Wireless Smartphone Strategies

The industry’s most comprehensive set of critical market statistics and qualitative analysis, tracking and reporting on smartphones.

January 27, 2011 21:46 David Kerr

Well this Dad certainly won?t! Its not a criticism of Verizon Wireless who I am sure will offer their usual stellar quality and provide a quality customer experience. Nor is it a statement of discontent with AT&T which to date has enjoyed iPhone exclusivity and has added  over 4 million iPhone activations in q4 with most being existing customers. Nor is it some deficiency in the smartphones themselves. We have dozens of smartphone  choices from all the best brands with more being added every quarter.

So, what?s up, am I just a cheap Dad who is willing to let his kids risk being iPhone less  or smart phoneless social outcasts? Well maybe! But the real issue is service contracts, early termination charges and ridiculously high ongoing costs. Switching operator to allow my kids to get what they call ?a legit? iPhone (activated on an approved operator) is a costly business when you consider:

  • 4 times early termination penalties of $300.
  • 4 times smartphone data plan of $15-30 on top of our current bill which is well over $125 when you add in unlimited texting, and multimedia options.
  • 3 times new accessories averaging $50 each assuming I stay strong and don?t buy those very cool stereo bluetooth headsets

Aside from an occasional customer service blip, our experience with the existing service provider has been fine giving us no reason, other than a better deal, to churn.  My son asks ?Will there be better deals, now that there is competition?? Good question, to which the answer appears to be no based on the initial iPhone pricing announced by Verizon Wireless.  Over time, we will see further segmentation of data service plans including things like daily  or hourly charging, ad-supported models, off-peak evening traffic deals and many others but at launch there is little to distinguish the iPhone offers of the two largest carriers.

iPhones are,according to my children, not a want but a need. However, willingness to pay for the ongoing monthly data plans is noticeably absent from both parents and children. Requiring  separate subscription at a premium for smartphone owners is a very big pill for a 4 person family to swallow on an ongoing basis.

So Dad will not be springing for 4 new smartphone accounts whether iPhone or not anytime soon but how will Verizon Wireless fair when they finally offer the iPhone?

Success for iPhone at Verizon will be determined by three main customer types:

  1. Loyalists who did not switch from their current operator despite  peering enviously at the shiny new I Phones owned by the the first wave of Apple fans, device stylists and early adopters who made the plunge with AT&T
  2. Disaffected iPhone users on AT&T and
  3. Successfully upgrade of feature phone owners to a smartphone lite package.

 

Loyalists are already being courted hot and heavy by Verizon with early access to the device among the many incentives designed to persuade them to commit to reupping their 2 year contracts. The loyalists as the name implies are high value, highly profitable  committed customers that must be locked in.

The second category or source of demand,the disaffected AT&T customers, will be much harder to convert. Although there are pockets of dissatisfied AT&T customers (as there are for all operators), will we see mass defections over to an iPhone equipped Verizon? I doubt so as the inertia effect is very strong and the barriers to churn are significant. For example, AT& T reports that over 80% of postpaid customers are on family plans or corporate plans. These multiyear deals will be a huge deterrent to switching operator.

The third category of potential customers for iPhone at Verizon Wireless are feature phone owners both internally and at competitors. Verizon Wireless like AT&T has a large base of feature phone or Quick Message Device customers. Are these customers ready to take the leap up to smartphone data levels or will sticker shock at the price of converting the family be too much to handle. Many smartphone features are bleeding down in to feature phones already and we expect to see entry/mid range smartphones from many vendors in the second half of 2011  which may lighten the sticker shock. Still $20-25-30 per line rentals are daunting for the largest part of the customer base.

Perhaps, a new approach of bundling unlimited texts into a smartphone plan which allows up to 6 devices to consume data might appeal. I am definitely not going to pay to have occasional wireless access on my tablet, my digital camera, my PSP but I might just buy a family smartphone data plan at the $9.99 add a line level. Creative packaging is needed!


January 21, 2011 20:13 lsui

During the Q4 2010 conference call, Apple highlighted the impressive performance in Greater China (including mainland, Hong Kong and Taiwan) over the past quarter, with the sales of US$2.6 billion, up 400% YoY, contributing to nearly 10% value share. The 4 Apple Stores located in mainland China ranked at the top in terms of traffic and revenue among all 323 stores worldwide, according to the company. Apparently Apple is bearing fruit from the most populated market in the world. According to our Handset Country Share Tracker (HCST) service, China represents over 20% of total legitimate iPhone sales in APAC in 2010. Further considering the strong sales of shuihuo iPhone in China (which refer to smuggled iPhones, usually through Hong Kong) total iPhone sales in China would hit a sizeable share.

As a fashion icon to attract high-end users, iPhone has become the new battlefield for China's operators:

-As it happens elsewhere in the world, China Unicom heavily subsidizes the iPhone.  However, this also puts a financial burden on the operator, as indicated by the increasing 3G capex.

-China Mobile has been taking aggressive actions to attract iPhone users by providing a SIM card cutting service, by which China Mobile can cut regular SIM card to match the micro SIM card that is used for iPhone, making iPhone users be able to keep the same phone number. Moreover, it has announced plans to accelerate its TD-LTE roll out. Bypassing TD-SCDMA, China Mobile will have an LTE network ready before rivals to open the door for future LTE iPhone.

-The availability of the new CDMA iPhone adds fuel on this battle. We expect it to become available with China Telecom mid this year.

In addition to the operator channel, the vendor also plans to open more Apple Stores in China, bringing the total number to over 20 by this year. Moreover, iPhone is also available in selected open channel partners, such as Suning, one of the top electronic chain stores in China.

Improved channel reach, migration towards iPhone 4 and subsidized price all contribute to the record sales of iPhone in China over the past quarter. The possible CDMA iPhone with China Telecom would fuel further strong growth room for the coming year. Although counterfeit "iPhones" that have mushroomed in the grey market will continue to negatively impact sales, legitimate growth should be able to offset the loss to grey market, so we will not be surprised to see another Apple sales record in China in 2011.

- Linda Sui

Global Smartphone Forecast by Region

Vendor Market Share by Country: Q3 2010


January 19, 2011 19:57 bjoy

2010 has been a great year for smartphones with several high profile device launches. Besides the great line-up of devices, US carriers have been wholeheartedly promoting the devices with attractive rate plans and lenient upgrade policies. AT&T's early upgrade policy coincided with the launch of the iPhone 4 last summer was a smash hit with total sales over 5.8 million in Q3 2010, a 66% jump over the same period last year. Similarly, the $15/ month entry smartphone tariffs (although with cap restrictions) proved to be very popular among first time smartphone customers.

Well, 2011 is turning out to be a slightly different story. While carriers are keen to drive smartphone penetration, they are getting a bit more selective in addressing their target markets. See the recent announcements from VZW and Sprint.

- VZW stopped their "New Every Two" program, which allowed customers $30-100 credit toward the purchase of a new phone at the time of contract renewal. The carrier also made changes in the Early Upgrade policy. Prior to the change, customers had the option to upgrade the device after 13 months into a two year contract. And now the wait got a bit longer to 20 months.

- At Sprint, starting Jan 30, all new smartphone activations will come with a $10/month data surcharge.

The termination of "New Every Two" and "Early Upgrade" will have impact on Verizon's replacement and upgrade sales. So far, both programs had served as effective churn management tactics by offering the latest and greatest devices for the most demanding customers. But with the iPhone already under the VZW portfolio, they are not going to worry too much on the churn metrics - hence the bold move.

The impact of Sprint's $10 surcharge on smartphone lines are going to be at a different place. Sprint premium device customers such as the EVO and EPIC already pay a $10 premium, and now that has been extended across their portfolio - super and regular smartphones alike. No doubt, with the change, their featurephone bundles look a lot more attractive than before and will gain at the expense of smartphones. Rather than milking the smartphone base till the last drop, they should have added more options (lower smartphone tariffs/entry smartphone) and develop a migration path for their featurephone base to smartphones.

The VZW approach is farsighted, and the changes are not going to affect their long term strategy in tapping first time smartphone subscribers and at the same time trying to get more mileage out of their existing smartphone base. However, without an entry smartphone plan, Sprint is going to be left out from the next wave of smartphone customers.


January 12, 2011 21:17 Alex Spektor

After years of public speculation, AT&T has finally lost its US exclusive on Apple’s megastar smartphone. As consumers prepare for the arrival of the Verizon Wireless (VZW) iPhone, we address some questions about the impact of this development.

Just how many iPhones will they sell?clip_image002

AT&T customers bought an average of around 4 million iPhones per quarter in 2010. Even if VZW achieves a conservative half of that run rate, it could mean 8 million CDMA iPhones shipped domestically in the first year. In addition to newcomers from other carriers, buyers will include existing subscribers, whose contracts will steadily come up for renewal over the next two years.

Of course, no longer the only option for iOS enthusiasts, AT&T volumes of the iPhone are likely to suffer this year. We can reference the end of iPhone exclusivity in Western Europe for an example of what may happen. As our Handset Country Share Tracker service shows, Apple’s peak share at exclusive carrier O2 UK was 10%. By the time the phone was also introduced at Vodafone and Orange, Apple’s share was roughly just 5-6% with each carrier.

Thus, while Apple’s total volumes are going to benefit as a result of this week’s announcement, neither carrier should expect to see the iPhone account for anywhere near the huge 70% of smartphone volumes that AT&T recorded in Q3 2010.

What impact will the network have?

Aside from a revised radio section and some cosmetic tweaks, the availability of a Wi-Fi hotspot feature is the only official new feature of the VZW iPhone. But AT&T defectors may find one other difference – the inability to simultaneously use voice and data on a CDMA network. As Droid users know, Wi-Fi data access can be used as a limited substitute, but expect outcries of a “lesser” experience from some frustrated buyers. Of course, the inevitable LTE iPhone (in 2012, perhaps?) will eventually equalize this matter.

Unlike AT&T, VZW does not have a bandwidth cap on its US$30/month plan. AT&T’s US$25/month plan provides just 2GB, which protects the carrier’s pipes from overloading, but prevents carefree use of compelling, but bandwidth-hogging apps like NetFlix. Coupled with broad perception that VZW is more reliable, it could mean an upside for the phone’s new carrier. However, we can expect AT&T to send a heavy message about its HSPA network being faster than its competitor’s EV-DO Rev. A.

How will this impact the competition?

AT&T has been preparing for the loss of exclusivity since at least early last year, adding a broad range of Android (and later Windows Phone 7) models. Expect an onslaught of high-end Android handsets (such as the Motorola Atrix 4G) to quickly replace lost iPhone volumes at AT&T, benefitting the likes of Samsung and HTC.

Meanwhile, VZW’s strong Droid brand of Google-phones is likely to take a hit. VZW subscribers looking for a less complex experience than Android’s will find the iPhone to be a gem, cannibalizing the carrier’s own volumes. The real impact, however, will be felt by RIM. The BlackBerry portfolio still lacks a solid full-screen touchphone, and unless the Canadian vendor comes up with one soon, it stands to lose further share with VZW.

-Alex Spektor

USA Smartphone OS Marketshare by Operator: Q3 2010

Global Smartphone Sales Forecast by Operating System: 2002 to 2015