Consumers Feel Smart Phone Obsolescence

When asked, 62 percent of respondents to a Retrevo survey said they currently feel their smart phone already is "out of date," or will be before their service contracts expire. That speaks both to the rapid pace of smart device innovation and the upside for providers of the latest smart phone models.

The solution, some would argue, are shorter contracts, or no contracts. One is reminded of the surveys taken to assess consumer receptivity to advertising. Those surveys virtually always find that people don't really like ads. But they like the idea of paying more for their desired content even less.

That's essentially what the Retrevo survey found as well.

When asked if they would be willing to pay extra for a shorter contract, most responded as you would guess, with a "no." But some would pay as much as $100 extra to get a one-year contract rather than a two-year contract.

Those sorts of questions and answers are instructive, but also hinge on consumer desire, at least in the U.S. market, for high subsidies on their devices. Few consumers really want to pay $400 to $500 for their devices, to get a contract-free service plan. Most put up with contracts so they can buy those devices for $200 to $250.

You can argue all you want about the wisdom of those preferences. Most of the money a consumer spends over the length of the relationship is service fees. The device cost is a relatively small matter in comparison. But consumers have voted with their wallets, and service providers, though not enamored of the operating expense the subsidies represent, do not seem likely to abandon the model, simply because it works.

One also might argue that the subsidies, which encourage users to swap out their devices more frequently, are one reason the U.S. market now is the world leader in terms of application innovation. A user that has invested $500 to $600 in a mobile device is likely to feel obligated to use that device as long as possible.

A user that has invested only $200 to $250 is less likely to be wedded to any particular device, and is likely to feel that investing in another, updated device makes sense.

http://www.retrevo.com/content/blog/2011/04/are-you-prisoner-your-phone-carrier

Nobody Likes ETFs, But Nobody Wants to Pay Full Retail, Either

Consumers don't like early termination fees. But neither do they like paying full price. A new Apple iPhone 4 with 32 GBytes of memory can be purchased now for $299 with a two-year contract, or at full retail for $699, without a contract.

Which option do you suspect most people will choose? If you want to know why the hated ETFs exist, it is the subsidy.

AT&T’s ETF on a smartphone like the iPhone is $325, up from $175 in May. Why? Some will carrier greed. But under the old pricing rules, a consumer could buy a phone for $99 on contract, instead of $600. Then the consumer could break the contract, pay the $175 fee, getting the device, without a contract commitment, for $274.

The customer then could sell the device on eBay or simply sign up for service with no contract.

Nobody likes contracts or ETFs. But nobody wants to pay full retail, either.

Digital Society � Blog Archive � Cellular Oligopoly is a Dirty Word

Verizon Offers new FiOS Customers "No Contract: Service

Verizon Communications now will allow customers to sign up for its FiOS television and Internet services on a month-to-month basis at the same price as long-term contracts and without early termination fees. Though Verizon might have preferred the revenue stability contracts tend to provide, consumers hate them, especially the early termination fees.

And though many observers do not believe there is sufficient competition in the fixed broadband access market, the Verizon move seems clearly a result of marketing by its cable competitors blasting the Verizon requirements and touting the ability cable TV customers have to buy without contracts or early termination fees.

Verizon in January 2010 raised the early termination fees for FiOS customers to $360 from $179. To be sure, Verizon's economic rationale was the cost to activate a location. But that's a business issue Verizon has to deal with, as all providers incur additional expense to activate a customer.

But market pressure seems to have had effect. Effective immediately, all new Verizon FiOS customers can opt to pay for a bundle on a month-to-month basis, at the same prices charged to customers purchasing a term contract, and receive price protection for one year without an early-termination fee.

New FiOS consumers who order a Verizon bundle as part of a two-year contract can take advantage of the "Worry-Free Guarantee," allowing them to cancel their service within 30 days of the date of activation, with no termination fee.

The month-to-month option and "Worry-Free Guarantee" expand upon offers introduced earlier this year in Florida and Pennsylvania and that have met with very favorable customer response. It's hard to imagine those offers getting anything less than that reception, given the distaste consumers have for contracts and termination fees, despite the "goodies" that sometimes are part of the overall offers.

http://newscenter.verizon.com/press-releases/verizon/2010/new-verizon-fios-customers.html

$431 Average Unlocked Mobile Phone Cost

The average price of an unlocked mobile phone in April 2010 was $431.49, up from a March average of $387.22. ABI Research found the average subsidized April smartphone price from retailers (not mobile operators) to be $43.64.

In contrast, the subsidized average price available from operators (the big “top four” plus three Tier Two operators) was $117.08. The price differential between the largest four operators is about 18 percent.

The point, if you remember your college economics, is that lower prices for any product lead to higher demand. 

Average Subsidized Smartphone Price from US Operators Rises to $117.08 in April | Press Release | ABI Research

AT&T to Hike Early Termination Fees in June for iPhone, Netbook Contracts

AT&T starting June 1, 2010 will be raising early termination fees for new iPhone and mobile-connected netbook subscribers from the current $175 to $325, the Wall Street Journal reports. The move is certain to outrage consumer advocates and put off potential buyers, and certainly will not help reduce the degree of regulatory scrutiny now being focused on early termination fees and contracts.

Some will speculate the move is designed to limit desertions if Verizon Wireless is able to start selling iPhones in 2012. That doesn't make quite so much sense, since a GSM iPhone won't work on the Verizon network.

Perhaps the more-logical explanation is that a new iPhone model expected to be released in June will provoke a large churn of customers from the older models to the new models.

Nor does the move immediately explain why connected netbooks are seeing the higher charge. A customer able to buy a $199 iPhone is getting a subsidy of about $400, since the retail, non-subsidized price would be $599 without a contract. But the netbook subsidy does not appear to represent that large a subsidy. Perhaps a significantly-better retail plan is coming, or AT&T thinks netbook owners will want to substitute an iPad.

On the other hand, maybe AT&T is simply moving to bring its ETFs more in line with Verizon Wireless ETF fees, which likewise were hiked from $175 to $350 for smartphone devices.

AT&T will pro-rate the new fees, which will fall by $10 for each month that passes in the two-year agreement.

How Will "No Contract" Smartphone Sales Affect Adoption?

What happens to smartphone sales, data plan sales, consumer behavior and mobile service provider marketing if phones cannot be provided at subsidized prices? If sales of smartphones fall, then use of mobile broadband services likely will grow more slowly. So smartphone prices do matter.

Up to this point, mobile phone subsidies have been seen as a “necessary evil” for the development of mobile phone services and have helped kick start the mass market for mobile phone services in many markets around the world. And it would be hard to underestimate the role subsidized handet pricing has had.

Handset subsidies are viewed as a loss leader strategy, a means for bringing new subscribers onboard, or encouraging existing subscribers to churn away from their existing network and onto a competitor’s.

But investors do not like the practice, as it puts pressure on service provider cash flow. Regulators do not seem to like the practice because subsidies mean contracts, and contracts lessen consumer ability to change carriers.

Global smartphone volumes will represent 14 per cent of total mobile devices sales in 2009, growing by 23.6 per cent from 2008 and to 38 per cent by 2013, say analysts at Gartner.

Smartphone prices are falling as shipment volumes increase, and a new study from ABI Research finds that while in 2007 only 18 percent of smartphones on offer cost under $200 retail, that percentage has already grown to 27 percent in 2009. By 2014, say the firm’s forecasts, 45 percent of the smartphones shipped that year will be priced below $200.

“Manufacturers see consumers increasingly demanding smartphones, because of their better understanding of the value that a smartphone delivers,” says mobile devices practice director Kevin Burden.

The result: more and more smartphones and conventional phones are priced in similar ranges. According to ABI Research, by far the greatest increase in smartphone shipment volumes over the next five years will be found in the $100-200 price range.

But what happens if new government regulations bar the practice of phone subsidies, and consumers must pay full retail price for new high-end models? Less buying.

On the other hand, there will be more buying of cheaper models. That doesn't necessarily mean smartphone sales overall will plunge, but it will be far more difficult to sell massive quantities of new high-end devices, as few consumers have shown any willingness to spend $600 for unlocked devices.

Of course, there are other possibilities. Perhaps some providers will be able to create new payment models, such as offering installment plans for purchase of new high-end devices. A few might consider other subsidy programs that serve up ads and default applications in exchange for lower-cost devices.

Advantage also will be gained by manufacturers that can wring out costs, offering high-performance devices that just cost less to begin with.

What seems clear, though, is that mandated sales of full price devices, sold without contracts, will have massive impact on the take rate for high-end devices.

att&t, Verizon Change Contract Policies

Verizon Wireless and at&t say they are changing their contract policies, and will allow customers to make changes to their calling plans without automatically extending their contracts. at&t also announced it would reduce the fees consumers pay for breaking their long-term contracts. The moves come as Congress is debating legislation that require wireless companies to prorate the fees they charge customers to cancel their cellphone contracts.

The bill would also force companies to allow customers to make changes to their calling plans without automatically extending their contracts. at&t says it will replace its $175 cancellation fee with a prorated system allowing customers to pay less if they are near the end of their contract. at&t also says that it will allow customers to make changes to their calling plans without having to extend their two-year contracts with the company.

Verizon Wireless has prorated cancellation fees for nearly a year, but last week it also began to let customers change their calling plans without extending their contracts by a year or two.

Contracts obviously makes sense for carriers as they smooth out revenue, lock in customers and allow discounts on phones. But a move away from that model seems to be likely, at least in part. The iPhone pioneered a new model where consumers pay for their phones without subsidy. In Europe consumers already can buy phones without being locked into service with any particular carrier at all. So it seems likely that consumer pressure will create demand for no-contract service, if not for bigger changes such as unlocked phones.