12/10/2009 9:54:00 AM
Two year contracts surge to 59% market share
The number of customers tied into two year contracts has surged tenfold in one year, according to new figures from GfK.
Two year contracts, such as those associated with Apple’s iPhone, represented a 58.5% share in October 2009 – up from 6.8% in October last year.
In July, market share for 18 month contracts and 24 month contracts was virtually equal, accounting for 49.7% and 47.9% respectively; however, 18 month contracts now hold just 38.8% share.
Two year contracts were not popular when they were first launched in 2007, with consumers cautious to commit for 24 months.
However, longer contracts have increased in popularity as smartphones become mainstream and operators look to claw back subsidies from expensive handsets.
Strategy Analytics analyst Phil Kendall said: ‘One of the knock on impacts will be how it affects the Sim-only market. Consumers with a two year old device are more likely to want a new handset and we might see Sim-only sales start to drop off.’
Meanwhile, CCS Insight analyst Ben Wood said: ‘There is no denying that for handset manufacturers, longer gaps between replacements is a challenge. They must try to generate revenue from other sources and make sure they retain their customers.’
Many handset warranties do not last the life of the contract. Strategy Analytics’ director of wireless practice, Neil Mawston, said returns rates on smartphones are starting to ‘ramp up’, and added that longer warranties would have an impact on profits.
Despite the increase in longer term contracts, it is unlikely that these will extend beyond 24 months. The EU recently passed a telecoms package that would cap contract lengths at 24 months if adopted in UK law.