Smartphones have been good for consumers, giving them the chance to access more data and information at all times. And they have been good for the wireless companies that have been making money off the increased data charges. But as adoption continues and usage increases, the industry may have to look for new models to keep its revenues up.
According to a new survey by PwC of some of the largest wireless carriers, the increasing number of people purchasing subsidized smartphones (in exchange for being locked into a long-term contract) will begin to weigh on the carriers’ bottom lines.
“Smartphones have delivered on the carriers' desire to drive new revenues from data,” Dan Hays, U.S. advisory wireless leader, PwC., tells Marketing Daily. “But it’s a little akin to the dog that caught the car. Now, operators are faced with ballooning data usage and they have to rationalize the economics of delivering large volumes of data with the realities of their already strained networks.”
The ramifications of shifting consumer needs and desires are already being felt. According to the survey, the average length of a postpaid (i.e., contract) customer relationship has dropped nearly a year from 2010 (48 months in the 2011 survey versus 59 months in the 2010 survey). At the same time, smartphone sales have increased to 48% of total device sales (up from 30% in 2010), and accounted for 51% of upgrades (up from 36%).
“In general, the wireless operators have been able to generate revenues from their investments in data networks. However, it’s requiring extremely diligent management of their phone [subsidies] in order to remain profitable,” Hays says. “As we see this decline in customer loyalty, it becomes a challenge for the operators because they have to recoup the network costs in a shorter period of time.”
As more and more customers turn to smartphones and tablets as another information-gathering device, wireless carriers will do well to emphasize digital ecosystem solutions over plans that stress minutes, Hays says. Consumers are already becoming less loyal to the “operator” and more loyal to the “operating system."
“I think the question now will be less about the phone itself and more about the ecosystem. Really, the bigger question now, is what can happen to disrupt those ecosystem plays,” Hays says. “That’s probably the greatest opportunity for the providers: to become a provider not of phones, but of connectivity in general.”
Finally, one area that stands to see significant growth in the future for wireless carriers will be those offering prepaid or monthly plans. According to the survey, prepaid services represented 29.2% of total service revenues in 2011, compared with 22.5% in 2010.
“Prepaid is going to be a very attractive pricing option for price-sensitive consumers as well as for secondary devices that may not always need to be connected to the cellular networks,” Hays says.
“We definitely think prepaid is going to have a big play in the data device market. … We [also] expect operators are going to start to introduce more multi-device plans to enable users to pool their data services across devices.”