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WWW.IBISWORLD.COM Wireless Telecommunications Carriers in the US November 2017 1

IBISWorld Industry Report 51721 Wireless Telecommunications Carriers in the US November 2017 Dylan Miller

On call: The proliferation of mobile phones has spurred demand for wireless services

2 About this Industry 2 Industry Definition

2 Main Activities

2 Similar Industries

2 Additional Resources

3 Industry at a Glance

4 Industry Performance 4 Executive Summary

4 Key External Drivers

6 Current Performance

9 Industry Outlook

12 Industry Life Cycle

14 Products & Markets 14 Supply Chain

14 Products & Services

15 Demand Determinants

16 Major Markets

18 International Trade

19 Business Locations

21 Competitive Landscape 21 Market Share Concentration

21 Key Success Factors

21 Cost Structure Benchmarks

23 Basis of Competition

25 Barriers to Entry

26 Industry Globalization

27 Major Companies 27 Verizon Wireless

28 AT&T Inc.

29 Deutsche Telekom AG

31 Sprint Corporation

33 Operating Conditions 33 Capital Intensity

34 Technology & Systems

36 Revenue Volatility

36 Regulation & Policy

39 Industry Assistance

40 Key Statistics 40 Industry Data

40 Annual Change

40 Key Ratios

41 Industry Financial Ratios

42 Jargon & Glossary

www.ibisworld.com | 1-800-330-3772 | [email protected]

This report was provided to Capella University (2129014666) by IBISWorld on 19 May 2018 in accordance with their license agreement with IBISWorld

WWW.IBISWORLD.COM Wireless Telecommunications Carriers in the US November 2017 2

This industry operates and maintains switching and transmission facilities to provide direct communications through the airwaves. Industry

services include cellular mobile phone services, paging services, wireless internet access and wireless video services.

The primary activities of this industry are

Providing wireless network communication service for local, long-distance and international calls

Providing messaging services, such as short message services (SMS) and multimedia messaging services (MMS)

Renting out wireless telecommunications equipment

Wholesaling wireless infrastructure capacity to telecommunications resellers

Operating and maintaining of switching and transmission facilities

Providing wireless internet services and other non-messaging data

Selling cell phones and other wireless devices

51711c Wired Telecommunications Carriers in the US Operators in this industry offer wired services, a substitute for wireless. The mobility and pricing of wireless is giving wireless carriers the upper hand.

51711e VoIP in the US Operators in this industry offer Voice over Internet Protocol (VoIP) services.

51791a Telecommunications Resellers in the US Operators in this industry purchase access and network capacity of telecommunications networks and resell these services. Resellers of wireless services are competitors at the retail end.

51741 Satellite Telecommunications Providers in the US Operators in this industry offer telecommunications services by forwarding and receiving communications signals via a system of satellites or reselling satellite telecommunications.

Industry Definition

Main Activities

Similar Industries

Additional Resources

About this Industry

For additional information on this industry

www.ctia.org CTIA

www.fcc.gov Federal Communications Commission

www.bls.gov US Bureau of Labor Statistics

The major products and services in this industry are

Advanced PCS services

Cellular voice services

Text messaging

Other data services

Other non-data services

Provided to: Capella University (2129014666) | 19 May 2018

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Revenue Employment

Revenue vs. employment growth

Products and services segmentation (2017)

53.6% Cellular voice services

18.1% Text messaging

11.7% Other non-data services

10.8% Advanced PCS services

5.8% Other data services

SOURCE: WWW.IBISWORLD.COM

Key Statistics Snapshot

Industry at a Glance Wireless Telecommunications Carriers in 2017

Industry Structure Life Cycle Stage Mature Revenue Volatility Low

Capital Intensity High

Industry Assistance None

Concentration Level High

Regulation Level Medium

Technology Change High

Barriers to Entry High

Industry Globalization Low

Competition Level High

Revenue

$254.5bn Profit

$27.0bn Wages

$16.5bn Businesses

792

Annual Growth 17-22

4.0% Annual Growth 12-17

0.9%

Key External Drivers Price of semiconductor and electronic components Number of mobile internet connections Per capita disposable income Corporate profit Percentage of services conducted online

Market Share Verizon Wireless 23.8%

AT&T Inc. 23.5%

Deutsche Telekom AG 12%

Sprint Corporation 8.7%

p. 27

p. 4

FOR ADDITIONAL STATISTICS AND TIME SERIES SEE THE APPENDIX ON PAGE 40

SOURCE: WWW.IBISWORLD.COM

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Key External Drivers Price of semiconductor and electronic components Semiconductors and other electronics are the main components in much of the industry’s equipment. As these electronic parts become more powerful and efficient, they will boost performance of equipment, which will further enhance industry providers’ reliability and service. At the same time, the price of such equipment

has fallen over the five year period and is expected to fall further in 2017.

Number of mobile internet connections Growing demand for mobile internet access directly influences demand for wireless telecommunications. As broadband-enabled smartphones and tablets have proliferated throughout the country, demand for the industry has

Executive Summary

Over the past five years, the Wireless Telecommunications Carriers industry benefited from the rapid development of mobile devices. The popularity of the smartphone particularly bolstered growth. Increasingly, households have chosen to disconnect their landlines to cut costs, suggesting that consumers no longer view mobile device purchases as discretionary. The share of households with only wireless telephone connections has increased markedly since 2012, according to industry association CTIA. As a result, revenue is expected to grow an annualized 0.9% to $254.5 billion over the five years

to 2017, although the industry is expected to decline of 2.3% in 2017.

Over the past five years, the industry has been defined by its transition from primarily providing voice services, to focusing on providing data services. Technological change, namely, the transition to fourth-generation (4G) wireless data services and the long-term evolution (LTE) standard, is transforming this industry into one that primarily delivers broadband connectivity. Most notably, the deployment of small cells and distributed antenna systems, pioneered by

Verizon, has made wireless services increasingly reliable. SoftBank Group Corp.’s 2012 acquisition of Sprint Corporation, Sprint’s subsequent purchase of Clearwire Corporation and T-Mobile USA Inc.’s acquisition of prepaid carrier MetroPCS demonstrate that the industry has been continually consolidating over the past five years. High industry saturation has pushed carriers to offer a range of unlimited calling and data services to garner more customers, especially as the wireless penetration rate hit 120.6% at the end of 2016 according to CTIA.

Industry revenue is projected to reach $309.0 billion in 2022, driven by an expansion in the number of mobile devices using data services and the increasing average revenue per user. As broadband-enabled smartphones proliferate, more consumers will perceive on-the-go internet access as an essential function of mobile phones. These perceptions, further fueled by the rise of apps, are forecast to drive revenue growth at an annualized rate of 4.0% over the next five years. Moving forward, the industry will be characterized by a greater level of competition among carriers for wireless spectrum, an already scarce resource. As wireless traffic increases, companies are expected to focus on developing technologies to make the increasingly costly airwaves more efficient.

Industry Performance Executive Summary | Key External Drivers | Current Performance Industry Outlook | Life Cycle Stage

The industry has been defined by its transition from primarily providing voice services, to focusing on providing data services

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Industry Performance

Key External Drivers continued

climbed markedly. Furthermore, mobile- internet-connected cell phones garner significantly more revenue from consumers than cell phones that provide only voice and text messaging services. Although the number of mobile internet connections is increasing in 2017, the rate of growth is beginning to slow as mobile internet connections approach saturation, posing a threat to the industry.

Per capita disposable income Higher disposable incomes encourage consumers to purchase electronic devices, such as tablet computers, which may require dedicated mobile internet connections. As disposable income increases, spending on industry services also rises. Per capita disposable income is expected to increase in 2017, representing a potential opportunity for the industry.

Corporate profit Corporate profit measures profit levels earned by businesses across all industries. Businesses and corporations are the largest consumer of industry services. Consequently, when businesses earn profit, they have more money to invest in new telecommunications systems. Corporate profit is expected to rise in 2017.

Percentage of services conducted online The percentage of services conducted online both reflects and encourages demand for wireless internet access, the industry’s fastest-growing product segment. Consumers can now make financial transactions and purchases on broadband-enabled mobile devices, increasing demand for the industry. The percentage of services conducted online is expected to increase in 2017.

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Number of mobile internet connections

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Provided to: Capella University (2129014666) | 19 May 2018

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Industry Performance

Current Performance

The Wireless Telecommunications Carriers industry has performed well over the past five years, as the number of mobile internet connections exploded, rising at an annualized rate of 12.3%. The industry generated strong revenue growth and profitability due to infrastructure investments and advancements in technology. Over the five years to 2017, revenue is expected to have grown an annualized 0.9% to $254.5 billion, although industry revenue is projected to fall 2.3% in 2017. During the period, profitability has fluctuated primarily due to the high level of mergers and acquisitions, as well as an influx of low-cost options.

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Data-driven growth Demand for mobile data services has grown at a strong pace over the past five years, and the industry’s major players have certainly capitalized. According to industry association CTIA, the number of wireless subscriber connections increased from 296.3 million in 2010 to 395.9 million by the end of 2016 (latest available data). Industry players have tried to keep up with demand, which has outpaced their current capacity. More than any other device, the Apple iPhone is responsible for this misalignment of supply and demand. Although was not the first smartphone, no other device has had such a profound effect on this industry. The iPhone and its competitors, particularly devices running Google’s Android operating system, dramatically increased the value of mobile data plans to consumers. Before the iPhone, those plans were not useful enough to warrant their cost for most consumers.

Apple has also led the charge in promoting third-party applications (apps) for smartphones. These apps enable consumers to use services on their phones that were previously only available on location (e.g., mobile banking and video viewing). Consumers

have become increasingly reliant on conducting services online via their broadband-enabled phones, increasing the overall dependence on, and demand for, smartphones. Consequently, the percentage of services conducted online has increased at an annualized rate of 15.1% over the five years to 2017.

Wireless providers have struggled to keep up with demand, devoting a significant amount of resources to expand network capacity. The battle for wireless spectrum has been a large source of competition, and the struggle for new subscribers in this saturated market has been challenging. Spectrum refers a range of airwaves occupied by television, radio, or wireless data transmission devices. Carriers’ appetite for both more spectrum and subscribers has played out in a series of competitive auctions and merger and acquisition attempts. Just prior to the period, AT&T Inc. offered to acquire T-Mobile USA Inc. in 2011, though the US Federal Communications Commission (FCC) ultimately ruled against it after citing antitrust-related concerns. Sprint Corporation made a similar attempt in 2014 but also failed, while France’s Iliad

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Industry Performance

SA also made an offer of its own, which was later dropped. Next, in summer 2013, Sprint purchased roughly half the remaining stake of its partner Clearwire Corporation that it did not already own; Clearwire’s vast spectrum holdings motivated that move. Then, in January 2015, the FCC completed an auction of 65.0 MHz of spectrum, which it identified as the AWS-3 band. Verizon Wireless and AT&T were the two industry victors (along with satellite TV

provider Dish), and closing purchases far exceeded analysts’ estimates.

As more devices depend on wireless internet connectivity, and as the bandwidth demands of wireless devices grow, spectrum will become increasingly valuable and essential for providing robust nationwide wireless coverage. As wireless traffic increases with the burgeoning availability of data and online services, spectrum is expected to become an increasingly scarce and valuable resource.

Data-driven growth continued

Wireless or wired In the wake of the financial crisis, many families chose to cut phone services that they found unnecessary, and those services tended to be landline rather than wireless connections. Many newer households never purchased wired phone services at all, instead relying entirely on their mobile carriers. In addition, more broadband-enabled mobile devices, such as tablet computers and e-readers, are expected to achieve wider penetration in the coming years. From 2010 to 2015, the percentage of households with only wireless service increased from 29.7% to 49.3%, according to CTIA. Furthermore, the share of households with only wireless service grew from 40.2% in 2013 to 49.3% in early 2016, while the landline-only share tumbled from 8.6% to 7.2% during the same period. This data reflects that most Americans strongly value the mobility and multipurpose nature of wireless services over the speed

and stability of landlines. As the population increasingly purchases wireless devices, which have also become more stable and reliable, revenue from wired phone devices has decreased. The advantage of higher speeds from wired connections is diminishing. Although recent technical innovations have improved the bandwidth of wired connections, the latest generation of wireless technology promises download speeds of more than 100.0 megabits per second, and up to one gigabit per second, on long-term evolution (LTE) networks. This speed is as fast as a hardwired connection and can be offered at about the same price.

Many newer households never purchased wired phone services at all

Concentration and competition

Wireless telecommunications operators consolidate to eliminate redundant costs, expand coverage and improve profitability. For example, two companies might require two separate cell towers to provide service to the same area (or, more likely, two separate leases on the same cell tower). Once merged, they can eliminate the costs

of one of these leases. More importantly, combined operators can merge spectrum licenses and sell off superfluous licenses. The depreciation of those licenses is almost twice the depreciation of fixed assets on a yearly basis. Reducing the number of parties bidding on spectrum also brings down the cost of acquiring new spectrum.

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Industry Performance

Concentration and competition continued

The industry has shown consistent signs of consolidation recently, and the four largest operators now control almost 70.0% of the market. In October 2012, T-Mobile acquired wireless prepaid carrier MetroPCS. Similarly, SoftBank, a Japanese wireless carrier, acquired a 70.0% stake in Sprint. Shortly after SoftBank’s acquisition request in December 2012, Sprint reached an agreement to purchase the remaining share of spectrum-rich Clearwire that it did not already own. Final FCC approval for the merger of Sprint and SoftBank, as well as for Sprint’s acquisition of Clearwire, was granted in July 2013. In addition, AT&T bought DirecTV in July 2015 for an estimated $49.0 billion, bringing a convergence of broadband internet and video services. Consolidation and intense competition have caused the number of industry enterprises to decrease at an annualized rate of 3.3% over the past five years, to 792 operators. Mergers and acquisition activity has created pressure on employment as well, with employment declining at an annualized rate of 3.6% to reach 215,691 employees over the five years to 2017.

The FCC has indicated that industry consolidation has reached its limits, at

least as far as AT&T and Verizon, the industry’s largest players, are concerned. If these operators are involved in more merger and acquisition activity, it will likely require the selling or exchanging significant portions of their assets to smaller operators to obtain regulators’ approval. For example, approval of Verizon’s deal to purchase spectrum from a consortium of cable companies was contingent upon Verizon exchanging spectrum licenses with smaller rival T-Mobile. Nevertheless, the FCC has been collaborating with the carriers on other issues, agreeing to permit customers to unlock their mobile phones to use a competitor’s network. Consolidation has also led the Federal Trade Commission (FTC) and consumers to fear overcharging. In May 2015, both Verizon and Sprint agreed to pay a total of $158.0 million to settle a lawsuit issued by the Consumer Financial Protection Bureau for allegedly enabling third parties to illegally bill customers, a practice known as “cramming.” Similarly, the FTC sued T-Mobile, accusing the carrier of charging customers for services they never ordered, resulting in a $90.0 million settlement. The FTC subsequently published a list of best practices to protect consumers from overbilling.

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Industry Performance

Industry landscape The enhanced speed of 4G networks (compared with 3G) will encourage more customers to abandon landlines altogether. IBISWorld projects that the percent of US households with only wireless service will continue increasing while the share of households with both landline and wireless service is projected to decline steadily. According to the Nielson Company, 98.0% of people aged 18 to 24 own a smartphone, and 80.0% of people aged 55 to 64 use one. Pew Research Center says that 77.0% of US adults own a smartphone as of November 2016, up from 58.0% just three years earlier. With smartphone penetration expected to increase, revenue from data traffic is expected to rise as a percentage of total revenue, as the smartphone is the prime device for data traffic, which has been growing at an exponential rate and is expected to continue doing so. This transition is expected to further encourage the move to wireless-only households, as the multipurpose nature of smartphones diminishes the popularity of landline service.

Most notably, the LTE standard treats voice calls as packet-switched data, much

like Voice over Internet Protocol (VoIP), rather than circuit-switched voice calls, which require a dedicated line. Therefore, the widespread transition to 4G networks will continue, since voice and data will be identical from a network standpoint. Due to this, operators will likely alter price structures to reflect this development.

While 4G LTE technology is growing as the industry standard for wireless devices, operators already started conducting 5G trials in 2016, and are expected to invest a total of $275.0 billion in research and development. 5G technology is expected to be 10 times faster than 4G networks and connect 100 times the number of devices. The Internet of Things (IoT) will grow in concert with 5G. In fact, the share of wireless connections that are Machine-to- Machine (M2M) connections is set to increase from 15.0% in 2017 to 30.0% by

Industry Outlook

The Wireless Telecommunications Carriers industry is well positioned for future growth. Expanding demand for wireless data services is anticipated to offset declining demand for voice-only services, particularly as more broadband- enabled mobile devices, such as tablet computers and e-readers, achieve wider penetration. Over the five years to 2022, industry revenue is expected to continue increasing, at an annualized rate of 4.0%, reaching $309.0 billion in 2022.

The battle to establish a dominant fourth-generation (4G) technology appears to have come to an end. Verizon and AT&T have settled on long-term evolution (LTE) as their preferred 4G

technology, and Sprint has also indicated that it will be transitioning from WiMax, a wireless technology similar to Wi-Fi, to LTE. The emergence of LTE as the dominant 4G wireless technology is expected to enable a more rapid transition by consumers to 4G devices. The speedy victory of 4G technology is expected to increase industry revenue by reducing capital costs, enabling industry operators to focus on further developing this technology instead of two separate options. The industry will continue to invest heavily in 5G technology, set to go commercially available by 2020, and support the Internet of Things (IoT); the internetworking of physical devices.

The increasingly concentrated industry is expected to experience further consolidation

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Industry Performance

Industry landscape continued

the end of this decade. Aside from enhanced consumer communications, digitizing physical industries should add an estimated $2.7 trillion to US GDP by 2030, revolutionizing business practices and the consumer experience.

The changing and increasingly concentrated industry is expected to experience further consolidation in the coming five years. Due to a significant level of mergers and acquisitions, Sprint and T-Mobile are expected to solidify their competitive positions with respect to Verizon and AT&T over the next five years. If either Sprint or T-Mobile emerges as a legitimate challenger to Verizon and AT&T, regulatory pressures on these market leaders’ activities would likely ease; however, such an emergence is not simple, as regulators keep a watchful eye over industry activity. Sprint, for instance, has been pursuing a merger with T-Mobile for much of the past five years, and has experienced heavy regulatory pressures. Furthermore, the upcoming five-year period is expected to undergo global consolidation as worldwide telecommunications giants compete for worldwide market share.

While consolidation has likely reached its limit due to FCC regulation, expenses could be reduced significantly via outsourcing, as

other expenses, including exchange fees, spectrum license fees and infrastructure costs, are beyond the control of operators and cannot be easily reallocated. Although many industry employees work on location, such as equipment installers and repairers, IBISWorld anticipates that many customer service and technical support jobs could be relocated to countries with lower labor costs. Wages comprise 6.5% of industry revenue in 2017, but industry operators can control these costs. However, additional contractors and employees needed for next-generation network rollouts are forecast to boost employment over the next five years, even as less-technical positions are outsourced. As a result, IBISWorld expects employment in the industry to increase over the five years to 2022 at an annualized rate of 2.4% to 242,455 employees. The number of industry establishments is also expected to increase at an annualized rate of 1.2% to 12,399 establishments. Outsourcing less-technical positions is expected to slightly improve profitability over the period. In addition, the continuously falling price of semiconductors, a major input in industry products, is projected to fall an annualized 1.6% over the five years to 2022. Falling electronic component prices will reduce input prices slightly, boosting profitability.

Subscriber saturation As the wireless service market becomes increasingly saturated, major companies that can no longer rely on new subscribers to stimulate revenue growth are expected to compete for already existing subscribers. As major companies absorb revenue and profit losses to win more subscribers, the FCC and FTC are expected to increasingly scrutinize industry activities. In addition to converting subscribers of other carriers, major companies are expected to encourage the consumption of data, the fastest growing industry segment. Gaming and video streaming

consume particularly large amounts of wireless data. Carriers will succeed if they can encourage the expensive and profitable consumption of data-guzzling services and support the fast and steady infrastructure necessary to sustain those services.

Major companies are expected to compete for already-existing subscribers

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Industry Performance

The spectrum race In November 2014, the FCC began competitive bidding for new licenses for Advanced Wireless Services (AWS-3) frequencies. The bid for AWS-3 closed at $44.9 billion, double the 2008 bid, with AT&T and Verizon investing $18.2 billion and $10.4 billion, respectively. As consumers’ mobile internet use continues to soar and wireless traffic increases, major players may worry that government auctions of wireless spectrum will become

even less frequent than they already are. Meanwhile, consumer connectivity is expected to continue to rise over the five years to 2022, with the amount of internet connected smartphones and tablets expected to continue increasing. Consumers’ increased connectivity, in addition to such a high operating expense for expenses, will be a recurring roadblock for the industry over the five years to 2022.

The T-Mobile revolution

After the FCC blocked AT&T’s attempted purchase of T-Mobile, the fourth-largest provider of postpaid service plans, T-Mobile declared itself an “un-carrier,” a wireless telecommunications carrier that does not act like one. The company’s strategy has several key components: Simple Choice plans, which eliminated annual service contracts; Just Upgrade My Phone, a faster way to upgrade an eligible handset; reduced United States to international calling rates and roaming fees; data roaming while traveling abroad in more than 100 countries at no extra cost for Simple Choice customers; and the reimbursement of early termination fees when customers switch from other carriers and trade in their devices. In response to this move, AT&T subsidiary Cricket Wireless began to offer unlimited

talk, text and data plans. Additionally, the company also offers a $100.00 credit if customers switch over from T-Mobile. Due to the high level of competition in the industry, these types of offerings and deals are expected to continue moving forward. The industry’s low level of product differentiation also makes it increasingly important to appeal to consumers on a cost-level basis. Consequently, over the five years to 2022, industry operators are expected to continue offering lucrative deals and offers in an attempt to lure consumers away from competitors.

It is increasingly important to appeal to consumers on a cost-level basis

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Industry Performance Strong consumer demand continues for wireless telephony services

The industry is consolidating

The industry’s economic contribution is expanding faster than GDP

Life Cycle Stage

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Decline Shrinking economic importance

Quality Growth High growth in economic importance; weaker companies close down; developed technology and markets

Maturity Company consolidation; level of economic importance stable

Quantity Growth Many new companies; minor growth in economic importance; substantial technology change

Key Features of a Mature Industry

Revenue grows at same pace as economy Company numbers stabilize; M&A stage Established technology & processes Total market acceptance of product & brand Rationalization of low margin products & brands

Wired Telecommunications Carriers Computer Manufacturing

VoIP

Telecommunication Networking Equipment Manufacturing

Satellite Telecommunications Providers

Wireless Telecommunications Carriers

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Industry Performance

Industry Life Cycle Wireless telecommunications carriers operate in a highly dynamic, technologically intensive industry that is in the mature phase of its life cycle. Industry growth is expected to increase faster than the overall economy over the 10 years to 2022. IBISWorld projects that industry value added, which measures an industry’s contribution to the overall economy, will grow an annualized 8.2%, compared with the forecast 2.0% annualized growth of GDP over the same period. Industry growth has been limited by profit pressure, but has otherwise been strong due to the continuous investment in new technology and products and surging consumer demand.

Technological advancement requires continuous reinvestment in infrastructure. Despite rapid growth, consolidation is a commonly used expansion tactic in this industry. The industry’s unusually high level of consolidation, coupled with its mature phase, reflect some key characteristics: large existing major players with ample cash flow, relative homogeneity of services and the saturation of internet- enabled devices. Even as wireless telephony supersedes traditional wired- phone service, new technologies (e.g. VoIP) will also threaten the substantially high profit margins of this industry over the next five years.

This industry is Mature

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Products & Services

Wireless telecommunications providers use a variety of radio frequencies to transmit both voice and data. The Wireless Telecommunications Carriers industry is composed of one-way radio

applications, such as paging, and two- way applications, such as cellular telephone services and personal communication services (PCS). PCS encompasses a range of advanced

Products & Markets Supply Chain | Products & Services | Demand Determinants Major Markets | International Trade | Business Locations

KEY BUYING INDUSTRIES

51791a Telecommunications Resellers in the US Telecommunications resellers purchase access and network capacity from wireless telecommunications networks and resell these services.

99 Consumers in the US Consumers and businesses use wireless telecommunication carriers for voice, data and text services.

KEY SELLING INDUSTRIES

33411a Computer Manufacturing in the US The Wireless Telecommunications Carriers industry purchases telephone system components and modules, as well as other devices, from computer manufacturers.

33421 Telecommunication Networking Equipment Manufacturing in the US The Wireless Telecommunications Carriers industry purchases wireless operators with various types of communications equipment from telephone apparatus manufacturers.

33429 Alarm, Horn & Traffic Control Equipment Manufacturing in the US The Wireless Telecommunications Carriers industry purchases communication equipment from this industry.

33441a Semiconductor & Circuit Manufacturing in the US The Wireless Telecommunications Carriers industry purchases semiconductors and other electronic components from semiconductor and circuit manufacturers.

51711c Wired Telecommunications Carriers in the US The Wireless Telecommunications Carriers industry purchases wired telecommunications infrastructure from wired telecommunication carriers.

Supply Chain

Products and services segmentation (2017)

Total $254.5bn

53.6% Cellular voice services

18.1% Text messaging

11.7% Other non-data services

10.8% Advanced PCS services

5.8% Other data services

SOURCE: WWW.IBISWORLD.COM

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Products & Markets

Demand Determinants

Consumption patterns are important in determining demand. Over the past five years, the Wireless Telecommunications Carriers industry has benefited from a shift in consumer demand away from traditional wired services. The two key drivers behind the shift in demand have been price and connectivity. The past decade has marked the development of a mobile-phone using culture, as consumers have become far more demanding of wireless products and

services. A growing proportion of the population in the developed world, especially young tech-savvy consumers, views cell phones as their sole phone, an all-in-one device. This consumer group expects its cellular carrier to provide cost-effective call, SMS, MMS, email, internet browsing and Global Positioning Systems (GPS) services, backed by good customer service. As consumers become more reliant on their cell phones, demand for this industry will only

Products & Services continued

wireless mobile technologies and services. It enables communication to anyone, anyplace and anytime while on the move. PCS offerings are divided into three categories: narrowband, broadband and unlicensed.

Voice, text messaging and other data services Cellular telecommunications services (e.g. voice and text messaging) will account for 71.7% of total revenue. Included in this segment are 2G, 3G and 4G services, along with narrowband PCS. Analog (1G) services were shut down in early 2008 and 2G services are in decline. 4G services are the industry’s product mainstay, while 3G services are still required for voice calls. Sprint was the first carrier to offer 4G services over its new WiMax standard network. Other wireless carriers began buildouts of the competing LTE 4G infrastructure in 2010.

Voice and network access services remain the primary uses within this key segment. Voice usage continues to increase, but the rapid price reductions of phones and wireless service due to intense competition are tempering revenue growth from this service. Instead, data is now propelling overall growth in wireless usage. Data services increased significantly and represent more than 30.0% of cellular telecommunications

services revenue. IBISWorld estimates that SMS text messaging represents 18.1% of total revenue.

Advanced Personal Communication Services (PCS) Advanced PCS services, permitting communications to anyone, anywhere at any time, are expected to account for 10.8% of wireless revenue. These services consist of broadband and unlicensed PCS. This fast-growing product segment has expanded considerably over the past four years, since the introduction of the Wi-Fi standard that provides wireless access to the internet. Wireless Local Area Networks (WLAN), otherwise known as hotspots, are becoming mainstream in airports, hotels and even coffee shops, such as Starbucks. Network upgrades and greater selection of phones and tablet computers have also supported the growth of advanced PCS services.

Other services Other services will account for 11.7% of total revenue. More than half this revenue is generated from the resale of a variety of telecommunications equipment, such as cables and networking systems. Other wireless telecommunications services include installation, maintenance and repair services for telecommunications networks.

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Products & Markets

Major Markets

Industry operators market wireless services to three core markets: general consumers, businesses and governments and non-profit organizations. Each

market segment has specific service needs and values different aspects. For example, the consumer market is categorized by increased price sensitivity,

Demand Determinants continued

expand. Indeed, a 2015 Bank of America consumer survey reported that 35.0% of respondents said their smartphones were the first things on their minds in the morning. Coffee trailed at a distant second, at 17.0%. While consumer demand benefits the industry, IBISWorld expects that the growth in the number of new mobile connections will slow significantly over the next five years compared with the previous five-year period, consistent with the matured state of the market.

Demand from businesses is largely determined by the business cycle and profit margins in those sectors of the economy that are high users of telecommunications services, such as finance and retail sectors. Businesses hesitate before buying new or upgrading old wireless systems during difficult economic times.

Newer technologies, such as 4G technologies and 5G in the future, generate additional data traffic volumes

and revenue. New value-added services, including the likes of Multimedia Messaging Services (MMS), email, music downloads and even mobile TV, drive demand for the industry. Over the next five years, a plethora of new value-added services will continue to drive demand for wireless services. However, technological advancement and the mass adoption of new services can also have a cannibalizing effect on industry demand. For example, the introduction of Short Message Services (SMS) cuts down the number of calls made. Likewise, email applications for smartphones are placing pressure on messaging, while the emergence of mobile Voice over Internet Protocol (VoIP), which enables users to connect calls over an internet connection rather than the typical voice connection, will undermine voice revenue. This competitive threat may become more pronounced as mobile VoIP becomes available in more markets.

Major market segmentation (2017)

Total $254.5bn

59.7% Households and individuals

30.2% Business clients

10.1% Government & NPOs

SOURCE: WWW.IBISWORLD.COM

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WWW.IBISWORLD.COM Wireless Telecommunications Carriers in the US November 2017 17

Products & Markets

Major Markets continued

while the corporate market prioritizes service reliability. As a result, wireless carriers tend to differentiate business units to target a specific market.

Consumers This is the largest market segment for wireless carriers. Winning business in this market is heavily dependent on price, whether it be positioning against competitors or substitute services. Ultimately, demands of consumers have caused wireless carriers to pitch plans that make cell phones a more price-competitive telecommunications service than fixed-line offerings. For full-service carriers, this has meant a cannibalization of total revenue. Additionally, revenue from consumers decrease slightly as a share of total revenue over the past five years.

Price is not the only factor that matters to this market; service reliability and next-generation applications are also important. This market’s increasing sophistication makes it more important for carriers to provide services such as GPS, internet browsing and mobile TV, as did the iPhone for AT&T. The rapid success and uptake of smartphones, such as the iPhone, has generated strong revenue as individuals and households increase their use of data and apps. The introduction of 4G services has produced a surge in demand from consumers. Much of this represented a spike in data-intensive content consumption, such as video.

The private sector Many players concentrate on the corporate segment because it is typified by long-term contracts and more predictable usage patterns. Corporate businesses value service quality and are eager to make their operations more efficient. Over the past five years, this segment’s share of total revenue has been gradually rising.

The keys to service quality are reliability for voice and speed for data.

Speed is becoming increasingly important with the proliferation of wireless internet services. The uptake of wireless services has been surging within the corporate segment, particularly in those fields (e.g., sales) that value mobile office solutions. Popular wireless business solutions include wireless virtual private networks (VPNs), vehicle- fleet tracking and management, push-to- talk, workforce management applications and enterprise messaging.

The introduction of 4G services has provided wireless carriers with the opportunity to substantially increase revenue generated from the corporate segment through managed cloud- computing services. Cloud-computing services provide common business applications online that are accessed from an internet browser, while the software and data are stored on third-party managed servers. Therefore, within the wireless space, cloud computing provides carriers with an opportunity to provide solutions that depend on wireless access.

If wireless carriers only end up being enablers of cloud computing through providing infrastructure, they grapple with the prospect of becoming a low- margin business like other utility providers. But if wireless carriers can manage cloud-computing services, then they could achieve low costs per bit at the network level and high value per bit at the retail level. Managing the service would involve coordinating the three segments of cloud computing: hardware- as-a-service (HaaS), software-as-a- service (SaaS) and platform-as-a-service (PaaS). These delivery models charge customers a subscription fee for use, rather than requiring the purchase of a physical product.

Packaging HaaS, SaaS and PaaS together with wireless connectivity to meet the specific needs of business customers will support a high-margin business. The health, utility, transport

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WWW.IBISWORLD.COM Wireless Telecommunications Carriers in the US November 2017 18

Products & Markets

International Trade International trade is not a major component of this industry, though wireless carriers often have operations internationally. US wireless telecommunications carriers receive income from foreign telecommunications companies for directing calls from overseas to cell

phones. Conversely, the US carriers pay overseas telecommunication companies for directing calls made the US on cell phones to destinations in foreign countries. The majority of international calls are made using wired services because the service costs are lower.

Major Markets continued

and government sectors would be particularly receptive to end-to-end cloud-based solutions that depend on mobility. Ultimately, 4G cloud-based services will have applications throughout the entire economy. Indeed, online portals will be the critical connection point between business and consumers.

Government and non- profit organizations As the smallest share of revenue by segment, government and non-profit

organizations have maintained relatively consistent demand in the previous five-year period. Like the business segment, the public sector values services such as workforce management applications. However, the nature of government work, including classified phone calls, serves as a strong motivator for this segment to continue relying on landline phones. Bureaucratic inefficiencies may also slow the rate of adoption of wireless technologies, especially compared with private enterprises.

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WWW.IBISWORLD.COM Wireless Telecommunications Carriers in the US November 2017 19

Products & Markets

Business Locations 2017

MO 1.7

West

West

West

Rocky Mountains Plains

Southwest

Southeast

New England

VT 0.2

MA 2.1

RI 0.4

NJ 2.7

DE 0.4

NH 0.4

CT 1.4

MD 1.8

DC 0.3

1

5

3

7

2

6

4

8 9

Additional States (as marked on map)

AZ 1.8

CA 11.2

NV 1.0

OR 1.3

WA 2.4

MT 0.3

NE 0.5

MN 1.3

IA 0.7

OH 3.8

VA 2.6

FL 6.3

KS 1.5

CO 1.7

UT 0.7

ID 0.5

TX 8.7

OK 1.5

NC 3.4

AK 0.0

WY 0.4

TN 2.0

KY 1.4

GA 3.5

IL 4.5

ME 0.4

ND 0.2

WI 1.6 MI

3.0 PA 3.7

WV 0.8

SD 0.3

NM 0.6

AR 1.2

MS 1.4

AL 1.6

SC 1.7

LA 1.9

HI 0.6

IN 1.9

NY 5.3 5

6 7

8

3 21

4

9

SOURCE: WWW.IBISWORLD.COM

Mid- Atlantic

Establishments (%)

Less than 3% 3% to less than 10% 10% to less than 20% 20% or more

Great Lakes

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WWW.IBISWORLD.COM Wireless Telecommunications Carriers in the US November 2017 20

Products & Markets

Business Locations The geographic spread of the Wireless Telecommunications Carriers industry follows the nation’s demographic profile, in particular its population density. While establishment distribution correlates with population distribution, some regions move against this trend for various reasons.

The Southeast region accounts for 27.6% of industry establishments. This region has exhibited the sharpest fall in establishment numbers since the industry began a phase of consolidation post-2005. Over the past five years, struggling enterprises have exited the industry, and there has been a consolidation in establishments of surviving operators. Wireless operators have consolidated their presence within this market because it has generally been over-serviced.

The West region accounts for 16.4% of industry establishments. The West region is the most mature market, with the highest level of mobile penetration. This high penetration level is not in line with establishment numbers, with subscribers per establishment remaining above the national average. The populations of the West region, particularly California’s (11.2% of establishments), are renowned for being technologically savvy and early adopters. Like the Southeast, the West was hit hard by the economic meltdown.

The Mid-Atlantic region accounts for 14.1% of industry establishments. The Mid-Atlantic region is a relatively affluent

region, which is why subscriber density is high. Population in this region is in decline, and as population growth is a key driver for subscription demand, subscriber numbers in this region have also declined. A decreased population made the region less attractive to new establishments. As a result, the establishment proportion has remained relatively constant during the period.

The Great Lakes region accounts for 14.8% of industry establishments. The region is the poorest in the United States and unemployment in the region is also the highest. The poor economic environment is a key reason why the region has the lowest level of subscriber penetration.

%

30

0

10

20

So ut

hw es

t

W es

t

G re

at L

ak es

M id

-A tl

an ti

c

N ew

E ng

la nd

Pl ai

ns

R oc

ky M

ou nt

ai ns

So ut

he as

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Establishments Population

Distribution of establishments vs. population

SOURCE: WWW.IBISWORLD.COM

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WWW.IBISWORLD.COM Wireless Telecommunications Carriers in the US November 2017 21

Cost Structure Benchmarks

Profit Profit margins in the Wireless Telecommunications Carriers industry have historically grown at a steady rate due to its high value-added service offerings. In 2017, the average company in the industry is expected to record profit margins of 10.6%, measured by earnings before interest and taxes as a

share of revenue. Infrastructure upgrades and various subscriber plan changes would have brought profit margins down over the past five years if not for robust growth in the number of new mobile internet connections and number of services conducted online. Those margins instead grew from 7.2% in 2012. In addition, M&A activity has enabled major

Key Success Factors Developing close relationships in other industries It is important for wireless carriers to develop strategic alliances with leading businesses in supplier and buyer industries. Supply-side relationships are critical to providing competitive service offerings and the best devices.

Having a high profile in the market Name recognition is becoming increasingly important as the cell phone market nears saturation. Key brand aspects include service reliability, network coverage and service pricing.

Ready access to investment funding Building network infrastructure is particularly capital intensive, and

subscriber numbers depend on network coverage and capabilities. Therefore, it is important that carriers can access capital for funding infrastructure upgrades.

Ability to quickly adopt new technology There is a rapid rate of technological innovation in the field of wireless telecommunications. This means technology life cycles are particularly short, which makes it essential for carriers to quickly embrace technological developments.

Exclusive product sales contracts Exclusive access to highly desired products, as with Apple’s iPhone, can give a wireless carrier a significant advantage.

Market Share Concentration

The Wireless Telecommunications Carriers industry exhibits a high level of concentration. In 2017, the top four major players in this industry (Verizon, AT&T, T-Mobile, and Sprint) are expected to account for just under 70.0% of industry revenue. This higher concentration is consistent with the high level of merger and acquisition (M&A) activity that took place over the past decade. The purpose of the substantial M&A activity has been to acquire subscribers and expand coverage by acquiring spectrum licenses. M&As have become popular because increasing market penetration has made customer acquisition

more expensive than when the industry was in its strong early growth phase. As the industry offers increasingly homogeneous products and services, operators are now scrambling to build their subscriber bases. A large subscriber base is critical to competitiveness, as it delivers considerable economies of scale and thereby enables a carrier to offer low prices and realize higher margins. With a stronger cash flow, a carrier can invest more heavily in upgrading its network infrastructure to deliver new and improved services. Ultimately, it is easier to defend a large subscriber base than to build one.

Competitive Landscape Market Share Concentration | Key Success Factors | Cost Structure Benchmarks Basis of Competition | Barriers to Entry | Industry Globalization

Level Concentration in this industry is High

IBISWorld identifies 250 Key Success Factors for a business. The most important for this industry are:

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WWW.IBISWORLD.COM Wireless Telecommunications Carriers in the US November 2017 22

Competitive Landscape

Cost Structure Benchmarks continued

companies to hold healthy margins while gaining market share. Still, profit margins are under some pressure. Over the past year, all four major companies have cut prices and offered greater flexibility in their services. After T-Mobile declared itself an un-carrier, offering no-contract plans and cutting away termination fees, the three other major companies responded by offering new lower-cost plans.

Purchases Purchases represent the largest single expense for wireless operators, at 18.7% of revenue in 2017. Purchases for this industry fall into two categories: cost of services expenses and equipment expenses. IBISWorld estimates that the cost of services expenses account for the majority of purchases. Cost of services expenses represents the cost of operating and accessing the wireless network, as

well as roaming and long-distance costs. Following several large mergers in recent years, major players are attaining greater scale and synergies.

Equipment purchases account for the largest purchase. Most operators entice customers to their networks by offering subsidized smartphones. Continued growth of smartphones, particularly those using Google’s open source Android operating system, will increase purchasing expenses over the next five years, given the high rate of technological change and consumers’ desire to own the latest handset. Operators do generate revenue from selling handsets, so the net cost of equipment purchases is lower. But even when accounting for revenue derived from handset sales, operators still generate a loss. The importance of equipment subsidies to industry success can be seen in AT&T’s (now expired) agreement with Apple, which gave AT&T

Sector vs. Industry Costs

n Profi t n Wages n Purchases n Depreciation n Marketing n Rent & Utilities n Other

Average Costs of all Industries in sector (2017)

Industry Costs (2017)

0

20

40

60

Pe rc

en ta

ge o

f re

ve nu

e

80

100

SOURCE: WWW.IBISWORLD.COM

16.4 10.6

49.3

8.5 3.8 2.6

18.7

6.5

27.5

3.5 3.2 6.9

17.2

24.2

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WWW.IBISWORLD.COM Wireless Telecommunications Carriers in the US November 2017 23

Competitive Landscape

Basis of Competition Internal competition The US Wireless Telecommunications Carriers industry is the most competitive in the telecommunications sector. One indication of the level of competition is the churn rate, which refers to the number of customers an industry player loses over a given period. Within the industry, competition is based on price, services offered, value-added product innovation and geographic coverage.

Increased size enables major players to seek out economies of scale and negotiate better handset rates. The importance of economies of scale has led to increased merger and acquisition activity in the industry, the most recent being the proposed acquisition of T-Mobile by AT&T (which was subsequently blocked by the US government as an anti-trust measure). AT&T and Atlantic Tele- Network (ATN) have also filed applications to merge. Intense price competition has caused major operators to pass on many margin-enhancing benefits to consumers in the form of lower prices. Likewise, higher-margin services, such as Multimedia Messaging Services (MMS) and internet browsing, have meant wireless carriers can cut prices on traditional voice and Short Message Service (SMS) offerings to

attract subscribers. Both trends increase demand for wireless products and services.

Price Price is a major basis of competition because product differentiation is often difficult. In some instances, industry operators (particularly those operating on a regional basis) offer similar coverage with similar services. Price includes airtime charges and handset costs, which are often subsidized, and is in turn affected by the carrier’s cost structure. Many of the industry’s largest cellular mobile players, including AT&T, Sprint and T-Mobile, have resorted to price-cutting due to an increasingly saturated and competitive market. Merger and acquisition activity enables major players to reduce prices while maintaining margins.

Innovative packaging and marketing structures can stimulate demand. For example, bundling services (i.e. cross- selling) is a means through which integrated telecommunications companies can leverage their subscriber base and boost overall use. One key marketing promotion that continues to influence the industry is the use of price caps, which give users a high dollar value of calls for a set amount.

Cost Structure Benchmarks continued

exclusive rights to sell the iPhone. The agreement greatly improved AT&T’s subscriber numbers but also increased its handset subsidy expense.

Wages Wages make up 6.5% of industry revenue in 2017, and have fallen from 7.0% in 2012 due to increased operational efficiency stemming from better telecommunications technology. As a result, operators have been able to scale back the number of employees in this industry and save on wage costs.

Marketing Marketing is expected to account for 3.8% of industry revenue in 2017. Marketing efforts are critical in attaining subscriber growth and are often reflected in customer acquisition costs. Acquisition costs will increase as carriers compete more intensely for subscribers in a market approaching saturation. Promotions and other efforts to establish brand loyalty will likely grow more common as the four major carriers contend for the same overall pool of customers.

Level & Trend Competition in this industry is High and the trend is Steady

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WWW.IBISWORLD.COM Wireless Telecommunications Carriers in the US November 2017 24

Competitive Landscape

Basis of Competition continued

Service Fundamentally, customer service is paramount in achieving customer loyalty (i.e. reducing churn rates and maintaining subscriber numbers). Service has become a more important competitive weapon, as cell phone customers have placed greater emphasis on service reliability and problem resolution. Several cell phone carriers invest heavily in deploying new technologies and upgrading their networks to differentiate their offerings based on service quality and network coverage. Cell phone companies also offer customer support services at different price points.

Product innovation Product innovation is critical because the commercialization of new technologies can be incredibly valuable in improving usage rates, bolstering margins and attracting new customers. Over the past five years, faster and reliable 4G technology has been vital to improving profit margins. As product and application life cycles are short in the wireless space, cell phone operators invest heavily in the latest value-added features that the new technology generation enables. Some recent technology introductions have included energy efficiency monitors, broadband access and e-commerce. Innovative product bundling is also becoming a significant competitive point. Players offer integrated combinations of the latest products and services to encourage customers to become multiproduct users. 4G technology is already generating another wave of new value-added products as the cloud affects social and business environments.

Geographic coverage Geographic coverage has increased in importance as major players strive to

maximize their respective area coverage. In the past, this common goal prompted many regional participants to combine their resources to enlarge their geographic footprint.

External competition Traditional external competition has come from various telecommunications resellers and satellite operators. Over the past decade, there has been strong growth in the number of mobile virtual network operators (MVNOs). MVNOs are companies that buy airtime on a major wireless network then resell it using their own logo. However, the competitive threat from the MVNO looks to be subsiding; the carriers’ increasing scale is giving them the economies to explore niche markets (i.e. the reseller’s core markets).

Nevertheless, because of the convergence trend in the communications sector, wireless participants will experience an increasing level of external competitors in the future. Communications and media heavyweights have identified the potential growth that wireless infrastructure will provide in the digitalized future. Major cable companies Cox, Comcast and Time Warner Cable have formed an alliance and developed mobile strategies, acquiring 150,000 hotspots and permitting their customers to roam on each other’s networks.

Internet providers also pose a serious threat to wireless carriers in the future. Google, the company behind the Android smartphone operating system, launched an MVNO service called Project Fi in 2015 that enables users to access public Wi-Fi networks alongside the cellular services of both T-Mobile and Sprint.

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WWW.IBISWORLD.COM Wireless Telecommunications Carriers in the US November 2017 25

Competitive Landscape

Barriers to Entry Spectrum availability and regulatory conditions are the most formidable barriers to entry into the wireless industry. Existing regulatory rules limit the number of participants in each market. In addition, spectrum scarcity means there is a finite number of companies that can operate cellular or personal communication services (PCS) services within a specific geographic location and frequency. Once all spectrum licenses have been allocated within a specified area, then it will be closed to new entrants until the next spectrum comes up for auction. Furthermore, the cost of spectrum is high: bids totaled almost $20.0 billion in the 2008 700MHz auction. In 2014, bids for wireless spectrum topped $43.0 billion, exceeding even the most bullish estimates of $22.0 billion at the time. This reflects the growing pressure that demand for access to data networks is putting on the existing airwaves, a trend that had only entered its infancy in the 2008 auction when bids came in much lower. Therefore, cost is considered a substantial barrier to entry.

Spectrum licenses are not the only prohibitive expense. The capital intensity of this industry acts as a deterrent to prospective entrants. The cost associated with building base stations, towers and other network infrastructure is high. Achieving national coverage can cost billions of dollars.

Industry incumbents have established well-entrenched positions, making market entry difficult. IBISWorld estimates that the four national network providers, Verizon, AT&T, T-Mobile and Sprint, make up just under 70.0% of the market. The incumbents experience considerable cost advantages arising from economies of scale and scope. Over many years, the entrenched players have widened their subscriber base, enabling

them to spread depreciation and interest expenses across a larger group of customers as well as negotiate lower handset rates. Many the incumbents also offer an array of telecommunications services, giving them a competitive advantage from bundling packages together. By bundling services, integrated operators can undercut pure wireless providers while also building switching costs to reduce customer churn rates. Service integration means advertising and marketing costs can be spread across a variety of service lines. Ultimately, a new player will incur much higher costs per customer than entrenched players and have difficulty winning customers, especially if they only offer cell services.

Subscriber growth is slowing as the market makes its way toward saturation, further reducing opportunities for new players. This slowdown means acquisition costs will generally escalate as subscriber wins become harder to come by and concentration levels remain high. The wireless industry has undergone a tremendous amount of merger and acquisition (M&A) activity over the past decade. The driving force behind the M&A activity is the desire to expand subscriber base and resultantly experience improved economies of scale. Ultimately, M&A activity continues to increase concentration and has been the driving factor pushing up entry barriers for the industry.

Barriers to Entry checklist

Competition High Concentration High Life Cycle Stage Mature Capital Intensity High Technology Change High Regulation & Policy Medium Industry Assistance None

SOURCE: WWW.IBISWORLD.COM

Level & Trend Barriers to Entry in this industry are High and Increasing

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WWW.IBISWORLD.COM Wireless Telecommunications Carriers in the US November 2017 26

Competitive Landscape

Industry Globalization

The wireless industry has a low, but increasing, level of globalization. The top four US wireless carriers, Verizon, AT&T, T-Mobile and Sprint, account for the clear majority of revenue, but not all of them are majority American-owned. The fourth largest wireless carrier, T-Mobile USA, is a subsidiary of German telecommunications provider Deutsche Telekom and Sprint was acquired by Japanese SoftBank.

There has been a worldwide trend toward cross-border investments in the global telecommunications industry. The 1998 agreement on basic telecommunications, the Fourth Protocol to the WTO’s General Agreement on Trade in Services, was such that 78 WTO member countries agreed to liberalize markets and investment in

telecommunications. There has also been a growing trend toward alliances with foreign telecommunications companies. For example, Verizon Wireless is a joint venture between Verizon Communications and the UK’s Vodafone. Japan’s Softbank Corp. acquired Sprint Nextel, the third largest US mobile carrier, in June 2013, enabling Japanese carriers to enter the US wireless market.

The majority of wireless revenue is generated nationally. International revenue is sourced from roaming termination charges, but these revenue sources account for much less than 25.0% of total revenue. International roaming revenue is negatively influenced by the growth of VoIP technology, particularly peer-to-peer services, such as Skype, which offers free international communication.

Level & Trend Globalization in this industry is Low and the trend is Increasing

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WWW.IBISWORLD.COM Wireless Telecommunications Carriers in the US November 2017 27

Player Performance New York-based Verizon Communications Inc. (Verizon) provides communication, information and entertainment products and services to customers, businesses and governmental agencies across the United States. Operating in two segments, the company offers wireless voice and data services and equipment through Verizon Wireless (VW). Voice, internet access, broadband video and data, internet protocol network services, network access, long distance and other services are offered through Wireline. In February 2014, Verizon acquired 100.0% ownership of VW.

VW offers voice and data services on a prepaid and postpaid basis using third generation (3G) and fourth generation (4G) network technologies. Verizon’s 3G-enabled network helps facilitate data services, such as music downloads and video streaming, at speeds of up to 1.4

megabits-per-second. The company’s 4G long-term-evolution network was launched before the period began. Wireless service offerings include push- to-talk; short message service and multimedia message service; mobile internet browsing; and a broad set of apps on smartphones. Verizon distributes its wireless offerings via company stores, kiosks and carts, as well as through Best Buy and many indirect retail locations.

In recent years, Verizon has become increasingly dependent on its wireless segment’s operating profit and is attempting to feed this growing segment. Just before the period began, VW entered an agreement to acquire spectrum licenses from cable operators including Time Warner, Comcast, Bright House Networks and Cox Communications. Under the terms of the $3.9 billion purchase, the companies would resell

Major Companies Verizon Wireless | AT&T Inc. Deutsche Telekom AG | Sprint Corporation | Other Companies

32.0% Other

Verizon Wireless 23.8%

AT&T Inc. 23.5%

Deutsche Telekom AG 12.0%

Sprint Corporation 8.7%

SOURCE: WWW.IBISWORLD.COM

Major players (Market share)

Verizon Wireless Market share: 23.8%

Verizon Communications (wireless services segment) - fi nancial performance

Year Revenue

($ million) Growth

(% change) Operating Income

($ million) Growth

(% change)

2012 63,733.0 N/C 18,286.2 N/C

2013 69,033.0 8.3 22,149.9 21.1

2014 72,630.0 5.2 22,175.3 0.1

2015 70,396.0 -3.1 23,014.6 3.8

2016 65,580.0 -6.8 21,951.4 -4.6

2017* 60,543.6 -7.7 19,848.0 -9.6

*Estimates SOURCE: ANNUAL REPORT AND IBISWORLD

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WWW.IBISWORLD.COM Wireless Telecommunications Carriers in the US November 2017 28

Major Companies

Player Performance Dallas-based AT&T Inc. owns AT&T Mobility, an integrated telecommunications provider and the second-largest wireless

telecommunications carrier in the United States. The company earned $163.8 billion in total revenue in 2017.

Player Performance continued

each other’s services and Verizon would acquire the cable operators’ unused advanced wireless services (AWS) spectrum. In 2012, VW entered into license exchange agreements with T-Mobile and Cricket License Company LLC, a subsidiary of Leap Wireless, to exchange certain AWS licenses. In June 2015, Verizon completed its purchase of AOL Inc. and realigned its business focus to providing customers with more digital services. In 2017, Verizon finalized its acquisition of Yahoo for $4.5 billion. Additionally in 2016, Verizon acquired LQD WiFi, a developer of smart cities and ubiquitous Wi-Fi. In 2017, Verizon acquired Straight Path Communications Inc., a developer of next-generation wireless technology.

After previously shunning the idea of unlimited data plans, Verizon turned two major plan options in August 2017. The plans include Verizon Go Unlimited; which grants unlimited 4G LTE data, but download speeds could be throttled at any time. Video quality is also limited to 480p on mobiles and 720p on tablets. The second plan is the Verizon Beyond

Unlimited plan; in this plan video speed could be throttled once a customer hits the 22GB mark for the month. Video quality is limited to 720p on phones and 1080p on tablets. Additionally, mobile hotspot capability is unlimited for the first 15GB, but speeds are throttled after that. Other Verizon plans include Business Unlimited and Prepaid Unlimited.

Financial performance Over the five years to 2017, VW’s industry- specific revenue is expected to decline at an annualized rate of 1.0% to $60.5 billion. VW’s performance was driven by its aggressive expansion strategy and its early adoption of 3G and 4G infrastructure. VW’s vast network footprint and subscriber base enable the company to spread its network’s fixed costs over more customers, lowering operating expenses and raising profit margins. In 2014, Verizon agreed to purchase the remaining shares of the VW unit that it did not already own, expecting landline customers to switch to wireless services.

AT&T Inc. Market share: 23.5% Industry Brand Names AT&T Mobility

AT&T Inc. (wireless services segment) - fi nancial performance

Year Revenue

($ million) Growth

(% change) Operating Income

($ million) Growth

(% change)

2012 59,186.0 N/C 14,710.7 N/C

2013 61,552.0 4.0 15,782.7 7.3

2014 61,032.0 -0.8 14,187.7 -10.1

2015 59,837.0 -2.0 15,167.3 6.9

2016 59,386.0 -0.8 15,698.1 3.5

2017* 59,825.3 0.7 16,287.3 3.8

*Estimates SOURCE: ANNUAL REPORT AND IBISWORLD

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WWW.IBISWORLD.COM Wireless Telecommunications Carriers in the US November 2017 29

Major Companies

Player Performance Deutsche Telekom AG (DT) is one of the world’s largest mobile telecommunications providers. DT operates in the US market under the T-Mobile brand name, using a GSM- based network. In October 2012, DT signed an agreement to merge T-Mobile with prepaid carrier MetroPCS, the nation’s fifth-largest wireless carrier.

Under the terms of the deal, DT would hold 74.0% of the merged business and pay MetroPCS shareholders $1.5 billion in cash. T-Mobile US Inc. was formed through the business combination of T-Mobile USA and MetroPCS; the deal closed on April 30, 2013. The company, which currently has an estimated 55.0 million customers, is primarily focused in

Player Performance continued

In the midst of the financial recession, AT&T began the process of switching on 3G services in the 850MHz frequency band. Since then, AT&T Mobility has invested billions of dollars into enhancing and upgrading its Global System for Mobile Communications (GSM) network infrastructure to facilitate high-speed downlink packet access (HSDPA), an advanced 3G network protocol. In 2012, AT&T introduced DriveMode, an app that, when enabled and a vehicle is moving 25.0 miles per hour or more, automatically sends customizable auto-reply messages to incoming texts. AT&T is collaborating with wireless device makers and app developers to develop new no-text-and- drive technology.

Before the period began, AT&T’s offer to acquire T-Mobile was blocked by the US Department of Justice on anti-trust grounds, and the Federal Communications Commission also fought to block the merger. AT&T later withdrew its acquisition and paid T-Mobile a substantial break-up fee. More recently, in March 2014, AT&T completed its acquisition of Leap Wireless International Inc., a prepaid cellphone service provider, which let AT&T gain five million new customers and acquire Leap’s network, licenses and retail stores. In July 2015, AT&T completed a merger deal with DirecTV for $67.1 billion, including net debt, to create better bundle packages than its competitors and tap into the rapidly

expanding pay-TV market. In 2016, AT&T announced its intention to acquire Time Warner Inc., which owns HBO and top cable networks such as TBS and TNT. The deal, which is valued at $85.4 billion, is currently under review by the US Justice Department.

AT&T and Chinese telecommunications equipment giant Huawei are currently in the early stage of talks on a deal for AT&T to distribute Huawei mobile phones on its networks, according to sources familiar with the situation. This would amount to a major partnership and help the company break into the US market.

Financial performance Over the five years to 2017, AT&T’s wireless revenue is forecast to grow at an annualized rate of 0.2% to $59.8 billion. The increase in data use, propelled by the success of the iPhone, was a boon to AT&T over the past five years. It not only supported strong wireless revenue growth, but also delivered a considerable improvement in the profitability of AT&T’s wireless operations. Average revenue per user (ARPU) increased, pulling up data revenue and resulting in an impressive improvement in the operating margin of AT&T’s wireless services. AT&T has changed its contract for new customers to a tiered data-usage pricing scheme, with a growing percentage of postpaid smartphone subscribers on usage-based data plans.

Deutsche Telekom AG Market share: 12.0% Industry Brand Names T-Mobile

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WWW.IBISWORLD.COM Wireless Telecommunications Carriers in the US November 2017 30

Major Companies

Player Performance continued

major metropolitan markets and has the smallest network footprint of the major US wireless carriers.

T-Mobile USA is the third-largest wireless carrier within the United States, offering all digital voice, messaging and high-speed wireless data services across its GSM/GPRS 1900 MHz network. T-Mobile also operates an HSPA+ 3G cellular network, using spectrum in the 1.7GHz and 2.1GHz frequency bands. This network offers speeds comparable with the first wave of 4G networks used by other companies. T-Mobile later expanded to include 4G coverage as well, in line with industry standards. T-Mobile also offers a variety of integrated voice and General Packet Radio Service (GPRS) Wi-Fi data-capable devices, including PC internet cards and Blackberry devices. It also operates the largest carrier-owned Wi-Fi (802.11) broadband network in the country through its T-Mobile HotSpot Unit. T-Mobile Wi-Fi is available in more than 10,000 public access locations across the country, including Starbucks coffee shops, FedEx, Kinko’s, Hyatt Hotels and Resorts and many airports and selected airlines.

T-Mobile was the first wireless carrier to offer Google-branded Android phones, the most popular alternative to Apple’s iPhone. Since April 2013, however, the

company offers iPhones as well, gaining over 1.0 million customers, many of which are contract subscribers. T-Mobile has branded itself as an “un-carrier,” or a wireless carrier that does not act like one. As part of this philosophy, the company unveiled the Simple Choice and un- carrier options that offer no-contract choices; more frequent upgrades of cell phones; reduced US to international calling rates and roaming fees; reimbursement of termination fees when customers switch from other carriers; a test drive of the network using an Apple iPhone; and most recently, unlimited data plans. In 2017, T-Mobile and Sprint announced their plans for a tentative merger. The companies attempted to retain as many of their assets as possible, but eventually the merger was dropped later in the year.

Financial performance Over the five years to 2017, T-Mobile’s revenue is anticipated to grow at an annualized rate of 12.2% to $30.5 billion. The company’s subscriber base has continued to grow substantially. Additionally, the company’s industry- relevant operating income increased with the addition of MetroPCS operating results since the business combination in 2013.

T-Mobile USA (wireless services segment) - fi nancial performance

Year Revenue

($ million) Growth

(% change) Operating Income

($ million) Growth

(% change)

2012 17,213.0 N/C -5,584.0 N/C

2013 19,068.0 10.8 777.7 N/C

2014 22,375.0 17.3 1,071.7 37.8

2015 24,821.0 10.9 1,599.1 49.2

2016 27,844.0 12.2 2,842.6 77.8

2017* 30,548.6 9.7 3,484.7 22.6

*Estimates SOURCE: ANNUAL REPORT AND IBISWORLD

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WWW.IBISWORLD.COM Wireless Telecommunications Carriers in the US November 2017 31

Major Companies

Player Performance Kansas-based Sprint Nextel Corporation emerged in August 2005 from the merger of Sprint Corporation and Nextel Communications in a $35.0 billion cash and stock deal. Sprint experienced significant change in 2013. In May 2013, Sprint completed the acquisition of personal communications services (PCS) spectrum and subscribers. In July of that same year, Sprint completed the acquisition of the remaining equity interests in Clearwire Corporation. In the same month, Japanese wireless carrier SoftBank acquired an 80.0% interest in Sprint for $22.2 billion. Shortly following the acquisition, Sprint acquired spectrum holdings and 585,000 customers from US Cellular, a regional carrier, for $480.0 million. On July 10, 2013, SoftBank Corp. completed the merger with Sprint Nextel Corporation and shutdown the Nextel network, returning to its original name, Sprint Corporation.

Since 2014, Sprint Corporation has provided 4G LTE coverage to all US states, Puerto Rico and the US Virgin Islands using code division multiple access (CDMA) and evolution data

optimized (EV-DO) network technology. The company offers wireless and wireline voice and data transmission services. Wireless is offered on a postpaid and prepaid payment basis, as well as on a wholesale and affiliate basis. Sprint Corporation announced in August 2016 that it would use worldwide interoperability for microwave access (WiMax) technology as the basis for its 4G wireless network.

Financial performance Over the five years to 2017, Sprint Corporation’s industry-specific revenue is expected to decrease at an annualized rate of 5.4%, reaching an estimated $22.2 billion. Up until 2012, the company suffered declining operating income as high debt loads in the wake of the Nextel acquisition, large capital expenditures and write-downs forced the company to operate at a loss. The company’s wireless segment has posted increasing margins since 2012, driven by branded postpaid and prepaid revenue and strong customer response to promotional activity.

Sprint Nextel Corporation (wireless services segment) - fi nancial performance

Year** Revenue

($ million) Growth

(% change) Operating Income

($ million) Growth

(% change)

2012-13 29,263.0 N/C 2,178.0 N/C

2013-14 26,544.0 -9.3 4,948.0 127.2

2014-15 27,337.0 3.0 5,894.0 19.1

2015-16 25,371.0 -7.2 8,051.0 36.6

2016-17 23,808.0 -6.2 9,814.0 21.9

2017-18 22,182.1 -6.8 9,778.4 -0.4

*Estimates; **Year-end March 31 SOURCE: ANNUAL REPORT AND IBISWORLD

Sprint Corporation Market share: 8.7% Industry Brand Names Sprint PCS Boost Mobile Virgin Mobile

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Major Companies

Other Companies Other companies in this industry are mostly regional wireless carriers with a market share of less than 3.0% each. Major players tend to acquire these smaller competitors when their

operations begin acquiring significant subscriber bases, such as Verizon’s purchase of Alltel in 2009 and T-Mobile’s acquisition of prepaid carrier MetroPCS in 2012.

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WWW.IBISWORLD.COM Wireless Telecommunications Carriers in the US November 2017 33

Capital Intensity The Wireless Telecommunications Carriers industry is increasingly capital intensive, reflecting the high level of capital resources tied up in wireless telecommunications networks and infrastructure. IBISWorld estimates that for every dollar spent on labor, $0.39 is spent on capital investment in 2017. In recent years, industry participants have invested considerable capital resources (more than $100.0 billion over the past five years) in expanding the capacity of existing wireless networks and rolling out new networks. Players, such as Verizon and Sprint Corporation, have rolled out 4G networks. Meanwhile, 5G networks stand on the horizon, which

will ensure that capital investment remains high.

Operating Conditions Capital Intensity | Technology & Systems | Revenue Volatility Regulation & Policy | Industry Assistance

Tools of the Trade: Growth Strategies for Success

SOURCE: WWW.IBISWORLD.COM

La bo

r In

te ns

iv e

Capital Intensive

Change in Share of the Economy

New Age Economy

Recreation, Personal Services, Health and Education. Firms benefi t from personal wealth so stable macroeconomic conditions are imperative. Brand awareness and niche labor skills are key to product differentiation.

Traditional Service Economy

Wholesale and Retail. Reliant on labor rather than capital to sell goods. Functions cannot be outsourced therefore fi rms must use new technology or improve staff training to increase revenue growth.

Old Economy

Agriculture and Manufacturing. Traded goods can be produced using cheap labor abroad. To expand fi rms must merge or acquire others to exploit economies of scale, or specialize in niche, high-value products.

Investment Economy

Information, Communications, Mining, Finance and Real Estate. To increase revenue fi rms need superior debt management, a stable macroeconomic environment and a sound investment plan.

Wired Telecommunications Carriers

Computer Manufacturing

VoIP

Telecommunication Networking Equipment Manufacturing

Satellite Telecommunications Providers

Wireless Telecommunications

Carriers

Capital intensity

0.5

0.0

0.1

0.2

0.3

0.4

SOURCE: WWW.IBISWORLD.COM Dotted line shows a high level of capital intensity

Capital units per labor unit

Wireless Telecommuni-

cations Carriers

InformationEconomy

Level The level of capital intensity is High

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WWW.IBISWORLD.COM Wireless Telecommunications Carriers in the US November 2017 34

Operating Conditions

Technology & Systems There is a high rate of technological change in the Wireless Telecommunications Carriers industry. The two defining characteristics of this trait are short product life cycles and high investment in both research and development and technological infrastructure. Ultimately, the cost of providing various services using a range of infrastructures determines retail price points. Accordingly, a higher investment in technology, spectrum and infrastructure will increase service prices.

1G: an obsolete modality The first generation of wireless technology was Advanced Mobile Phone System (AMPS), an analog system developed in the United States. This technology used different frequency carriers to create communications channels and only had voice functionality. Analog services were switched off in early 2008.

2G dominance declines A widely-used technology within the US wireless market is 2G. Its defining characteristic centers on limited data functionality as well as voice. Services for 2G and 2.5G are provided on two standards: Global System for Mobile Communications (GSM) and Code Division Multiple Access (CDMA).

GSM initially originated in Europe and is a second-generation cellular mobile radio technology that supports voice, data and text messaging, and permits roaming among different networks. AT&T and T-Mobile use GSM-based technology. CDMA is a wireless communications technology that uses the principle of spread spectrum communication. Under CDMA, communications channels are created by assigning a special coding scheme to information flows. Verizon and Sprint Corporation use CDMA network technology. Sprint Corporation also uses Integrated Digital Enhanced Network (iDen) developed

by Motorola and SouthernLINC Wireless; however, this network was completely phased out by 2013.

The stepping-stone between 2G and 3G is 2.5G. The technology increases the functionality of 2G in that it offers enhanced data services, such as Wireless Application Protocol (WAP). WAP offers mobile internet connectivity, albeit at slow speeds. WAP technologies can be used on a variety of handheld digital wireless devices (e.g. cell phones, pagers, smartphones and two-way radios) and on a range of wireless networks, including CDMA and GSM. Due to inhibited data speeds, WAP services failed to take off on 2.5G networks.

General Packet Radio Service (GPRS) enables information to be sent and received across a GSM mobile telephone network and supplements Short Message Service (SMS) technologies. Enhanced Data rates for GSM Evolution (EDGE) is an update of GPRS technology used on the GSM network. By using EDGE, operators can handle three times more subscribers than GPRS; the technology triples operators’ data rate per subscriber or can add extra capacity to their voice communications. EDGE, similarly to CDMA2000, offers slightly superior performance, relative to GPRS, but is not considered 3G technology. The Apple iPhone is GSM EDGE enabled, which is why an exclusivity agreement was reached between Apple and AT&T, which made AT&T the only carrier for iPhones until February 2011. CDMA2000 is a bridging technology that can be classified as both 2G and 3G.

3G mobile internet Technologies for 3G have assumed market dominance in the United States. All major carriers offer 3G services; the appeal is that it enables faster data transfers for users with 3G-compatible devices. Such devices include cell phones, smartphones, tablets and laptops that use

Level The level of Technology Change is High

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WWW.IBISWORLD.COM Wireless Telecommunications Carriers in the US November 2017 35

Operating Conditions

Technology & Systems continued

a 3G card. Services for 3G have increased demand for new value-added services which can offer higher margins and new revenue streams for carriers. Such value-added services include internet browsing and downloading, mobile commerce, e-mail applications and mobile TV.

Wideband Code Division Multiple Access (W-CDMA) is a spread spectrum multiplexing technique, not a standard, which is owned by Qualcomm (owner of CDMA2000). W-CDMA was developed in 2001 by the Japanese mobile operator NTT DoCoMo, the largest wireless telecommunications carrier in the world. CDMA2000 1x EV-DO is a CDMA-based 3G technology that generally offers data transfer of between 300 kbps and 600 kbps. It was first commercialized in 2002. Verizon uses this technology for its 3G services.

The term 3.5G simply refers to enhanced 3G services that do not reach the agreed parameters for services classified as 4G. It typically refers to High Speed Downlink Packet Access (HSDPA), an advanced 3G network that offers downlink speeds of up to 14.4 Mbps and is compatible with the Universal Mobile Telecommunication System, or UMTS. HSDPA is an advancement on W-CDMA and many major carriers have or are in the process of upgrading their network to this standard so that more data-intensive applications can be supported.

4G and 5G to mark the future of wireless Services for 4G support transmission speeds of up to 100 megabits per second (Mbps) for downlinks when a user is traveling at high speeds and one Mbps when traveling at low speeds. Such speeds will cause complete device and network convergence (i.e. any network will be able to deliver any service over any device). Services such as on-demand media will be available on a handheld device, mobile or laptop, using a 4G data card.

The important development in 4G technology is that the battle between two factions appears to be over. Ultra Mobile Broadband, the proposed 4G successor to CDMA2000, has been scrapped, with Qualcomm announcing it was ending development of the technology and favoring LTE instead. Carriers will now all support the GSM/UMTS faction’s Third Generation Partnership Project (3GPP), known as Universal Terrestrial Radio Access Network Long-Term Evolution (LTE). LTE will facilitate coexistence with a range of previous standards, enabling handoffs between cells supporting LTE and cells supporting UMTS, GSM/GPRS and other systems.

NTT DoCoMo is the major proponent of 4G technology. In the United States, Verizon outlined its plan to introduce LTE 4G services in 2010, with a full-service rollout achieved in 2013. Meanwhile, Sprint Corporation has already begun its 4G rollout using WiMax standardized technology. WiMax is a standard that enables mobile broadband and has greater geographic coverage than Wi-Fi.

In the last 12 months, companies have already started to make plans for 5G technology, which is estimated to be rolled out by 2020, and will be designed for even faster speeds and new uses, such as the Internet of Things (IoT), which enables physical devices to interconnect and communicate.

Femtocells In 2010, wireless carriers began to show interest in commercial offerings of femtocells. Femtocells, a small version of a cellular base station, enabling customers to increase cellular coverage wherever broadband internet connections are available. The technology operates in a similar manner to Wi-Fi routers, enabling two to eight cellular connections per femtocell. AT&T began to offer its AT&T 3G Microcell femtocell to customers in September 2010.

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Operating Conditions

Regulation & Policy The main regulatory body governing the operations of the US Wireless Telecommunications Carriers industry is the Federal Communications Commission (FCC). The Telecommunications Act of 1996 is a major piece of legislation governing the industry. The Act was based on two principles regarding regulatory philosophy. First, economic discipline by market forces should be the first option, as opposed to economic

discipline meted out by regulation. Second, economic regulation should be presumed unnecessary unless there is credible evidence that market discipline is being abused to the detriment of the consumer and cannot be corrected outside of the regulatory process. The Act was designed to promote competition, reduce regulation, improve quality of services and encourage the rapid deployment of new telecommunications technologies.

Revenue Volatility Subscribership is approaching saturation as annualized revenue increased in the previous five-year period. Already, the number of mobile phone connections in the United States is almost equal to the US

population, providing a revenue bump to the industry. As mobile data penetration increases and 4G networks continue their rollout, revenue volatility is expected to remain stable over the next five years.

Technology & Systems continued

For large carriers with persistent network integrity issues, particularly AT&T (which was unprepared for the data- intensive iPhone), femtocells improve coverage and service without significant infrastructure outlays. However, in the future, femtocells could be deployed by some companies to undercut the services of major wireless carriers.

Enhanced Specialized Mobile Radio Services is a digital service and applies digital systems to traditional dispatch specialized mobile radio in the 800 and 900 MHz bands. Aggregating this spectrum and applying a cellular-like digital network can provide cellular or PCS-like voice and data messaging services.

SOURCE: WWW.IBISWORLD.COM

Volatility vs Growth

Re ve

nu e

vo la

ti lit

y* (%

)

1000

100

10

1

0.1

Five-year annualized revenue growth (%) –30 –10 10 30 50 70

Hazardous

Stagnant

Rollercoaster

Blue Chip

* Axis is in logarithmic scale

A higher level of revenue volatility implies greater industry risk. Volatility can negatively affect long-term strategic decisions, such as the time frame for capital investment.

When a fi rm makes poor investment decisions it may face underutilized capacity if demand suddenly falls, or capacity constraints if it rises quickly.

Wireless Telecommunications Carriers

Level The level of Volatility is Low

Level & Trend The level of Regulation is Medium and the trend is Steady

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Operating Conditions

Regulation & Policy continued

Network Neutrality: the 2015 Open Internet Order With the explosion of wireless internet connectivity and the transition to data as the major revenue base for wireless carriers, internet and information regulation has had an increased influence on the future of the industry. Network neutrality has been a source of fierce debate. Net neutrality, which President Obama’s administration pioneered in 2015, is the principle that data packets on the internet should be moved impartially, without regard to content, destination or source. But with more people streaming data-rich video and playing online games, internet congestion arises as a concern. Under then-Chairman Tom Wheeler, the FCC prevented internet service providers (ISPs) and telecommunications carriers from imposing extra costs for emerging services that typically require increased bandwidth (e.g., video on demand, internet searches and VoIP). However, President Donald Trump’s new chairman Ajit Pai has publicly opposed net neutrality. He already closed a FCC investigation into the zero-rating practices of wireless carriers Verizon, T-Mobile, and AT&T. Zero-rating is the offering of free streaming and other downloads that do not count against a customer’s given data limits. Mr. Pai said he believes net neutrality rules, which also include treating broadband as a utility, place too heavy a burden on ISPs given the lack of concrete evidence that consumers would be harmed without the regulations.

Throughout the debate, ISPs and telecommunications carriers argued that they have invested substantial sums of money to provide better and faster access services to consumers, but companies like Google and YouTube are generating returns without investing in the infrastructure that underlies their operations. ISPs and

telecommunications carriers believe that they are bearing the risk without sharing in the rewards that Google is earning.

Data security Former FCC Chairman Tom Wheeler led a major round of regulations in October 2016 requiring internet service providers (ISPs) to protect users’ privacy. The rules called for ISPs to employ robust data security measures and request permission from customers before collecting internet browsing and app usage information. Newly appointed Chairman Pai announced in February 2017 a 2-1 decision to stay those regulations, before they took effect. Mr. Pai believes that those rules went beyond his commission’s role, calling instead on the FTC to oversee broadband and internet providers. “All actors in the online space should be subject to the same rules, enforced by the same agency,” he said in a statement following the order. The rollback comes at a time when the number of data breaches in the United States hit a record high of 1,093 in 2016, up 40.0% from the near record high of 780 a year earlier. Among sectors, business held the greatest number of incidents, followed by healthcare. Hacking topped the list by type of incident, fueling identity theft concerns in the online privacy debate and has increasingly put data security-related regulations in the spotlight.

The House of Representatives recently passed the Email Privacy Act (H.R. 699) that would require law enforcement officials to obtain a warrant before compelling third-party service providers to share private online communications older than 180 days. Under the current Electronics Communications Privacy Act of 1986, law enforcement officials need only a subpoena and no demonstration of probable cause to access these communications. In January 2017, a

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Operating Conditions

Regulation & Policy continued

coalition of trade associations, technology companies, and civil rights groups signed a letter supporting the legislation; Verizon was the only major wireless telecommunications carrier among them. So far, the bill has faltered in the Senate.

Spectrum Participants in the US industry are governed by a licensing system that is used to allocate the spectrum necessary to provide mobile telephony services. The FCC and the National Telecommunications and Information Administration (NTIA) share responsibility for managing the spectrum. NTIA manages spectrum used by the federal government and the FCC is responsible for spectrum used by others, including private organizations such as wireless carriers.

In 1994, the FCC introduced capped limits. Each carrier can have 45 MHz of spectrum in urban markets and 55 MHz in rural markets. Such caps were designed to ensure that there would be a minimum of four different licensees in each market. In fact, there are often more than four licensees per market, as licenses may be disaggregated or partitioned. Some markets have as many as eight wireless providers.

Since there is a finite amount of spectrum, and a growing demand for it, effectively managing the available spectrum is a strategic issue for the FCC and the NTIA. Effective spectrum management has five major components: allocation, service rules, assignment, monitoring and enforcement. In 2002, the Spectrum Policy Task Force was established to assist in identifying and evaluating changes in spectrum policy that will increase the public benefits derived from the use of the spectrum. Auctions are the preferred assignment method, as they recoup a portion of the spectrum’s value and they use an

objective market-based approach to the assignment of spectrum licenses.

One of the biggest problems the wireless industry will experience in the future is the need to find more airwaves to meet the needs of the burgeoning wireless industry as more and more consumers access internet-using laptops and smartphones.

In 2008, the highly anticipated 700-MHz band auction took place. The 700 MHz spectrum was considered the last great chunk of wireless real estate. The reason it was so highly anticipated is that 700 MHz waves penetrate walls easily and travel well, which makes them perfect for long-range wireless broadband that could provide an invisible alternative to DSL and cable. Verizon came out as the auction’s biggest winner, nabbing a significant portion of the treasured C-Block spectrum. AT&T was another big winner, acquiring 227 licenses from among the B-Block of regional licenses. AT&T spent $6.6 billion, and Verizon spent $9.6 billion at the auction. The FCC’s 2014 AWS-3 spectrum auction included paired spectrum G Block, H Block, I Block and J Block. AT&T spent $18.2 billion for a nationwide 20 MHz block of spectrum while Verizon bid $10.4 billion in the auction.

In 2016, the FCC undertook an auction for the 600 MHz spectrum. As more wireless spectrum is made available, it also means more competition. But brining more spectrum to the market takes an average of 13 years, and auctioning and reauctioning of available space will only partially mitigate the shortage. In the meantime, industry operators are expected to compete more intensely for spectrum.

Competition Since August 2009, the FCC began probing the level of competition in the wireless sector in a move that has led to

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WWW.IBISWORLD.COM Wireless Telecommunications Carriers in the US November 2017 39

Operating Conditions

Industry Assistance Taxes on wireless services have become a highly contentious issue. Taxation issues relevant to this industry are contained within Title 26, Internal Revenue Code, Subtitle D, Miscellaneous Excise Tax, Chapter 32 Facilities & Services, Section 4251 and Imposition of Tax. “Tax on Talking,” which dates to 1898, merits special attention. First introduced as a “temporary luxury tax,” this tax today takes the form of a 3.0% federal excise tax that is levied on all telecommunication services.

Carriers then pass those costs on to consumers. The Tax Foundation reports that the average wireless customer pays more than 18.0% in taxes and fees, and

they are on the rise. Since 2008, taxes on wireless cell phone services have risen by almost three percentage points. Telecommunications carriers can charge as many as 75 different types of fees to customers, including administrative charges and state telecommunications excise surcharges.

Wireless services can certainly raise levels of education and improve standards of living. But the broadband policy appears inherently paradoxical: On one hand, the US government is spending billions of dollars to bring access to people who currently do not have it, but conversely, they are taxing the service at a rate that prohibits some from purchasing it.

Regulation & Policy continued

ongoing investigation of the communications industry. Importantly, regulators want to examine “vertical relationships” between upstream and downstream market segments, such as AT&T’s offering of Apple’s iPhone, and how these relationships affect the competition. The FCC has also explored ways it can support and encourage further innovation and investment in wireless.

In addition, the FCC is considering antitrust laws as it receives more requests for mergers and acquisitions. In 2009, Verizon won approval to purchase Alltel Corp from Atlantis Holdings LLC. In 2011, AT&T dropped

its bid for T-Mobile as the Justice Department sued to block the deal and the FCC showed its intention to fight the merger. AT&T paid T-Mobile a $1.5 billion post-tax break-up fee under the terms of the merger agreement, which elevated T-Mobile competitive position.

The Justice Department’s top antitrust enforcer said in April 2013 that he supported limiting wireless companies’ airwaves, discouraging new bids from Verizon and AT&T to purchase airwaves and spectrum. The antitrust division of the FCC showed support for limits that enables small carriers to compete in this highly-concentrated market.

Level & Trend The level of Industry Assistance is None and the trend is Steady

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WWW.IBISWORLD.COM Wireless Telecommunications Carriers in the US November 2017 40

Key Statistics Revenue

($m)

Industry Value Added

($m) Establish-

ments Enterprises Employment Exports Imports Wages ($m)

Domestic Demand

No. of mobile in- ternet connections

(Mil) 2008 209,055.2 45,463.0 12,807 1,319 286,323 -- -- 20,376.4 N/A 26.5 2009 213,585.6 44,788.6 11,795 964 277,590 -- -- 19,371.9 N/A 56.3 2010 223,615.7 41,840.5 10,775 867 252,812 -- -- 16,571.9 N/A 97.5 2011 235,701.6 34,839.6 10,145 784 245,875 -- -- 16,454.9 N/A 142.0 2012 243,360.2 42,077.3 11,122 937 258,533 -- -- 17,011.2 N/A 170.1 2013 247,699.2 47,554.9 11,590 782 256,710 -- -- 18,078.7 N/A 197.4 2014 263,078.1 43,275.5 10,415 742 226,860 -- -- 16,704.6 N/A 223.5 2015 262,699.8 51,707.8 11,869 821 221,756 -- -- 17,031.4 N/A 253.0 2016 260,480.0 51,377.2 11,662 804 218,579 -- -- 16,793.0 N/A 277.5 2017 254,478.8 50,026.9 11,665 792 215,691 -- -- 16,499.4 N/A 304.1 2018 276,316.4 55,267.6 11,866 801 226,308 -- -- 17,573.9 N/A 328.8 2019 283,655.1 57,353.2 12,017 800 230,860 -- -- 17,996.7 N/A 351.9 2020 291,546.7 59,971.3 12,141 805 234,515 -- -- 18,374.8 N/A 373.5 2021 300,120.9 62,578.3 12,353 811 238,843 -- -- 18,808.2 N/A 393.8 2022 309,034.6 65,395.1 12,399 815 242,455 -- -- 19,203.4 N/A 412.9 Sector Rank 1/85 6/85 11/85 42/85 7/85 N/A N/A 10/85 N/A N/A Economy Rank 37/1929 66/1590 486/1929 1133/1929 226/1929 N/A N/A 130/1929 N/A N/A

IVA/Revenue (%)

Imports/ Demand

(%)

Exports/ Revenue

(%)

Revenue per Employee

($’000) Wages/Revenue

(%) Employees

per Est. Average Wage

($)

Share of the Economy

(%) 2008 21.75 N/A N/A 730.14 9.75 22.36 71,165.78 0.31 2009 20.97 N/A N/A 769.43 9.07 23.53 69,786.02 0.31 2010 18.71 N/A N/A 884.51 7.41 23.46 65,550.29 0.28 2011 14.78 N/A N/A 958.62 6.98 24.24 66,923.84 0.23 2012 17.29 N/A N/A 941.31 6.99 23.25 65,798.95 0.27 2013 19.20 N/A N/A 964.90 7.30 22.15 70,424.60 0.30 2014 16.45 N/A N/A 1,159.65 6.35 21.78 73,633.96 0.27 2015 19.68 N/A N/A 1,184.63 6.48 18.68 76,802.43 0.32 2016 19.72 N/A N/A 1,191.70 6.45 18.74 76,828.06 0.31 2017 19.66 N/A N/A 1,179.83 6.48 18.49 76,495.54 0.29 2018 20.00 N/A N/A 1,220.97 6.36 19.07 77,654.79 0.32 2019 20.22 N/A N/A 1,228.69 6.34 19.21 77,955.04 0.32 2020 20.57 N/A N/A 1,243.19 6.30 19.32 78,352.34 0.33 2021 20.85 N/A N/A 1,256.56 6.27 19.33 78,747.13 0.34 2022 21.16 N/A N/A 1,274.61 6.21 19.55 79,203.98 0.35 Sector Rank 83/85 N/A N/A 2/85 85/85 39/85 54/85 6/85 Economy Rank 1239/1590 N/A N/A 133/1929 1748/1929 744/1929 397/1929 66/1590

Figures are in inflation-adjusted 2017 dollars. Rank refers to 2017 data.

Revenue (%)

Industry Value Added

(%)

Establish- ments

(%) Enterprises

(%) Employment

(%) Exports

(%) Imports

(%) Wages

(%)

Domestic Demand

(%)

No. of mobile in- ternet connections

(%) 2009 2.2 -1.5 -7.9 -26.9 -3.1 N/A N/A -4.9 N/A 112.2 2010 4.7 -6.6 -8.6 -10.1 -8.9 N/A N/A -14.5 N/A 73.2 2011 5.4 -16.7 -5.8 -9.6 -2.7 N/A N/A -0.7 N/A 45.6 2012 3.2 20.8 9.6 19.5 5.1 N/A N/A 3.4 N/A 19.8 2013 1.8 13.0 4.2 -16.5 -0.7 N/A N/A 6.3 N/A 16.0 2014 6.2 -9.0 -10.1 -5.1 -11.6 N/A N/A -7.6 N/A 13.2 2015 -0.1 19.5 14.0 10.6 -2.2 N/A N/A 2.0 N/A 13.2 2016 -0.8 -0.6 -1.7 -2.1 -1.4 N/A N/A -1.4 N/A 9.7 2017 -2.3 -2.6 0.0 -1.5 -1.3 N/A N/A -1.7 N/A 9.6 2018 8.6 10.5 1.7 1.1 4.9 N/A N/A 6.5 N/A 8.1 2019 2.7 3.8 1.3 -0.1 2.0 N/A N/A 2.4 N/A 7.0 2020 2.8 4.6 1.0 0.6 1.6 N/A N/A 2.1 N/A 6.1 2021 2.9 4.3 1.7 0.7 1.8 N/A N/A 2.4 N/A 5.4 2022 3.0 4.5 0.4 0.5 1.5 N/A N/A 2.1 N/A 4.9 Sector Rank 77/85 76/85 65/85 70/85 73/85 N/A N/A 74/85 N/A N/A Economy Rank 1840/1929 1472/1590 1388/1929 1708/1929 1746/1929 N/A N/A 1785/1929 N/A N/A

Annual Change

Key Ratios

Industry Data

SOURCE: WWW.IBISWORLD.COM

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Apr 2016 - Mar 2017 by company revenue Apr 2013 - Apr 2014 - Apr 2015 - Apr 2016 - Small Medium Large Mar 2014 Mar 2015 Mar 2016 Mar 2017 (<$10m) ($10-50m) (>$50m)

Liquidity Ratios

Current Ratio 1.4 1.4 1.7 1.1 1.2 1.0 1.1 Quick Ratio 0.9 0.9 1.1 0.9 1.1 0.6 0.9 Sales / Receivables (Trade Receivables Turnover) 13.6 14.2 11.5 11.4 11.8 9.5 12.4

Days’ Receivables 26.8 25.7 31.7 32.0 30.9 38.4 29.4 Cost of Sales / Inventory (Inventory Turnover) 16.6 18.0 17.3 16.4 27.2 13.7 13.5

Days’ Inventory 22.0 20.3 21.1 22.3 13.4 26.6 27.0 Cost of Sales / Payables (Payables Turnover) 12.2 11.2 9.6 9.0 8.1 7.8 12.0

Days’ Payables 29.9 32.6 38.0 40.6 45.1 46.8 30.4 Sales / Working Capital 13.8 24.5 16.0 50.3 31.6 180.3 58.9

Coverage Ratios

Earnings Before Interest & Taxes (EBIT) / Interest 9.2 9.3 14.6 7.7 7.2 5.1 23.0

Net Profit + Dep., Depletion, Amort. / Current Maturities LT Debt 3.7 n/a n/a n/a n/a n/a n/a

Leverage Ratios

Fixed Assets / Net Worth 0.7 0.8 0.6 0.6 0.5 1.1 1.0 Debt / Net Worth 1.6 1.6 2.3 2.6 1.6 8.1 3.5 Tangible Net Worth 27.6 16.6 28.8 24.8 37.1 14.4 18.5

Operating Ratios

Profit before Taxes / Net Worth, % 33.6 32.7 39.0 36.2 24.2 51.2 42.8 Profit before Taxes / Total Assets, % 12.3 13.6 14.5 10.7 14.4 5.5 12.2 Sales / Net Fixed Assets 14.1 14.9 26.4 22.2 15.3 46.8 25.6 Sales / Total Assets (Asset Turnover) 2.5 2.3 2.6 2.7 2.4 3.1 3.6

Cash Flow & Debt Service Ratios (% of sales)

Cash from Trading 37.4 43.6 41.1 35.6 35.6 35.6 33.8 Cash after Operations 8.3 6.7 8.8 5.7 5.4 6.7 9.4 Net Cash after Operations 7.4 6.5 8.4 5.2 5.7 1.7 6.3 Cash after Debt Amortization 1.9 1.7 3.3 3.1 3.4 -0.9 3.6 Debt Service P&I Coverage 2.7 6.6 4.7 3.8 4.5 1.0 7.3 Interest Coverage (Operating Cash) 9.8 17.9 15.4 10.9 11.8 4.2 49.0

Assets, %

Cash & Equivalents 15.5 16.7 17.2 12.5 14.0 11.4 11.6 Trade Receivables (net) 25.4 18.8 24.4 24.5 24.0 25.4 24.5 Inventory 15.6 12.9 14.3 12.7 10.1 15.4 13.4 All Other Current Assets 5.6 4.3 7.1 3.9 1.8 4.3 6.3 Total Current Assets 62.1 52.8 63.1 53.6 49.9 56.5 55.8 Fixed Assets (net) 25.9 26.5 21.7 22.0 27.4 15.9 20.9 Intangibles (net) 4.9 9.3 9.6 15.7 12.3 18.2 17.7 All Other Non-Current Assets 7.0 11.4 5.6 8.7 10.4 9.5 5.6 Total Assets 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Total Assets ($m) 2,270.9 2,524.7 2,769.7 2,424.7 168.6 510.2 1,745.9

Liabilities, %

Notes Payable-Short Term 11.7 6.0 4.1 4.5 5.8 4.8 2.7 Current Maturities L/T/D 2.0 1.6 2.3 3.6 2.6 7.2 1.6 Trade Payables 22.5 19.3 23.4 21.7 16.4 24.9 25.7 Income Taxes Payable 0.2 0.1 0.2 0.1 n/a n/a 0.1 All Other Current Liabilities 12.7 17.7 11.8 12.3 10.7 15.0 11.9 Total Current Liabilities 49.0 44.6 41.8 42.2 35.4 51.8 42.1 Long Term Debt 13.9 13.4 14.4 14.0 12.3 13.3 16.9 Deferred Taxes 0.4 0.7 0.3 0.4 0.2 n/a 0.9 All Other Non-Current Liabilities 4.2 15.4 5.1 2.9 2.6 2.3 4.0 Net Worth 32.5 25.9 38.4 40.5 49.4 32.6 36.2 Total Liabilities & Net Worth ($m) 2,270.9 2,524.7 2,769.7 2,424.7 168.6 510.2 1,745.9

Maximum Number of Statements Used 80 82 88 62 25 18 19

Industry Financial Ratios

Source: RMA Annual Statement Studies, rmahq.org. RMA data for all industries is derived directly from more than 260,000 statements of member financial institutions’ borrowers and prospects. Note: For a full description of the ratios refer to the Key Statistics chapter online.

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Jargon & Glossary

BARRIERS TO ENTRY High barriers to entry mean that new companies struggle to enter an industry, while low barriers mean it is easy for new companies to enter an industry.

CAPITAL INTENSITY Compares the amount of money spent on capital (plant, machinery and equipment) with that spent on labor. IBISWorld uses the ratio of depreciation to wages as a proxy for capital intensity. High capital intensity is more than $0.333 of capital to $1 of labor; medium is $0.125 to $0.333 of capital to $1 of labor; low is less than $0.125 of capital for every $1 of labor.

CONSTANT PRICES The dollar figures in the Key Statistics table, including forecasts, are adjusted for inflation using the current year (i.e. year published) as the base year. This removes the impact of changes in the purchasing power of the dollar, leaving only the “real” growth or decline in industry metrics. The inflation adjustments in IBISWorld’s reports are made using the US Bureau of Economic Analysis’ implicit GDP price deflator.

DOMESTIC DEMAND Spending on industry goods and services within the United States, regardless of their country of origin. It is derived by adding imports to industry revenue, and then subtracting exports.

EMPLOYMENT The number of permanent, part-time, temporary and seasonal employees, working proprietors, partners, managers and executives within the industry.

ENTERPRISE A division that is separately managed and keeps management accounts. Each enterprise consists of one or more establishments that are under common ownership or control.

ESTABLISHMENT The smallest type of accounting unit within an enterprise, an establishment is a single physical location where business is conducted or where services or industrial operations are performed. Multiple establishments under common control make up an enterprise.

EXPORTS Total value of industry goods and services sold by US companies to customers abroad.

IMPORTS Total value of industry goods and services brought in from foreign countries to be sold in the United States.

INDUSTRY CONCENTRATION An indicator of the dominance of the top four players in an industry. Concentration is considered high if the top players account for more than 70% of industry revenue. Medium is 40% to 70% of industry revenue. Low is less than 40%.

INDUSTRY REVENUE The total sales of industry goods and services (exclusive of excise and sales tax); subsidies on production; all other operating income from outside the firm (such as commission income, repair and service income, and rent, leasing and hiring income); and capital work done by rental or lease. Receipts from interest royalties, dividends and the sale of fixed tangible assets are excluded.

INDUSTRY VALUE ADDED (IVA) The market value of goods and services produced by the industry minus the cost of goods and services used in production. IVA is also described as the industry’s contribution to GDP, or profit plus wages and depreciation.

Industry Jargon

IBISWorld Glossary

AVERAGE REVENUE PER USER (ARPU) A key performance indicator in telecommunications that indicates whether revenue growth is due to increased customers or phone usage. ARPU is revenue divided by the average number of subscribers.

BROADBAND PCS Service in the 1850-1990 MHz spectrum range. Commonly used for mobile voice and data services, including cell phone, text messaging, and Internet.

CHURN RATE The rate of increase at which customers discontinue their service on a voluntary or involuntary basis.

LONG-TERM EVOLUTION (LTE) The successor technology to GSM, designed to operate on IP-based networks. LTE networks use a simpler, flat network architecture compared with GSM.

NARROWBAND PCS Service in the 901-902, 930-931, and 940-941 MHz spectrum range. Commonly used for two-way paging and telemetry. Telemetry includes services such as monitoring utility meters from off-site locations.

PERSONAL COMMUNICATIONS SERVICES (PCS) Family of mobile radio communications services that encompass mobile and ancillary fixed communications services to individuals and businesses.

UNLICENSED PCS Unlicensed PCS will accommodate a wide range of services for small areas such as data networking within office buildings.

WIMAX Also known as IEEE 802.16m, a telecommunications standard that operates on IP-based networks in the microwave spectrum.

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Jargon & Glossary

INTERNATIONAL TRADE The level of international trade is determined by ratios of exports to revenue and imports to domestic demand. For exports/revenue: low is less than 5%, medium is 5% to 20%, and high is more than 20%. Imports/domestic demand: low is less than 5%, medium is 5% to 35%, and high is more than 35%.

LIFE CYCLE All industries go through periods of growth, maturity and decline. IBISWorld determines an industry’s life cycle by considering its growth rate (measured by IVA) compared with GDP; the growth rate of the number of establishments; the amount of change the industry’s products are undergoing; the rate of technological change; and the level of customer acceptance of industry products and services.

NONEMPLOYING ESTABLISHMENT Businesses with no paid employment or payroll, also known as nonemployers. These are mostly set up by self-employed individuals.

PROFIT IBISWorld uses earnings before interest and tax (EBIT) as an indicator of a company’s profitability. It is calculated as revenue minus expenses, excluding interest and tax.

VOLATILITY The level of volatility is determined by averaging the absolute change in revenue in each of the past five years. Volatility levels: very high is more than ±20%; high volatility is ±10% to ±20%; moderate volatility is ±3% to ±10%; and low volatility is less than ±3%.

WAGES The gross total wages and salaries of all employees in the industry. The cost of benefits is also included in this figure.

IBISWorld Glossary continued

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