Mobile operators are preparing for a shift in the smartphone market as hardware revenues continue to soften.
With the advent of operator upgrade schemes set to challenge the contract subsidy model, even more operators have started to anticipate the change.
‘Hardware is not as “sexy” as it was previously,’ O2 CEO Ronan Dunne (pictured) told Mobile.
‘Shipments are down on smartphones in the quarter for the first time ever. Handsets being sold by operators and on the high street at places such as Carphone Warehouse are falling.
Now some of that is because people are buying through different channels, and some of it is because there’s not that much new coming through the space. I think growth will be more about products and services with existing relationships rather than new customers.’
Apple is widely anticipated to be launching a UK-based upgrade programme in the autumn –a move that will pose a real challenge to the current customer relationship that exists. The Californian manufacturer’s latest results saw a slowdown in interest in the previous edition of its flagship iPhone device, with the pressure now increasing for the next model to prove a success.
Samsung launched its upgrade programme shortly before the rollout of its new Samsung Galaxy S7 flagship devices. Customers have been able to upgrade their Galaxy flagship on a yearly basis for just under £25 a month, which is significantly less than the cheapest operator tariffs.
The increased popularity of manufacturer upgrade schemes is a trend that O2 boss Dunne has been planning for, as he explained to Mobile: ‘Where Apple has moved the equation slightly – and perhaps where it’s up against us – is in the area of instalment credit. We showed the innovation of introducing O2 Refresh, now clearly O2 Refresh gives you a whole lot more than instalment credit. But it’s clear that manufacturers are looking at how they distribute their devices even more broadly and perhaps move away from or supplement the carrier. That’s a trend we’ll see globally.
‘From an operator point of view the market we’re planning for is one where it’s not simply going to be about the 60 days following the next iPhone or 60 days after the next Samsung Galaxy. It’s going to be more evenly spread, and certainly what we’ve seen is that while service revenues are growing, hardware revenues are soft, and I wouldn’t necessarily expect that trend to change.’
For Kester Mann, senior analyst-operators at CCS Insight, the arrival of upgrade plans could present an even more significant shift in the relationship between manufacturer and operator: ‘Some manufacturers’ moves to offer upgrade plans could be the prelude to the launch of embedded SIM technology in the long term. This would wrest further control away from operators by enabling customers to not only purchase a device directly from manufacturers, but then select the network and plan directly from the phone, removing interaction with the operator entirely. A decoupling of the plan from the device would also enable regular switching to take advantage of the most competitive tariffs.’