WHEATON, Md.—The Shosteck Group believes the replacement rate for handsets will increase from its low point this year, but will remain below peak levels experienced in 1999 and 2000.
According to the firm’s new study, “The Adoption of High-end Phones, Part I: A Forecast for Multimedia Phones Through 2005,” this declining rate of handset replacement will result in handset sales reaching 455 million in 2005, with only a minor increase through 2007.
The Shosteck Group said some handset vendors are leveraging their brand equities in consumer demand for higher-priced devices.
“Five of the major handset vendors are dividing into two strategic camps,” said Jane Zweig, chief executive officer of The Shosteck Group. “On the one hand are Motorola (Inc.), Sony-Ericsson (Mobile Communications Inc.), and apparently Siemens (AG). They are adhering to the conventional wisdom that handset sales must be anchored by low-tier units that draw the volumes of the mass market. On the other hand are Nokia (Corp.) and Samsung (Electronics). They are introducing a new wisdom that handset sales can be stimulated, not by low-tier pricing, but by brand equity and greater functionality. The validity of these strategies will determine which handset vendors dominate in 2005.”
The study found that by the end of the year, the wholesale costs of low-tier GSM/GPRS and CDMA 1x handsets will be $137 and $134, respectively. By year-end 2005, they will decline to $58 and $60, respectively.
Image-capable handsets are expected to produce greater value for network operators through the increased average revenue per user, but the study also suggests marked advances in hardware will ultimately motivate subscribers to pay high-tier prices.
This includes, and will include, displays with high-saturation color, resolution several times greater than the 160 x 120 pixel minimum, built-in digital cameras, greater memory to store images, polyphonic sound and higher-capacity batteries to meet the greater power requirements of more advanced phones.
