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iPhone driving US smartphone sales

Apple device accounting for two-thirds of smartphone sales at AT&T, Verizon Wireless and Sprint

Two in every three smartphones sold by the top three US mobile operators in Q1 related to iPhone activations, according to new analysis by GSMA Intelligence, reflecting the increasing dominance of the iconic Apple device in mature markets.

There were 9 million iPhones sold in the US in the quarter via Verizon Wireless, AT&T and Sprint, accounting for around two-thirds of the estimated 13.5 million total smartphones sold by the three operators in the period.

Although Android devices are now thought to account for over half of all US smartphones in service, the latest figures suggest that users are opting for the Apple device over alternatives in increasing numbers. This implies that iPhone operators are successfully using the device to pull in subscribers from rival networks and increase their market and value share.

AT&T was responsible for almost half of US iPhone sales (48 percent / 4.3 million) in Q1, which accounted for 78 percent of the US number-two operator’s 5.5 million smartphone sales. Verizon Wireless and Sprint activated 3.2 million and 1.5 million iPhones each, accounting for 51 percent and 76 percent of smartphone sales, respectively, according to GSMA Intelligence calculations.

AT&T offered the iPhone on an exclusive basis for two-and-a-half years until February 2011 when Verizon Wireless launched a version compatible with its CDMA network. Sprint began offering the device in October 2011 (coinciding with the launch of the iPhone 4S), making Q1 2012 its first full quarter of iPhone sales. The US fourth-placed operator, T-Mobile, is not an official iPhone distributor but claims to have around 1 million iPhone users connected to its network.

It is vital that iPhone operators clock up strong sales of the device in order to offset the high subsidies that they must pay to Apple. This was a notable concern around Sprint’s iPhone launch, which was a seen as major gamble by the firm to keep pace with its two larger rivals.

While Sprint’s share of US iPhone sales in Q1 (17 percent) was roughly the same as its overall market share, the firm claims that 44 percent of its 1.5 million iPhone activations related to new subscribers to its network, a proportion significantly higher than either of its two rivals which have both been offering the device for a year or more. This went some way in justifying Sprint’s wireless equipment net subsidy bill of US$1.6 billion in Q1, which increased from US$1.1 billion a year earlier due to iPhone costs.

The total 9 million US iPhone sales in Q1 was below the 13.6 million iPhones sold in the previous quarter (Q4 2011), which included the launch of the iPhone 4S and key holiday shopping season - and contributed to a record 37 million iPhone activations worldwide. In that quarter, the US accounted for 38 percent of total iPhone sales, due to the limited distribution reach of the new iPhone launch, but the country made up just 26 percent of sales in Q1 2012.

This was a result of Apple ramping up iPhone sales efforts in non-US markets during the period, notably in Asia-Pacific where Apple reported a 114 percent year-on-year increase in regional revenue to US$10.2 billion, making it the firm’s second-largest regional market after the Americas (US$13.2 billion).

Apple reported a five-fold increase in iPhone sales in China alone as a result of the Chinese launch in January of the iPhone 4S and a new distributor in third-placed operator China Telecom, but it did not reveal specific Chinese sales figures. It has still yet to secure an official iPhone deal with China Mobile, but the country’s (and world’s) largest operator is thought to have at least 15 million "unofficial" iPhone users on its network.

Global iPhone sales make up over half of Apple’s total revenue, bringing in US$22.7 billion in Q1, and accounting for 58 percent of the firm’s total US$39.2 billion sales in the period.

Will Croft, Analyst, GSMA Intelligence:

Since launching the iPhone in 2007, Apple's share of industry revenue - and profit - has been impressive. In terms of market share, however, the firm has often taken a measured approach. Unlike the US, Europe has long offered a choice of networks for iPhone users - a trend that has led to very different iOS and Android shares in each market. The big question in the US was: what would be the impact of a CDMA iPhone? After a full year of shared activations across the big three operators, it's clear that the iPhone has wedged itself a near-majority share of gross smartphone additions. As expected, there was no rapid influx of activations at Verizon or Sprint due to consumers fulfilling their contract obligations; instead the overall growth in iPhone sales has significantly and consistently eroded Android's share of sales each quarter. Simply put, Apple had to remove the barrier for consumers picking other networks based on factors outside of the firm's control (such as network coverage).

The rebalancing of the US is a victory for Apple, but the importance - and growth - of operator share outside of the US remains key, particularly in Asia. Notably, China Mobile has reportedly gained 15 million iPhones on its network, despite the handset being used as a 2G-only device. The non-US share of iPhone shipments, currently 74 percent, has risen sharply from 55 percent in 2008 and 67 percent in 2010. For Apple, this is the critical opportunity, particularly in its two fastest-growing markets, China and Japan.

In Europe and the US, smartphone sales are still booming, but smartphone penetration has yet to surpass 50 percent. This suggests that most smartphone sales are still going to high-value, contract customers and are not yet significantly cutting into the prepaid segment, where offering unsubsidised handsets is a tougher sell. Devices such as the iPhone are encouraging European prepaid users to switch to contract tariffs, but we expect this migration to slow due to expected subsidy cuts in many markets, impacted by weakening economies. For now, the UK remains on a par with the US, but a decline in share has been suggested in France, Germany, Italy and Spain where Apple will need to address lower price points to match consumers’ wallets.

  Q1 2011 Q4 2011 Q1 2012 % share iPhone % smartphone sales % iPhone sales to new customers
AT&T Mobility 3.6 7.6 4.3 48% 78% 21%
Verizon Wireless 2.2 4.2 3.2 35% 51% 20% 1
Sprint Nextel - 1.8 1.5 17% 76% 2 44%
US total 5.8 13.6 9.0 26%  - -
Non-US total 12.8 23.4 26.1 74%  - -
Global 18.6 37.0 35.1 100%  - -

US iPhone sales by operator (million), Q1 2012
Source: company data, GSMA Intelligence

1 Q2 2011 data
2 GSMA Intelligence estimate from calculated contract gross additions, of which 86% were smartphones sales

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