A snapshot of the 3G handset market in the United States reveals a nascent business on the verge of growth, as carriers upgrade their networks and more aggressively market their data-based offerings, and a broader portfolio of 3G handsets is presented to consumers.
According to a survey of U.S. mobile subscribers by M:Metrics Ltd., Motorola Inc.’s handsets (the E815, the Razr V3c and its pink sister) running on Verizon Wireless’ network dominate the 3G handset space. 3G models from LG Electronics Co. Ltd. (VX8100, VX9800 and VX8000) and Samsung Electronics Co. (SCH-A950, SPH-A900, MM-A920 and SCH-a890) also place in the top 10 most popular 3G phones, running on either Verizon’s or Sprint Nextel Corp.’s networks. At this juncture, 3G phones in the Unites States are largely a CDMA play.
Today these phones are sold based on price points and form factors, rather than their 3G capabilities, according to Seamus McAteer, senior analyst at M:Metrics. About half of the top 10 3G devices in the United States have been on the market for a year or more.
“The message I’d convey is that these are not niche devices, they’re mainstream phones like the Razr V3 or the Samsung SPH-A900, which are marketed as cool, skinny flip phones,” McAteer said. “First, we need to get volumes up to get prices down on these phones. So we’re not seeing a flood of devices into the market-yet.
“I think the 3G handset market in the U.S. is right where it should be at this point,” McAteer added. “We’re expecting to see three or four new models on Cingular’s network and five to 10 new CDMA models in the third and fourth quarter this year.”
As Verizon Wireless and Sprint roll out their CDMA2000 1x EV-DO Rev. A networks (3.5G) and Cingular Wireless L.L.C rolls out its HSDPA (3.5G) in the next year or so, they will more aggressively promote mobile multimedia in the form of music, video and games, McAteer said. On the voice side, 3G handsets and networks will allow carriers to tout push-to-talk services. A number of 3G devices are optimized for e-mail and at price points such as the Motorola Q ($200 with rebate at Verizon Wireless, with a two-year contract) they could reach into the 18-to-24-year-old student market, broadening the market for 3G handsets.
Avi Greengart, senior analyst with Current Analysis, agreed that 3G phones will play a prominent role in the U.S. market’s replacement cycle. “It’s a very fluid, hyper-competitive environment,” he said. Verizon Wireless and Sprint were first to offer high-end 3G phones at mid-tier (about $100) prices, while LG and its carrier partners cut 3G handset prices to as low as $50. Right now, however, “in many cases, people are buying 3G phones and not doing 3G things with them,” Greengart said.
In fact, earlier this month at BREW 2006, John Stratton, chief marketing officer at Verizon Wireless, said that the data market-after eight consecutive quarters of growth-had cooled off. According to Robert Tercek in a column in Forbes.com last month, “the race is on” for mobile operators to improve their content offerings to subscribers before hordes of mobile virtual network operators and consumer electronics firms beat them to it.
At BREW 2006, McAteer reported that 3G handset owners are three times as likely as 2G handset owners to download a game, thus building the 3G handset market appears key to building data revenue for the network operators and others in the mobile food chain.
M:Metrics’ data on the 3G phone market reflects that 3G usage in the United States is on par with some of its European counterparts, contrary to the popular notion that the United States lags behind its European counterparts. In fact, a broader 3G portfolio of handsets in the United States, along with carriers’ promotion of handsets and service, is expected to drive data revenue for the carriers.
As is often the case with new, growth markets, the numbers initially appear modest. “We’re at 6 million to 7 million 3G handset owners, out of an installed base of 186 million,” McAteer said. “Trend it out and you’re looking at 15 million by the end of 2006, close to 10 percent of the installed base, representing 20 percent of all data traffic. By the end of 2007, we’re talking about a market that represents more than one-third of all data revenue.”
The United Kingdom counts 4.4 million 3G handset users, about 10 percent of that country’s installed base, which represents 20-30 percent of data traffic. Germany has 2.2 million 3G handset users out of 46 million subscribers, which is 5 percent of that country’s installed base.
According to CIBC World Markets, U.S. carriers are expected to make a more aggressive push on 3G offerings in the second half of this year. Whereas Motorola has the third-largest selection of 3G handsets in Europe and the United States, Nokia maintains the broadest penetration in Europe and is expected to enter the U.S. market any time.
McAteer said he anticipates that in a year, M:Metrics’ survey of 3G handset use in the United States will look radically different from the Motorola and Verizon-dominated picture captured in the current survey.
