AT&T’s shift away from unlimited data pricing has led us to examine the issue of data consumption in the United States. The Nielsen Company collects phone bills from more than 60,000 mobile customers every month and analyzes every line item on the bill. These bills show how much data each customer has consumed in the previous month, regardless of whether the customer is on a metered or unlimited data plan, in order to give customers the opportunity to understand their data consumption habits.

When we look at smartphone data consumption distribution and year-over-year change, we see a large disparity of usage among smartphone users and are struck by the staggering amounts of data used by the heaviest users.

Average data consumption increased from about 90MB per month during the first quarter of 2009 to 298MB per month during the first quarter of 2010. This represents a year-over-year increase of approximately 230 percent. While this increase is substantial, in the first quarter of 2009 more than a third of smart phone subscribers used less than 1MB of data per month; this number has dropped to a quarter in the first quarter of 2010 as the number of applications and the utility of smart devices has increased substantially. That means about 20 million current smartphone users are hardly using data.

Other conclusions:

1. Usage-based pricing may be more fair. The top 6 percent of smart phone users are consuming half of all data. The vast majority of customers, 99 percent according to the 60,000 phone bills that Nielsen collects and analyzes every month as part of their Customer Value Metrics product, are better off with a pricing scheme like AT&T’s new data pricing model than under flat-rate pricing where they are paying for much more than they ever use.
2. There is a growing need to educate smartphone users. With about 23 percent smartphone penetration in the United States, we are still in the early adopter phase. A quarter of these early adopters are not using their device for data services at all. They use exactly zero MB per month. For some reason these customers have purchased a miracle in engineering and technology that has more computing power than what was used to get men safely to the moon and back and yet they only use their smartphone for phone calls and text messaging. Operators have to do a much better job in conveying the value and utility of these powerful devices–and to marrying the right device to the right customer. The more suitable the device is to the usage and spending pattern of the customer the more satisfied the customer will be.
3. More than a third of smartphone users have not yet signed up for a data plan. Most of these smart phone users were among the first to get these devices, before operators required a data plan be added to the device subscription. Over time, these device owners will get converted into paying customers for data, but it is critical for the long term success of the industry to not only collect revenue but to also provide and convey value.

The industry has its work cut out for itself as it undergoes its most revolutionary shift to a post-voice-centric world. The priorities of large swaths of customers are shifting. Some operators have been better than others in adapting to the changing industry landscape and have been able to capitalize on it. As this trend continues, voice calls are increasingly commoditized and the average revenue per user on voice has been falling. Operators with the right cost structure will still be able to operate efficiently, effectively and profitably in this increasingly challenging voice segment, but most operators are condemned to sink or swim in the new data-centric world.

The data analysis examined the distinctive consumer patterns and marketing appeal of women who work fulltime and have one or more children at home. The study includes information on their shopping habits, media patterns, demographics and lifestyles. “The Working Mother is the gatekeeper for purchases related to clothing, feeding and making a home for her family. Her high spending on cellular services together with her propensity to download content via her cell phone imply that mobile marketing could be an important platform for reaching her with product announcements, offers and other promotions,” said Howard Goldberg, Senior Vice President of agency services, Scarborough Research.

Download Shopping Insights on Today’s Working Mom, from Scarborough Research.

What outlook should we have when contemplating the future of mobile video? For content providers, carriers, advertisers and consumers, mobile video is often a glass-half-full / glass-half-empty scenario. Yes, the industry is placing tremendous attention and investment in the medium – but, by comparison its reach is fairly humble. And yes, the possibility for future growth is enormous when we consider content and commerce potential– but, it’s a complicated path to that future.

For some perspective, we turn to Nielsen’s latest Mobile Video Report, which paints the picture either way: It provides affirming insights on mobile video’s best year yet. Nonetheless, it highlights substantial limitations and challenges ahead.

Glass Half-Full – Mobile Video’s Best Year Ever

• Reach, up 70 percent year over year, crossed the 10 million active viewer mark in 2008 and kept going – up to 15.3 million active viewers as of Q2 2009 (that’s roughly 7% of all US mobile subscribers)
• With “All You Can Eat” mobile data packages and increased access to mobile video over the mobile Web, access to mobile video content is more affordable than ever. A subscriber with a data package that includes video now pays $5.73 a month, on average, compared to $8.32 a year ago. Meanwhile, most mobile video viewers today aren’t even paying for a special package, but instead access mobile web through mobile Web access, simplifying the means to mobile video
• Though average subscription cost of mobile video is down, added reach still helped carriers claim a record $308 million in mobile video subscriptions in Q2 2009, up 11% compared to the prior quarter

Glass Half-Empty – Many phones not answering the call

• Half of U.S. mobile subscribers still carry phones that aren’t even capable of viewing video (52%), that’s just a marginal improvement over two years ago (62%). The adoption rate of mobile-video capable phones slowed as the economy weakened
• Among mobile video viewers, satisfaction with the overall experience went down over the last year (74% in Q2 2008 to 65% in Q2 2009). Even more troubling, consumer satisfaction decreased around undeniably improving components such speed, reliability, content, price and general audio and video quality.
• The mobile video audience is churning quickly. Disproportional to year-over-year audience growth, today’s mobile video audience is made up mostly of viewers still in their first year of use (78%). Since its introduction, the adoption rate of mobile video has been governed by a revolving audience of mobile video “testers,” viewers who try out the medium for under a year and then ditch it. Mobile video today still lacks the stickiness it needs for more rapid growth.

A mixed bag for sure, but no matter your take on mobile video, today, it’s hard to deny that a confluence of factors — better devices, faster networks, dedicated programmers, consumer interest – prime the pump for the broader, if bumpy, adoption of the platform. In short, the catalysts for growth are now in place.

A different kind of growth

Perhaps adoption of mobile video may look more like the gradual, linear adoption of DVRs than the exponential growth of portable MP3 players and the similarity wouldn’t be a coincidence. DVRs and mobile video are analogous in their transformational nature: technologies that fundamentally alter the time or place of media consumption. That’s a very distinct evolution from a technology such as the MP3 player, which did not change the time or place of the portable CD player, but simply refined the user experience of that medium – thus the adoption of the MP3 player was a logical adoptive progression for the consumer. The extent to which mobile video asks consumers to fundamentally alter their consumption patterns should not be understated.

Choose (cautious) optimism

At 6.5% penetration, it’s easy to be a pessimist about mobile video, to see the half-empty glass. But after posting its best year yet, after 70% year over year growth, it’s wiser to be a cautious optimist. Mobile video is a transformational technology that will require real changes or additions to the consumer media diet. As such, it may have a long way to go before making a dramatic impact on our media economy. When it does, though – when mobile video adoption further dissolves barriers of video’s time and place – the beneficiaries will be those who participated in its evolution, those who anticipated and planned for this demand.

Share your thoughts below or email me for more on Nielsen’s latest Mobile Video Report nic.covey@nielsen.com.

• As of April 2009, Nielsen estimates that there are 6.4 million active iPhone users in the U.S., up from 2.1 million a year prior. The most impactful iPhone announcement this week may be the price reduction of $99 for the 8 GB version: cost has been one factor (in addition to AT&T exclusivity) that’s kept the overall iPhone audience modestly sized.
• 37% watch video on their phone (6x as likely as the typical subscriber)
• The iPhone audience is age-diverse: a device this powerful isn’t just for kids. There are roughly as many iPhone users 55 and older as there are 13-24.

• iPhone users look good to mobile marketers. Forty-percent have household incomes of $100K or more – twice the ratio among all subscribers (19%). That income may also be helpful for current iPhone owners who want to upgrade: in-contract iPhone owners may have to pay an additional $200 to upgrade before their contract expires.

• It’s not just for looks. 98% of iPhone users use the data features of their phone, services that should improve with the enhanced speed promised by the iPhone 3G S.

• 88% use the Internet (making them 4x as likely as the typical subscriber)

• 75% download apps (5x as likely as the typical subscriber)

• 72% used location based services (7x as likely as the typical subscriber)

Apple’s announcement came on the heels of the release of the latest so-called “iPhone killer” the Palm Pre smartphone. However, iPhone buzz continues to dominate the blogosphere.