It is hard to imagine a world without smartphones and tablets. While it might seem like a long time ago, we should remember smartphones didn’t hit the mass market until 2007 with the introduction of the Apple iPhone, and tablets appeared in 2010 with the Apple iPad. However, since the launch of the iPhone (and Android soon after), the lifecycle for smartphones has changed, become more complex and created new areas of opportunities. Not only have new applications and ecosystems emerged, but other businesses areas have developed, including device reclamation, ‘recommerce’ (i.e., selling used devices), repair, refurbishment and insurance of devices. As the wireless ecosystem continues to evolve to include more services and channels, there are considerable opportunities for both retailers and manufacturers to expand their reach and grow revenues.
The market for wireless is enormous. CTA forecasts approximately 183 million smartphones and 60 million tablets will ship in the U.S. this year. Indeed, eight in 10 (82 percent) U.S. households report owning at least one smartphone and two-thirds (66 percent) own at least one tablet. While CTA forecasts year-over-year smartphone unit growth (although single-digit) through 2019, we forecast tablet shipments to decline. Tablets have seen rapid adoption since their introduction and the maximum household adoption rate has likely been reached. It is in this environment we see new and expanding opportunities for the industry.
New Industry Opportunities
Most carriers have begun moving away from two-year contract plans to equipment installment plans (EIP) and/or leasing plans. Both EIPs (which allow one to purchase a new phone or device via monthly payments) and leasing plans are relatively new services provided by carrier stores to address concerns of customers who might not want to pay full price for a mobile phone. This new business model (where carriers no longer require contracts, or offer “free” phones) does a few things, including allowing customers to upgrade more often, and changes how carriers collect revenue (service revenue vs. equipment revenue).
Most U.S. carriers already offer EIPs and leasing plans, using these as a way to provide customers with more payment options without requiring two-year contracts. However, these new wireless options will require a large upfront cost to customers at point of sale or require them to choose an equipment installment plan or leasing option. For a portion of the mobile market, this will enable more frequent upgrades and more gently used devices to enter the secondary market as well. It also signifies major changes in the dynamics of the industry and could be the tipping point that spurs the U.S. market to begin adopting pre-owned or refurbished phones as a viable option. This is especially significant for the subset of price-conscious consumers who don’t want to pay full price for a device or sign up for EIPs or leasing plans.
As smartphone unit growth is expected to slow, manufacturers will need to develop more services and continue to develop their ecosystems around applications and device management to generate revenue. Some areas of focus should be lifecycle management services like IT support, insurance and repair. In addition, manufacturers have been slow to embrace recommerce and buyback programs until recently. Some manufacturers have “trade up” programs that require a customer to send in an old phone to receive a credit towards a new device purchase.
It is also noteworthy that manufacturers continue to produce more complex devices, which has in turn created an increased need for device lifecycle management. In order to promote device lifecycle extension and avoid promoting a “throwaway” mentality, many vendors have created new solutions to better manage the life of a smartphone and tablet. In addition, carriers look to generate new revenue sources to stay relevant in a competitive market. They are re-evaluating their business models and are moving away from the handset subsidy (i.e., no more “free” phones with a two-year contract). T-Mobile started this trend with its no-contracts plan and early upgrade programs (which all carriers now offer). Sprint and T-Mobile also offer leasing programs and on the premise that many customers prefer new devices every year. While these new programs may be a way to reduce churn, ease subsidy costs and promote device reuse, they are not necessarily growth drivers. Carriers will continue to look to generate new areas of revenue to stay relevant in a competitive market.
Insurance and protection plans, while not widespread, are services many carriers and third-party vendors offer both consumers and businesses. There remains opportunity in securing, protecting, and insuring today’s wireless devices and making it easy for consumers to replace a device, obtain a refurbished device, or have protection should a device be broken, lost, stolen or damaged. In fact, a 2013 study conducted by CTA in partnership with SquareTrade found two in five consumers (41 percent) purchased a protection plan for their smartphone and one in five (20 percent) purchased a plan for their tablet in the past two years. As the true cost of devices is realized by the consumer, the importance of warranty, repair, and insurance plans is expected to rise and grow in demand, creating opportunities for retailers and manufacturers alike.
Finally, look for more consumers to trade in or sell back used devices as more carriers offer such incentives as a means to entice them to upgrade more quickly. Based on research conducted by Compass Intelligence, 31 percent of consumers report they have traded in or sold back a device. Some reported they sold back more than one device, with about 14 percent reporting trading in two or more devices in the past year. However, take rates for phone trade-ins are down, as many U.S. consumers tend to purchase a new device at upgrade or activation and then keep it after it is not in use anymore.
As the wireless industry hits an inflection point of changing consumption habits, retailers and manufacturers have sizeable opportunities to expand their reach and grow revenues.