Data Systems, the next large step in the direction of consolidation is likely to come when Alltel's new owners decide to sell it on to one or other of the national giants. Of the four, Verizon and Sprint are clearly the more likely as they both use the same CDMA technology Alltel favours, with Verizon much the better-positioned to do the deal. Neither company was particularly ready for a major acquisition at this stage, Sprint because it is still trying to digest Nextel and Verizon because most of its spare capital is currently being directed towards its fixed line rebuild. Ultimately though, that will change, but the logic that dictates the acquisition of the predominantly rural Alltel by the mainly urban Verizon will remain. Such a deal would give the USA something we in Europe have enjoyed for a decade or more - a full, national system using a common technology - which in turn will help drive acceptance and usage. It would also, we suspect, start a frantic process of M&A as AT&T and T-Mobile look to fill in their rural footprints through the purchase of GSM-based operators like Dobson, Centennial, Triton and the aptly named Rural Cellular.
This article was extracted from The Mobile World Briefing, the weekly newsletter from The Mobile World. To download a sample issue of the Briefing in PDF format, please click here. For more information including full subscription pricing, please visit The Mobile World"
Tags: [alltel] [qwest] [fcc] [us cellular] [cingular] [tdma] [alltel wireless]
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