1. The North American telecoms market: trends and forecasts 2010–2015
Viewpoint
The North American telecoms market: trends and forecasts 2010–2015
Hilary Bailey
January 2011

2. Executive summary
Figure 1: Retail revenue by service type, North America, 2009–2015 [Source: Analysys Mason, 2011]
North America is a mature region in terms of its telecoms market. Retail revenue grew in 2010 as the market recovered from recession and growth in mobile revenue, driven by the take-up of new services, compensated for the loss in fixed retail revenue. However, the sector will decline overall during the next five years: total retail revenue will shrink by –9% between 2010 and 2015.
Voice services will cease to account for the majority of revenue by 2015, when their share will have fallen to 48%, from 67% in The only services to experience revenue growth will be non-commoditised services: mobile handset and content services (that is, data usage on smartphones), mobile broadband usage on USB modems and tablet PCs, and broadband services in the fixed markets.

3. Recommendations
Mobile data services on handsets, tablet PCs and laptops represent the single greatest opportunity for revenue growth during 2010–2015 in North America. Operators will need to adopt a tiered approach to pricing in order to fully exploit this opportunity. Tiered pricing, rather than unlimited bundles, will enable them to monetise heavy users as well as control traffic on their mobile data networks to avoid congestion.
North America’s mobile market has yet to reach saturation: its mobile penetration rate stood at 93% of the population in New devices will fuel growth, but not account for all of it: the region has some untapped demand – that is, people without any mobile devices. Mobile operators tend to focus on high-end users, but must continue to cater for the lower end of the market and offer reasonably priced packages, centred around voice and SMS services, on a prepaid or short-contract basis.
Cable and fixed broadband operators have a strong position in the North American market, where their services have reached high levels of penetration. They must accept that they will lose some light users to mobile data services, and use service bundling (TV and VoIP as well as broadband access) to retain their customers. Cable operators have been successful at gaining business network services customers from telcos, and should continue to invest in those services to offset the slowdown in pay-TV revenue growth.
Fixed operators should proceed with caution when considering any further fibre deployments, and concentrate instead on increasing customer take-up where fibre roll-outs have taken place. Superior headline speeds will not be enough on their own to win a great number of new customers. Like other broadband service providers, fixed operators will also need to offer good-value service bundles and, when combining Internet and TV services, content that is compelling enough to compete with cable operators’ offerings.

4. Telecoms revenue will recover from the 2009 recession, but will not grow again thereafter
Canada and the USA have highly developed telecoms markets. Levels of spend per user are high – particularly in the competitive fixed market, which features cable companies and telcos.
However, telecoms spend is reaching its peak. Growth in voice call volumes will not be sustained, and operators will find it increasingly difficult to extract value from fixed and mobile data services despite strong demand because customers are expecting to get more for less. Telecoms spend as a share of GDP will fall from 2.4% in 2009 to 1.7% in 2015, a level closer to that observed in Europe.
The region’s mobile handset penetration rates have room for further growth. They stood at only 66% of the population in Canada and 86% in the USA in 2009, compared with 94% in developed Asia–Pacific and 115% in Western Europe.
Mobile revenue will account for an increasing proportion of telecoms revenue as penetration grows. Its share grew from 42% in 2007 to 45% in 2009, and will exceed 50% by 2015.
Figure 2: Telecoms spend per capita by network type and country/region, 2009 [Source: Analysys Mason, 2011]
Figure 3: Retail revenue by network type, North America, 2007–2015 [Source: Analysys Mason, 2011]

5. Recession has had an impact on telecoms revenue in the USA, and it will not rebound
The USA was hard hit by the global recession. Real GDP declined in most quarters between the first quarter of 2008 and mid-2009, and is not expected to recover to pre-recession levels until mid Spending on fixed telecoms services declined as a result, and the weakened housing market undermined broadband service take-up.
Mobile revenue has grown despite the economic decline, largely as a result of the popularity of smartphones and other mobile devices. Mobile data revenue accounted for only 17% of mobile revenue in 2007, but adoption of the iPhone and other smartphones had driven an increase in this share to 27% by It will reach 51% in 2015.
Fixed broadband services are well established: 65% of households in North America had taken up such services in 2009, compared with 60% in Western Europe. Fixed broadband accounted for 27% of fixed retail revenue in 2009 (excluding business network services), and its share will increase to 43% in 2015.
Figure 4: Mobile retail revenue and mobile SIM penetration, USA, 2007–2015 [Source: Analysys Mason, 2011]
Figure 5: Fixed retail revenue and residential fixed broadband penetration of households, USA, 2007–2015 [Source: Analysys Mason, 2011]

6. Canada’s telecoms revenue has been more resilient to recession, but growth will not be sustained
Canada’s recession was shorter and less severe. Its real GDP fell in five of the six quarters following the first quarter of 2008, but is expected to have returned to pre-recession levels in mid-2010.
Telecoms spending proved more resilient to economic conditions. It continued to grow, albeit at a slower rate, in both the fixed and mobile markets. Canada’s mobile penetration rate stood at 71% in 2009, compared with 93% in the USA.
Despite being the nation that created the BlackBerry, Canada lags its neighbour in the take-up of mobile data services. Data revenue accounted for only 21% of mobile revenue in 2009, but this share will grow to 43% by 2015.
The country’s fixed broadband penetration rate is high, at 70% of households in 2009 – a similar level to that in developed Asia-Pacific. As a result, this market has less scope for growth than that in the USA. However, we forecast that non-voice services will account for 40% of fixed revenue by 2015, up from 29% in 2009.
Figure 6: Mobile retail revenue and mobile SIM penetration, Canada, 2007–2015 [Source: Analysys Mason, 2011]
Figure 7: Fixed retail revenue and residential fixed broadband penetration of households, Canada, 2007–2015 [Source: Analysys Mason, 2011]

7. North America has a mature telecoms market, in which total revenue will decrease during the next five years
Figure 8: Retail revenue by service type, North America, 2009–2015 [Source: Analysys Mason, 2011]
Table 1: Retail revenue growth rates by service type, North America, 2009–2015 [Source: Analysys Mason, 2011]
Service type
Change 2009–2010
CAGR 2010–2015
Fixed voice
–2.8%
–9.7%
Fixed broadband
8.8%
3.2%
Business network services
0.6%
1.8%
Mobile voice
–5.9%
–5.6%
Mobile messaging
3.5%
1.0%
Mobile handset data
27.3%
12.2%
Mobile broadband
39.5%
22.1%
Total
0.5%
–1.9%
Retail revenue from fixed voice services will decrease during 2010–2015. The growth in revenue from retail fixed broadband and business network services will not be enough to compensate for this decline.
By contrast, the increase in mobile non-voice retail revenue will compensate for the loss in mobile voice spend. As a result, mobile retail revenue will grow at a CAGR of 0.9% during 2010– Overall telecoms revenue will decline at a CAGR of –1.9% during the same period.

8. Mobile services are challenging fixed equivalents in the voice and data markets
The mobile handset penetration rate is significantly lower in North America than in other developed markets (it stood at 84% in 2009, compared with 115% in Western Europe). As a result, the market has room for growth in the number of mobile connections, which will be accompanied by a modest decline in fixed connections. In the residential segment, the proportion of mobile-only voice households will double during the forecast period, growing from 9% in 2009 to 18% in 2015.
Take-up of fixed broadband services continues to grow, as operators add advanced services, such as IPTV, to their offerings to increase their appeal. The user experience of mobile broadband has so far been poor. Operators are upgrading networks to HSPA+ and deploying LTE to improve such services. Take-up of mobile broadband is set to grow, but consumers will continue to use it as a complement to, rather than a substitute for, fixed broadband. Only 6% of broadband connections will be mobile-only in 2015.
Figure 9: Voice connections by network type and percentage of households that are mobile-only, North America, 2007–2015 [Source: Analysys Mason, 2011]
Figure 10: Broadband connections by network type and percentage of connections that are mobile-only, North America, 2007–2015 [Source: Analysys Mason, 2011]

9. Scope for further growth in voice traffic is limited, but the proportion of mobile-originated calls will grow
Traffic volumes are very high in North America, largely because users have become accustomed to free local calls on fixed networks and free off-peak calls on mobile networks. The average number of minute of use on outgoing mobile calls stood at 447 per handset per month in 2009, compared with 117 in Western Europe. The equivalent per fixed voice connection was minutes per month (excluding local calls), compared with 92 in Western Europe (including local calls).1
The volume of mobile traffic has grown strongly in recent years, but should level off and begin to contract by Consumers will use a increasing amount of their time using services that substitute voice calls (such as SMS, , IM and social networking) and other new applications (such as Internet browsing and playing games on smartphones).
Figure 11: Outgoing call minutes and mobile’s share of outgoing traffic, North America, 2007–20151 [Source: Analysys Mason, 2011]
Figure 12: Monthly minutes of use by network type, North America, 2007–20151 [Source: Analysys Mason, 2011]
1 Fixed local calls are unmetered and included as part of the line rental in North America, so local voice traffic is not included in reported fixed traffic figures. Therefore, Figures 11 and 12 show fixed outgoing minutes and minutes of use exclusive of fixed local calls.

10. The trend towards fixed–mobile traffic substitution will continue as the retail prices for mobile voice services decline
Figure 13: Mobile’s share of voice traffic and retail price per outgoing minute, North America, 2007–2015 [Source: Analysys Mason, 2011]
In North America, the mobile price premium was –77% in The average retail price per minute was USD0.08 on mobile networks and USD0.34 on fixed networks. We expect the mobile premium to continue its decline – albeit at a slower pace in the latter years of the forecast period, as the availability of fixed VoIP services helps to reduce the average pricing for fixed voice services.
Mobile networks’ share of voice traffic has increased as the price of mobile voice services has declined. This trend is likely to continue even after the mobile price premium has stabilised, largely because of the popularity of mobile devices.
1 The mobile price premium measures the difference between the average cost of one outgoing call minute on fixed and mobile networks. Note that North America’s premium is calculated based on average retail price per fixed minute excluding local calls.

11. Non-voice services will drive mobile revenue growth, but handset ARPU will continue to decline
Mobile ARPU is much higher in North America than in Western Europe: it stood at USD49 in 2009, compared with Western Europe’s USD37. This is largely the result of relatively high call volumes and intensive data usage.
Mobile revenue will continue to grow, albeit at slower rates. Much of this growth will be the result of a twofold increase in handset data and content revenue, as customers use their handsets more often to access entertainment, social networking and other Internet-based applications. Growth in mobile broadband revenue will also drive overall growth, but to a lesser extent. Non-voice services will account for slightly more than half of total mobile revenue in 2015, up from 26% in 2009.
Growing usage of handset data and content services will also drive an increase in non-voice services’ share of handset ARPU (to 44% in 2015). However, its contribution will not be enough to prevent the long-term decline in handset ARPU because the competitive pressures remain strong.
Figure 14: Mobile service revenue by service type, North America, 2007–2015 [Source: Analysys Mason, 2011]
Figure 15: Mobile handset ARPU by service type, and messaging and non-voice services’ share of ARPU, North America, 2008–2015 [Source: Analysys Mason, 2011]

12. Recent high growth rates in SMS usage will not be sustained
The volume of SMS messages and SMS retail revenue grew dramatically from 2007 to However, non-messaging data revenue also grew strongly during this period, so messaging’s share of non-voice revenue declined from 56% in to 45% in 2009, and will drop to 28% in 2015.
North America’s SMS usage lagged that of other developed markets for many years, but increasing availability of large and unlimited SMS bundles has driven growth in SMS traffic. The average number of text messages sent per handset per month increased from 120 in 2007 to 328 in 2009, compared with 106 in Western Europe in We expect this figure to increase more slowly in future, as non-SMS data services – particularly on smartphones – become more widely used.
Average retail revenue per SMS message declined from USD0.035 in 2007 to USD0.016 in as use of unlimited SMS plans increased. This trend will continue, driving the average revenue per message down to USD0.012 in 2015.
Figure 16: Messaging revenue and its share of non-voice mobile handset revenue, North America, 2007–2015 [Source: Analysys Mason, 2011]
Figure 17: SMS messages sent per month by country, and average SMS messages per handset per month, North America, 2007–2015 [Source: Analysys Mason, 2011]

13. Tablet PCs, mobile broadband modems and M2M devices will fuel the remaining growth in mobile connections
Figure 18: Number of SIMs by usage and per owner, North America, 2009–2015 [Source: Analysys Mason, 2011]
The number of mobile broadband connections will increase from 12.8 million in 2009 to 90 million by This growth will be driven by increasing take-up of connected tablet PCs, which will account for 42% of all mobile broadband connections in 2015.
North America has the highest smartphone take-up rate in the world: AT&T reported million such devices on its network at September 2010, or 39% of its reported user base (exclusive of M2M). As the range and quality of applications increase, the popularity of these devices will grow even further.
However, ARPU for all connection types will decline because of competition and flat-rate pricing on handset and mobile broadband tariff plans. For example, the prices for Virgin Mobile’s Beyond Talk data-centric plans start at USD25 per month for unlimited data usage (and 300 minutes of calls). In addition, content and applications providers’ share of revenue will increase.

14. Prepaid subscriptions will become more popular as operators attract economically cautious consumers
Prepaid subscriptions have always been in the minority in North America, partly because users are required to pay for incoming calls. Only 13% of connections were prepaid in 2007, but this share increased to 15% by During this period, economic uncertainty drove growth in prepaid net additions, which outnumbered contract net additions in two quarters.
Take-up of prepaid services will continue to grow, as the potential customer base for mobile subscriptions widens into socio-economic groups that have previously been deterred from mobile ownership. Despite strong demand for smartphone contracts, prepaid services’ share of handset subscriptions will increase to 21% by 2015.
The increasing proportion of prepaid subscribers will drive a decline in the combined ARPU from handset and mobile broadband services.
Figure 19: Net additions by subscription type, North America, 3Q 2008–4Q [Source: Analysys Mason, 2011]
Figure 20: Net additions by subscription type and contract subscriptions’ share of total subscriptions, North America, 2009–20151 [Source: Analysys Mason, 2011]
1 Includes mobile broadband services.

15. New technologies will improve the smartphone user experience and make mobile broadband more attractive
The appetite for smartphones is huge in North America, but 3G network provision has been relatively low. In 2009, just over a quarter of SIMs were connected to 3G networks in North America, which was slightly less than in Western Europe and much lower than in developed Asia–Pacific. However, North American operators strived to expand their 3G coverage during 2010.
MNOs in North America have committed to LTE earlier than those in other regions because of the limitations of CDMA. In the USA, Verizon Wireless has pledged to launch LTE in 38 cities by and to update its 3G footprint to LTE by Sprint aimed for LTE to reach 120 million people by 2010, and AT&T is due to launch LTE in Bell Canada has started to implement HSPA+ Dual Cell technology, laying the foundation for an LTE roll-out in 2011.
The roll-out of 3.5G and 4G technologies will accelerate in the next five years. We expect 80% of SIMs to employ 3G/4G technology by 2015.
Figure 21: Active SIMs by technology generation and 3G/4G SIMs’ share of active SIMs, North America, 2009–2015 [Source: Analysys Mason, 2011]
Figure 22: 3G/4G SIMs’ share of active SIMs by region, 2007–2015 [Source: Analysys Mason, 2011]

16. Data service revenue will account for an increasing share of the declining revenue from fixed services
In the fixed market, voice revenue decreased during 2007–2009, and we expect it to decline more steeply because of fixed–mobile substitution and increasing take-up of lower-priced VoIP services. Voice services’ share of total fixed retail revenue will fall from 65% in 2007 to 45% in 2015.
Conversely, broadband revenue (including VoIP and IPTV) will increase from USD52 billion in to USD72 billion in The subscriber base will also continue to grow (from 91 million in 2009 to 111 million in 2015). One of the growth drivers in the USA is the FCC’s National Broadband Plan, which aims to increase access to broadband services. The penetration rate for IPTV will grow from 4% of households in 2009 to 11% in 2015.
Broadband ASPU will also grow as spending on IPTV and VoIP services increases, but the basic access charge will gradually decline. Verizon reported a 10.9% increase in its consumer ARPU in the third quarter of 2010, driven by strong take-up of its FiOS triple-play product.
Figure 23: Fixed retail revenue by service type, North America, 2007–2015 [Source: Analysys Mason, 2011]
Figure 24: Residential broadband retail spend per subscriber by service type, North America, 2008–2015 [Source: Analysys Mason, 2011]

17. In a fragile economic environment, operators will delay fibre deployment until the business case is proven
The fixed broadband market in North America is almost equally split between DSL and cable.
In the USA, operators have started to roll out fibre. However, take-up of AT&T and Verizon’s FTTx services proved disappointing in 2010, so both operators scaled back their deployment plans.
Operators in Canada have made little investment in fibre to date, but all have articulated plans to accelerate FTTH roll-outs. This move may protect their market shares from cable companies that are rolling out the high-speed DOCSIS3.0 technology.
We believe that fibre will attract DSL customers in the areas where it is rolled out, and will not alter the balance of power between cable operators and telcos significantly.
In uncertain economic times, operators will be wary of investing heavily in NGA unless they can be certain that it will increase revenue. In a market where basic charges are in decline, this is by no means likely.
Figure 25: Fixed broadband connections by technology, North America, 2009–2015 [Source: Analysys Mason, 2011]
Figure 26: FTTB’s share of fixed broadband connections by country, North America, 2007–2015 [Source: Analysys Mason, 2011]