Editor’s Note: Welcome to our weekly Reality Check column. We’ve gathered a group of visionaries and veterans in the mobile industry to give their insights into the marketplace.
June is a special month in the wireless industry. For the past four years, it has usually been marked by the introduction of a major handset – in 2007, it was the iPhone; in 2008, the iPhone 3G and the Samsung Instinct; in 2009, the iPhone 3GS and the Palm Pre; in 2010, the iPhone 4 and the HTC Evo 4G. Such introductions are usually matched by exceptional marketing campaigns, in-store events, and lots of advertising.
2011 is clearly different. We do have the HTC Evo 3D coming out later this month (confirmed last week by Sprint Nextel Corp.), which will get a lot of attention, but it’s not the breakthrough device that the Evo 4G was last year. This year, it’s all about discounts, and trying to move an inventory of rapidly aging devices.
That is, unless you are Verizon Wireless. In true 4G leadership fashion, Verizon Wireless has more devices positioned at the $200 or higher price point than all of the other carriers combined.
We originally set out to map the changing world of Android and predicted in the fall of 2009 that Android would make up 50% of all stocked units by the end of 2010. This prediction turned out to be correct for all carriers except AT&T Mobility. We also discussed that once Android had established its foothold, they would continue to be the device of choice for Verizon Wireless, but not necessarily the choice for AT&T Mobility (even with the introduction of the Motorola Atrix earlier this year). We’ll see with the first full quarter of results in July, but it’s highly likely that Verizon Wireless is seeing equal if not greater traction from the launch of faster devices than the launch of the iPhone 4. Both are winners for Verizon Wireless, but the predicted decrease in Android sales through their stores does not seem to be occurring.
Two interesting trends emerge:
1. The question of “How much Android?” we asked last August has now changed to “What’s left after Android?” Between Verizon Wireless, Sprint Nextel, and T-Mobile USA Inc., over 70% of the stock keeping units are Android powered. This is not to diminish the value of Apple, who can hold their own with two SKUs at AT&T Mobility and one SKU at Verizon Wireless, but it does call into question the role of BlackBerry and Windows. Think about how display happens in the T-Mobile USA or Sprint Nextel store – the layout is Android at Sprint Nextel and T-Mobile USA, featuring the Evo product at Sprint Nextel and the Google Inc. or self-branded line at T-Mobile USA. Somewhere on the sidelines you have BlackBerry and Windows Phone 7, and if the customer is interested in applications, it’s back to Android. Bottom line for T-Mobile USA and Sprint Nextel: Win, place and likely show for Android.
For AT&T Mobility and Verizon Wireless, the story is more balanced. The iPhone has been the lead topic for AT&T Mobility reps for four years (an eternity in the smartphone business). It’s all about the application store. If the customer is interested in a smartphone, and they are not constrained by a corporate policy against iPhones, the lead is iPhone for AT&T Mobility. Conversely, in the Verizon Wireless store, given the Droid franchise, the question is “Do you currently have an iPhone?” And if not, the focus changes to Droid (4G) as opposed to iPhone. A lot of this is also driven by individual sales rep preferences and experience as well, and if the rep was not able to purchase an iPhone in the past five months, experience is likely driven by Android. Bottom line for AT&T Mobility and Verizon Wireless: Win and place for Apple or Android, and likely show for Android.
One interesting thing to think about is the role of applications in future buying decisions. To the extent that BlackBerry and Windows Phone 7 can command some attention in the stores in the next year, future smartphone “switchers” need to be assured that their new BlackBerry can deliver the same app experience as their AT&T Mobility iPhone or Verizon Wireless Droid X. We are likely past the “discovery” stage with 20% of the smartphone market, and the measuring stick is against the current Apple and Android store selection as well as future offerings. More on this in a future Reality Check.
2. Price points (except for Verizon Wireless) are plummeting. Two years ago, the premium smartphone routinely commanded $200 to $300. Only Apple and a small selection of Android devices (one to two lead phones) have held this level today. It was difficult to find any free smartphone offers two years ago. Last December, we noted that on the Walmart website, the Droid 2 (with a 1 GHz processor) was offered for free for a couple of weekends. Now, with the exception of Verizon Wireless, it’s a “sea of free.”
Costs have fallen in line with prices to some extent, but not by $150 per handset – at least not yet. So for every free phone sold, a subsidy of $150 to $200 occurs. This amount could be more for the middle and upper tier of devices. Sell or upgrade 3 million new smartphones per quarter, and you are looking at $450 million to $600 million of subsidy ($1.8 billion to $2.4 billion of subsidy on an annual basis). Premium phones only add to this total.
The good news is that free is a floor that held in the feature phone market. In our research, we were very hard pressed to find any feature phone over $50 on the carriers’ websites. However, the free phone market in feature phones shifts the focus to monthly service plan costs, which favors lower cost carriers like Boost Mobile, Virgin Mobile USA, MetroPCS Communications Inc., Leap Wireless International Inc., Walmart’s Straight Talk, Tracfone Wireless Inc., and maybe Verizon Wireless. So free has benefits for the first two-year cycle for the traditional post-paid carriers, but subsequent cycles will either require significant changes in plans (e.g., unlimited texting for all plans with a $40 monthly recurring fee or higher) or increased and exclusive carrier applications (likely not to go over too well at Google or Apple).
Android has not lost its allure to the carriers, and the improvements made to the Android Marketplace (that were followed by Apple in their iCloud announcement) as well as Amazon.com Inc.’s Android store are helping to cement its front-runner position. Apple’s anticipated move this fall/winter is to introduce the iPhone across all carriers – is it too little, too late? Can Windows Phone 7 and RIM resurrect themselves, and does a consistent third-place battle really make sense? These will all be future Reality Check topics.
Jim Patterson is CEO and co-founder of Mobile Symmetry, a start-up created for carriers to solve the problems of an increasingly mobile-only society. Patterson was most recently President – Wholesale Services for Sprint and has a career that spans over eighteen years in telecom and technology. Patterson welcomes your comments at: jim@mobilesymmetry.com.
