The second half of 2008 already ranks highly for offering the most advanced handsets and most reasonable prices in the history of wireless. And myriad device launches are yet to come in October and November.
In a word, the season is about getting smart, as in smartphones.
Consumers have their pick of the new Google Inc. Android-powered phone or Touch Diamond from HTC Corp.; the Samsung Electronics Co. Ltd.’s Blackjack and Instinct, Motorola Inc.’s various Qs; Palm Inc.’s Centro, new Treos; a slew of Research In Motion Ltd. BlackBerrys that are fueling a remarkable rise by the Canadian company, and touchscreens everywhere – with seductive subsidies – with data plan options from the carriers. (Did we mention Apple Inc.’s iPhone 3G?)
New devices will rain down like hail in the next two months. Woe be to those who launch after Black Friday!
The lure
Add the growing realization among consumers that these devices now provide a credible alternative to fixed-line PCs for browsing, the burgeoning number and volume of subscribers who text message and the myriad applications being offered for mobile computers and you understand the promise of this fourth quarter.
Yet, suddenly, Americans are reading the most frightening headlines about Wall Street, banks, insurers and the economy perhaps in all their adult lives as we head into the crucial fourth-quarter for the industry.
Looming over the holiday outlook is the mood and confidence of American consumers. In the past decade, we’ve repeatedly simply plunged into further debt to keep spending, propping up an economy that periodically turned south. The headlines tell us, in effect, that there is a limit to this practice – for individuals and for the nation.
So, many analysts will read the tea leaves – particularly the third-quarter numbers from carriers and handset vendors due in October – to gaze through a glass darkly at the year-end retail picture. Will American consumers continue their spending craze? Will they scale back at the industry’s moment of triumph for high-tier, high-tech phones?
There is no doubt that the wireless industry’s players have prepared a feast, if only consumers show the appetite for shopping.
Cautious optimism
Analysts said that many observers of consumer confidence – including the carriers, who have much at stake – will watch third-quarter metrics to determine whether they need to shift their approach. But they’re likely to place large bets on smartphones as those devices offer more to consumers, are sold for less and appear to be the path to growing average revenues per user.
The carriers crave the coming shift to smartphones because, according to recent comments from Verizon Communications Inc.’s COO Denny Strigl, smartphone users rack up twice the monthly ARPU of their feature phone brethren.
One snapshot of the smartphone sector, courtesy of comScore M:Metrics: 20 million Americans own smartphones, an increase of 120% since last July. AT&T Mobility leads the charge, with 8.5 million smartphone users, according to the comScore M:Metrics data, for a 150% year-on-year growth rate. Even T-Mobile USA Inc., which is just building out its 3G network, saw a 137% year-on-year growth in subscribers embracing smartphones.
The top five smartphones sold in the U.S., according to the comScore M:Metrics data:
Apple’s 8GB iPhone, RIM’s BlackBerry 8100 Pearl, Motorola’s Q and Samsung’s BlackJack II (SGH-i617) and Blackjack (SGH-i607).
The upcoming gamble
Carriers are just now placing their bets by ordering inventory that will begin arriving in November, according to Mike Cost, president and COO of Miami-based Brightstar Corp., which combines traditional distribution with supply chain expertise to advise its carrier and retail clients on portfolio choices and quantities.
“We don’t just move boxes,” Cost said. “We ensure that the right product is in the right place at the right time.”
(In the United States, Verizon Wireless is Brightstar’s largest customer and the company has relationships with AT&T Mobility and T-Mobile USA, according to Cost.)
The prospects for the upcoming fourth quarter are “solid,” in Cost’s view.
“Are we nervous?” he asked rhetorically. “Of course. But we’re seeing sell-through trends that continue to reflect traditional seasonality, though the quarter may not reflect as strong a growth pattern as previous fourth quarters.”
Get smart
The handset du jour this season is definitely a smartphone, Cost said. And the most obvious beneficiaries are RIM, Apple and Palm, he added.
“Smart retailers will have full portfolios of those products,” Cost said. “This season, people are seeking devices that can browse the Web and handle e-mail and text messaging. The value proposition is richer and consumers and business people are willing to spend a little more for that.”
One powerful trend, quantified by Nielsen Mobile: Since last year’s fourth quarter, the number of text messages sent and received has overtaken the number of voice calls made. As of the second quarter of this year, a typical U.S. subscriber sends or receives 357 text messages per month, while placing or receiving 204 phone calls. That means text messaging is up 450% from only two years ago.
According to Nic Covey, director of insights at Nielsen Mobile, there is a latent but definable growth in QWERTY keypad use somewhat trailing this text-happy trend. Subscribers who have a QWERTY keypad and an SMS plan send 54% more text messages, which are filling carriers’ coffers.
“That said, I don’t believe QWERTY keypads will be a big device driver,” Covey said. “Devotees are incredibly skilled at using 12-key alpha-numeric phones too.”
Covey has one key metric that could predict a healthy fourth quarter. Nielsen Mobile tracks subscribers’ intent to upgrade, which today is higher than in the past 31 months, which includes two past fourth quarters. That fact, combined with lighter upgrading this past summer implies that subscribers have held off buying new handsets until the autumn orgy of smartness and attractive prices hit the market, Covey said.
Sweet-spot pricing
The new retail “sweet spot” in pricing was set, in Cost’s view, by the iPhone 3G’s lower-priced model at $200. Palm’s Centro, priced at $100, marks the lower bracket on the smartphone category. Carrier subsidies are more focused on halo products that will retain subscribers, lure new ones and get traffic into stores, he said.
And shoppers will drop a bundle on accessories for those high-tier devices. According to Cost, Apple for instance sells about $100-worth of accessories for every iPhone it sells. The trend towards personalization and fashion continues to move consumers, as does functionality such as hands-free headsets.
Further, Brightstar sees smartphones and their pricing begin to descend the price tiers to change the mix of low-, mid- and high-tier devices.
In the second-quarter of 2007, for example, low-tier devices claimed 64% of the handset pie, mid-tier claimed 29% and high-tier claimed 6%. Flash forward to the second-quarter of 2008, when low-tier devices crept up to 68% of those sold, mid-tier had dropped to 16% and high-tier had more than doubled to 16%.
That trend is likely to be exacerbated by the tendency of holiday shoppers to shoot high, Cost said.
Meanwhile, the carriers are covering all their bases by maintaining breadth and depth to their portfolios to reach every consumer segment, according to Cost.
