September is going to be a huge month for the smartphone, with new devices from Apple, Samsung, Motorola and Sony expected to hit the market. But it won't be huge for the wireless carriers, which have had to resort to a costly summer of price wars to win over consumers.
Once, mobile networks like Verizon Communications (NYSE: VZ), AT&T (NYSE: T), Sprint Corp. (NYSE: S) and T-Mobile US Inc. (NYSE:TMUS) were synonymous with the hottest new smartphones. In the past, device exclusivity drove the carrier market. If consumers wanted a certain phone; they had to be on a certain carrier. The iPhone largely built this ethos when it launched in 2007, exclusive to AT&T. Many subscribers migrated from competitors -- Verizon in particular -- in order to get the hottest new device.
However, when Verizon began offering the iPhone, many subscribers migrated back, thus beginning the fight to hold on to customers with the latest gadget. Now that all of the best phones are available on all of the major carriers, and it has become clear that networks need a lot more than a shiny new smartphone to gain and maintain subscribers. What's more, most of the devices look and perform the same.
Are You iOS or Android?
Increasingly, its operating system like iOS vs Android or the handset brand that owns the consumer. “Consumers don’t particularly seem loyal to their networks at all. They definitely don’t see the networks as strong brands the same way that the do electronics brands,” Carolina Milanesi, Chief of Research and Head of US Business at Kantar World Panel told International Business Times.
“You have consumers say ‘I’m a proud Samsung owner’ or ‘I’m a proud Apple owner,’ nobody says ‘I’m a proud Verizon user.’”
Milanesi says subscribers are looking for two things from their mobile networks: better coverage and low prices. On a whole, customers do not complain about carriers’ portfolio offerings. But if a device does not work well on a network, or subscribers feel like they are spending too much on their service, they will move on.
What's left for the carriers is to compete on price or some nebulous measure of network performance, which is what you're seeing play out this summer. T-Mobile’s Un-carrier initiative, which has been the talk of the wireless industry for the past 18-months, has shed light on many of the problems subscribers have with their networks. Various new services introduced by T-Mobile has moved over 17 million users to the network. Previously, T-Mobile was trailing behind its competition in a distant fourth place among the major U.S. carriers, now it is close to surpassing Sprint in terms of numbers of subscribers. The network advertises such services as its early termination fee reimbursement program, which pays customers for the costs of ending a contract with another carrier.
The catch is that all this discounting is starting to hurt. ABI Research analyst Joe Hoffman notes that T-Mobile’s tactics have been a double edge sword as the network has been taking on extra expenses in order to promote customer acquisition but that is affecting its bottom line. Clues of its struggle can be seen in that the network raised the price of its unlimited data plan from $70 to $80 in March. Recon Analytics analyst Roger Entner says, while T-Mobile has been growing in terms of its subscribers, it has not been growing in terms of profitability.
Most of T-Mobile’s new offers have nothing to do with smartphones, and especially now, many are quite gimmicky, in an attempt to keep costs low on its part of the network. Its new Music Freedom program for example, allows subscribers to stream music from various applications without affecting their data, but streaming music does not use an exorbitant amount of data in the first place.
“Carriers need to be a little bit savvy as far as giving value to the consumers and giving something that the consumer will really appreciate because the smart consumer will know that doesn’t make a big difference to retail,” Milanesi said.
T-Mobile and Sprint in particular are putting aggressive price cuts into play in order to promote interest in their networks. Sprint has a new CEO, Marcelo Claure, who says the network will have some “very disruptive” pricing plans going forward. Sprint recently announced a new family plan, which allows users to have as many as 10 lines and share 20GB of data for $100 per month, pricing which undercuts all of its competitors. The caveat to this new plan is that it is not permanent; it will only be available through the end of 2015 and users must sign up by the end of September.
“They’re aiming to solve more of an immediate problem in terms of the number of users in order to look better for the next quarter,” Milanesi said. “We’ve not seen anything dramatic come out of these offers. There’s not been a true change in the way that prices are set.”
Such plans hint at a turn in the wireless industry where carriers offer the lowest prices they can for a limited time, a bit like cable TV. Subscribers are locked into lower prices for a short time; however, when time runs out they are free to shop around for the next lowest deal, which may not necessarily be on their present carrier. Notably, T-Mobile has a limited-time family plan similar to Sprint, which allows users to have as many as 6 lines with 2.5GB of data each (totaling 15GB) for $120, and wants to introduce a plan for up to 10 members soon.
New Spin On Exclusives
Smartphones are not completely out of the equation for carriers. Notably, Sprint announced its new device the Aquos Crystal on Tuesday. The device is made by Sharp Corp. (TYO: 6753), which is completely unfamiliar to the U.S. market in terms of smartphones. But the device includes striking features such as, a seamless display, a claimed three-day battery life and a $239 retail price tag. Sprint hopes the low price and unusual design of the Aquos Crystal will draw in customers, but it is likely to garner interest only from early adopters and smartphone enthusiasts.
Similarly, Verizon and AT&T are trying to put a different spin on the exclusive device. Where device variants come largely through color or storage capacity, a new device on these carriers varies by operating system. HTC Corp. (TPE: 2498) announced its HTC One (M8) for Windows on Tuesday, which is a version if its flagship, which usually runs Android that now runs the Windows Phone 8.1 operating system instead. At announcement, Verizon was named as its exclusive carrier; however, AT&T also announced that it would soon offer the device as well. Chances for this HTC One (M8) are slim, considering the Windows Phone system has an only 3.1 percent adoption rate in the U.S.
“Even if you may have exclusivity on one model that doesn’t mean the consumer won’t get [the same features] from another model,” Milanesi said.