Will we see a "super cycle" in the mobile phone industry this year, driven by 5G?
A "super cycle" is a marked rise in the sale of phones -- often driven by gotta-have-it innovations like super-slim designs or bigger screens -- that sits outside of the normal "my phone is old and/or broken" upgrade pattern.
And in 2020, the stage appears set for an upswing in phone sales driven by 5G. First, 5G networks are rolling out around the US and the rest of the world. Meanwhile, the cost of 5G phones is expected to quickly decline. And network operators are working to stoke desires with flashy 5G ad campaigns.
There is a lot at stake if 5G can spark a "super cycle." A jump in cellphone sales could generate billions of dollars in extra revenues for smartphone vendors like Samsung and Apple. And it would have serious implications for wireless network operators like Verizon and T-Mobile considering they could steal significant share if their 5G offerings are compelling.
But if you put this "super cycle" question to US carrier executives, their answers are unanimous in their ambiguity.
"In many respects, it just doesn't matter" whether there's a 5G phone super cycle, said T-Mobile's Mike Sievert during comments at a recent investor event. He said T-Mobile will gain market share in the US whether there is one or not.
"We'll see what happens," he said of the possibility of a jump in cellphone sales due to 5G.
Verizon's top consumer executive offered similar opacity. "Whether there's a super cycle or not, I'm not sure yet," said Verizon's Ronan Dunne at a recent investor event.
He said a 5G phone from the likes of Apple -- widely rumored to be scheduled for a fall release -- would certainly be a "catalyst" for a 5G adoption cycle. "But whether that's a super cycle or not, I'm not sure yet," he reiterated.
Wall Street analysts are similarly torn on the topic.
"We are not certain a super cycle looms," wrote the Wall Street analysts at research firm Nomura's Instinet. "We expect the $40-80 incremental BoM [bill of materials] cost to a 5G phone to be a barrier to adoption."
Indeed, the market's early 5G phones are far more expensive than most 4G phones.
'Good enough' phones
According to May projections from research firm IDC, global smartphone shipments faced another challenging year in 2019 as sales declined 1.9% from 2018.
That decline is likely due to several factors. First, the pace of innovation in phones has slowed in recent years, which has eased pressure on consumers keen to upgrade to the latest and greatest device. Further, the cost of phones has risen dramatically -- high-end phones from the likes of Apple and Samsung now routinely pass the $1,000 mark.
As a result, customers are holding onto their current, good-enough phones for longer and longer. T-Mobile's CFO Braxton Carter said last week that the operator's customers are keeping their phones for an average of three years -- much longer than previously.
This situation clearly affects smartphone makers, but it can also affect wireless network operators by reducing the reasons for customers to switch to other providers. Smartphone shoppers often consider changing their carrier when they buy a new phone.
Likewise, churn rates among wireless carriers in the US have fallen to all-time lows in recent months. Churn is the percent of customers who switch carriers during a given financial period.
5G anticipation
Because of the cooling of competition in the smartphone industry, 5G is being viewed as a possible reason for customers to buy a new phone. Whether 5G will actually provide new and unique services remains to be seen, but the fact that it's exciting and new could push early adopters to ditch their old 4G phones for a shiny new 5G gadget. US operators are certainly working to foster demand for 5G with multi-million dollar advertising campaigns.
Consumers, and some analysts, are expecting some of the 5G hype to become reality.
According to AppleInsider, Wall Street analyst Daniel Ives from Wedbush is preparing for "the highly anticipated 5G upgrade cycle in September," which he said will help propel Apple toward a $2 trillion valuation by the end of 2021. Apple typically releases its new iPhones in September.
Further, survey data from the Wall Street research analysts at Cowen indicates growing demand among Americans for a new phone. "When asked 'Do you plan on switching your current provider?' 17.7% of postpaid respondents answered 'Yes,' a surprising survey high following four consecutive quarters in the 11.5 -12.5% range," wrote the analysts in a recent note to investors. "With an onslaught of new 5G enabled phones coming to market in 2020 it appears the device refresh cycle could push industry churn levels higher in 2020."
And, at least according to Verizon's Dunne, it will be relatively easy for customers to upgrade to a 5G phone. He promised that the cost of Verizon's millimeter-wave 5G phones could fall to as low as $600 by the end of this year. Already companies like Coolpad have promised low-cost 5G phones in the months to come.
But that all still doesn't necessarily mean a 5G-driven "super cycle" is in the offing. "We are not yet convinced of 5G's immediate consumer utility," wrote the analysts at Nomura's Instinet.
— Mike Dano, Editorial Director, 5G & Mobile Strategies, Light Reading | @mikeddano
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January 28, 2020 at 09:02PM
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What Will Drive a 5G Smartphone 'Super Cycle'? - Light Reading
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