IoT starting to inch up in material impact for Verizon, AT&T, Sharma says

Like AT&T, Verizon has made strides in tapping the burgeoning IoT and telematics markets.

Wireless service revenue among U.S. carriers was once again down on a year-over-year basis during the third quarter, although it rebounded sequentially after three straight quarters of declines, according to a new report from Chetan Sharma Consulting. The rise of connected cars and other IoT-centric platforms is increasingly shoring up their bottom lines.

Phones accounted for 61% of added accounts in 2014, according to Sharma’s data, but that growth in that segment has slowed significantly as the U.S. market reached saturation. Meanwhile, sales of tablets dipped after seeing strong demand out of the gate.

“This made cars category reach 50% of the overall net adds—a big milestone,” Sharma wrote in his latest quarter report. “While the ARPUs from such net adds is quite low compared to postpaid net adds, it does reflect the changing dynamics in the industry. AT&T dominates the car net adds by a mile. Overall net adds have stayed flat and just going through the normal gyrations. Overall, phones still dominate and that’s what generates the bulk of the industry revenue, but IoT is starting to inch up in material impact.”

And the importance of connected devices will almost surely grow in a market saturated with smartphones and teeming with unlimited plans. While carriers such as AT&T and Verizon are looking to offset slowing growth of their core business by building digital media and advertising empires, those efforts have yet to bear fruit in a significant way.

So extending connectivity to less gadgets other than phones and tablets—and monetizing those connections—will be crucial. The nation’s two largest operators are already making big strides here: Verizon’s IoT and telematics unit has seen quarterly growth of 20% or more “for some time,” Sharma observed, and AT&T has come to dominate the connected car market in the United States, providing connectivity to nearly 16 million vehicles.

“Given that no M&A has taken place and the environment for one remains tough, the pressure on mobile data pricing and better consumer deals will remain which in turns impacts the revenue and bright margins,” Sharma continued. “Connected devices (non-phones) accounted for almost 67% of the net adds in Q3 2017. This means that while there is a healthy smartphone sales pipeline, it is for the existing subs and as such net adds for the phone business is tapering off and we can expect that new net adds will continue to be dominated by the connected devices segment.”