Between AT&T and Verizon, cellular data service was a $13.3 billion business in the second quarter of 2012. Combined, the two have almost 88 million U.S. smartphone (i.e. lucrative) subscribers. These relatively quiet -- though not gentle -- giants have a firm handle on what happens in the mobile economy.
Verizon and AT&T are making more money than ever, and smartphones are the engines of the growth. Not only is that growth not slowing as the market becomes saturated, it is making the telecom pair the 800-pound gorillas in the nation's mobile economy.
AT&T has aggressively pushed its customers to smartphones. Almost 62%, or 43.1 million, of its postpaid subscribers (as opposed to pre-paid customers) are using the devices. Verizon has 44.4 million smartphone subscribers, half of its 88.8 million wireless postpaid subscription base.
The iPhone has been instrumental in both companies' 2012 growth. The iPhone made up 72.5% of AT&T’s smartphones sold in Q2 -- 3.7 million of the 5.1 million smartphones sold. Of those 3.7 million iPhones, 22% were new subscribers to the carrier, according to AT&T. Verizon sold 2.7 million iPhones in Q2.
Verizon, by wireless subscriber volume and revenue, continues to be the largest carrier in the U.S. Its total wireless revenue was $18.6 billion in Q2, over AT&T’s $16.4 billion. The two are close enough in postpaid subscriptions and revenue on a quarter-by-quarter basis that it is splitting hairs to note how much bigger one is than the other. AT&T (18.8%) and Verizon (18.5%) posted nearly identical year-over-year growth rates in wireless data revenue.
AT&T and Verizon boast how much more smartphone subscribers are worth to their bottom lines than non-smartphone customers, and in terms of average revenue per user (ARPU), both carriers are faring well.
AT&T postpaid subscriber ARPU increased 1.7% over the same quarter last year, to $64.93, a number it claims is the highest in the industry. Verizon’s Q2 ARPU for postpaid subscribers was $56.13, a record for the company.
From a macro perspective, AT&T and Verizon are the real giants of the mobile economy and some of the largest companies in the U.S. While most point to Google, Facebook, Microsoft, Apple and Amazon has the “Big 5” of the U.S. tech industry, Verizon and AT&T are actually larger on a quarter-by-quarter basis than four of the five, with Apple’s runaway success being the exception.
For instance, Google’s Q2 revenue was $10.96 billion, which is only about 35% of the $31.6 billion that AT&T posted in Q2. The carriers do have larger operating expenses than companies like Google because they carry the burden of building the telecom infrastructure of the U.S., but by any measure, the mobile operators are powerhouses that will dictate how the mobile economy evolves over the next 10 to 20 years.
Mammoth subscriber bases and revenue mean that it will be difficult to disrupt the mobile ecology.
Google, which has sought ways to work around carriers, does not have the capital to build its own wireless infrastructure. Microsoft is more concerned with rebuilding its online properties (which took a $6 billion write-down because of its Web services last quarter). Amazon has neither the incentive nor capital to build its own network. Facebook has enough problems just making money off its robust mobile base.
If one company could shake things up, it would be Apple. As we noted after Q1 2012, the iPhone and iPad maker could have bought the fourth-largest carrier in the U.S. -- T-Mobile -- with its quarterly revenue alone. Yet, the company is notoriously tight-fisted with its excess cash, preferring to make deals with its supply chain for better component prices than move aggressively into other industry segments.
For now, the terms of the mobile economy in the U.S. will be dictated by the carriers. Smartphones and operating systems that run them may have been created by companies like Google, Apple, Samsung and Microsoft, but AT&T and Verizon remain the confident gatekeepers.