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US market reports strong Q4 2009 growth but competition remains fierce

Data plans expected to be the new prepaid battleground

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 2009 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 2009 - 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.

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