US Mobile Carrier Market Primer: The Evolution of the Mobile Carrier Business
Introduction
Commercial mobile phone service was primarily reserved for the wealthy in the late 1980s and early 1990s. However, the Federal Communications Commission (FCC) brought about a significant change in 1995 when it allowed new entrants to bid on wireless licenses, thereby introducing competition. This led to a quick shift from two to four wireless carriers in major markets, reducing service pricing due to mass-market competition and transitioning to more cost-efficient digital technology.
Five years later, the number of wireless subscribers in the US surpassed 100 million, representing approximately 38% of the population. Another five years later, the number of subscribers had doubled to 208 million, with a 69% penetration rate, the ratio of active mobile SIM cards to the population.
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Table of Contents
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Spectrum and infrastructure upgrades
Globally, mobile technology undergoes updates roughly every decade. In 2010, 3G technology, with its slower data speeds, was replaced by faster 4G data speeds following a blockbuster 4G spectrum auction for the 700 MHz band that garnered nearly $20 billion for the FCC in 2008. This auction kicked off a transformation that impacted both consumers and enterprises, creating new forms of business. The AWS-3 spectrum auction in 2015 brought in another $45 billion as the user appetite for wireless internet grew.
The fourth generation of wireless technology brought about significant changes as it allowed users to watch full-length videos and live sporting events without requiring a Wi-Fi connection. Mobile-only services emerged from these faster networks. Users could easily hail rideshare services like Uber, quickly shop online, and document their every move on social media.
5G technology, launched in 2019, has the potential to revolutionize society once again by providing better network economics, higher data speeds, greater network capacity, and lower latency capabilities through the use of multiple spectrum bands and mid-band spectrum. Mid-band spectrum strikes a good balance between coverage and capacity, making it possible to offer these improved capabilities. In April 2021, the US shattered records by raking in over $81.11 billion for the C-band spectrum, making it the most expensive mid-band 5G spectrum auction locally and worldwide.
5G technology is already bringing about significant changes, including introducing services such as factory automation, fixed broadband replacement, and 4K video resolution.
Figure 1 - A timeline of wireless technology from analog to 5G.
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US mobile carriers
Mobile carriers are the driving force behind this revolution, investing heavily in each technology cycle. Since its inception, the US wireless carrier market has undergone divestitures, the emergence of new entrants, wholesale providers, consolidation, and bankruptcies. There are three nationwide operators—Verizon, T-Mobile, and AT&T—with the most recent merger between T-Mobile and Sprint. UScellular remains one of the last major regional carriers in the market.
These mobile network operators (MNOs) have made significant physical investments in network infrastructure, including cellular towers and small cells covering a majority of a given market. They provide cell service to customers through their spectrum bank, accumulated over time through spectrum auctions.
Comcast, Charter, and Altice are strong competitors in the cable provider market and have begun to offer wholesale services from Verizon within their footprints. Meanwhile, DISH is embarking on a nationwide greenfield 5G deployment. The mobile virtual network operator (MVNO) market is also flourishing, with cable providers and niche providers such as Consumer Cellular targeting specific consumer market segments.
MVNOs provide cellular service using an MNO’s spectrum and depend on the MNO’s market coverage. Therefore, they must partner with a leading carrier to wholesale the MNO’s network. MVNOs are often marketed as a bigger carrier’s prepaid brand, and regional MVNOs exist to cater to a specific area or community.
US wireless penetration now exceeds 100%, reaching 145% by the end of 2021. Revenue also reached $274 billion by the end of 2021. In such a mature market, the main priorities for US carriers are finding new subscribers and encouraging existing customers to purchase more services, such as video streaming and connected devices.
Operators offer both prepaid and postpaid plans. Prepaid plans are characterized by the lack of a contract, with subscribers paying once for the services they need for a fixed period without hidden or recurring fees. Despite prepaid's global popularity, the prepaid market was in decline as of the second quarter of 2022.
Postpaid plans typically require subscribers to commit to a carrier through a contract or, increasingly, via a multi-month Equipment Installation Plan. Customers usually pay the carrier at the end of a specified period for the services used. They may incur additional fees from other services like music/video streaming and hotspot services throughout the service period. As a result, postpaid plans usually cost more than prepaid plans.
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5G and growth opportunities
Connected devices are the growth story with the advent of 5G. These include a range of devices from machine-to-machine (M2M) utility readers to consumer-connected cars and any other non-phone devices of the future that require 4G and 5G connectivity.
M2M and connected devices communicate with each other or send data. M2M was initially used to track fleets of vehicles or monitor water tower supply, for example, and these are still active use cases. Other M2M devices include connected meters, yield monitors for agriculture, asset trackers for logistics companies, and vehicle connectivity devices for maintenance and records. Connected devices, or CDs, can also fall under this category depending on how a carrier defines them. Other CDs include computers, tablets, wireless earphones, smartwatches, and fitness trackers.
Comcast, Charter, and Altice are strong competitors in the cable provider market and have begun to offer wholesale services from Verizon within their footprints. Meanwhile, DISH is embarking on a nationwide greenfield 5G deployment. The mobile virtual network operator (MVNO) market is also flourishing, with cable providers and niche providers such as Consumer Cellular targeting specific consumer market segments.
MVNOs provide cellular service using an MNO’s spectrum and depend on the MNO’s market coverage. Therefore, they must partner with a leading carrier to wholesale the MNO’s network. MVNOs are often marketed as a bigger carrier’s prepaid brand, and regional MVNOs exist to cater to a specific area or community.
US wireless penetration now exceeds 100%, reaching 145% by the end of 2021. Revenue also reached $274 billion by the end of 2021. In such a mature market, the main priorities for US carriers are finding new subscribers and encouraging existing customers to purchase more services, such as video streaming and connected devices.
Operators offer both prepaid and postpaid plans. Prepaid plans are characterized by the lack of a contract, with subscribers paying once for the services they need for a fixed period without hidden or recurring fees. Despite prepaid's global popularity, the prepaid market was in decline as of the second quarter of 2022.
Postpaid plans typically require subscribers to commit to a carrier through a contract or, increasingly, via a multi-month Equipment Installation Plan. Customers usually pay the carrier at the end of a specified period for the services used. They may incur additional fees from other services like music/video streaming and hotspot services throughout the service period. As a result, postpaid plans usually cost more than prepaid plans.
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