handset replacement cycle - final

International Comparison: The Handset Replacement Cycle

2www.reconanalytics.com | The Handset Replacement Cycle

International Comparison: The Handset Replacement Cycle

Roger Entner

Analyst and Founder

617.823.3363

[email protected]

June 23, 2011

mailto:[email protected]

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• Myths, outdated information, and sometimes plainly misinformed opinions about the U.S. mobile ecosystem are plentiful

• Mobile Future and Recon Analytics are committed to providing facts and solid analysis about the U.S. mobile ecosystem and how it compares to other countries in the world

• First in a series of reports and webinars, we are looking at the handset replacement cycle and its impact on innovation

www.reconanalytics.com | The Handset Replacement Cycle

International Comparison

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• Brazil South Americas largest mobile market• Canada A similar but different neighbor• Finland Highly developed Scandinavian market• France First market to outlaw handset exclusivity• Germany Europe’s largest wireless market• India Most rapidly growing competitive market• Israel Home of many wireless innovators• Italy Large, affluent market that is highly prepaid• Japan Leading wireless “Galapagos” market• Korea Home of some of the largest handset makers• Mexico Rapidly growing neighbor to the South• South Africa Africa’s most developed market• United KingdomDeveloped data market similar to the U.S.• United States Most advanced data market in the world


A Diverse Selection of Countries for Comparison

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• Operators have various options to compete against each other• Service price – voice and data• Technological innovation• Coverage• Quality of service• Customer Service• Handset portfolio• Handset subsidization


Competitive Options

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The rate at which existing wireless customers are replacing their current handset:• Does not take into account the addition of new handsets

• Is a critical measure because it:• Determines how engaged wireless customers are with

mobile services and devices• Establishes how competitive a market is through the rapid

adoption of new technology• Ascertains how quickly new and innovative hardware and

software are available to customers and thereby foster further usage and innovation


The Handset Replacement Cycle

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2007 2008 2009 20100

50

100

150

200

250

300

350

Countries with a slower Handset Replacement Cycle in months

Brazil Finland Germany India

Israel Italy South Africa


There are Significant Differences in the Length of the Handset Replacement Cycle

2007 2008 2009 20100

10

20

30

40

50

60

Countries with a rapid Handset Replacement Cycle in months

Canada France Korea

Mexico Japan United Kingdom

United States

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2010Prepaid Subscriber

Income in PPP$

Brazil 80.8 80% $11,239

Canada 33 20% $39,057

Finland 74.5 14% $34,585

France 30.8 30% $34,077

Germany 45.7 55% $36,033

India 93.6 96% $3,339

Israel 76.5 53% $29,531

Italy 51.5 87% $29,392

Japan 46.3 1% $33,805

Korea 26.9 0% $29,836

Mexico 39.6 86% $14,430

South Africa 38.2 80% $10,498 United Kingdom 22.4 54% $34,920 United States 21.7 22% $47,284

• Handset replacement cycle varies greatly by country

• Americans change their handset every 21.7 months or in less than 2 years

• Indians change their handset every 93.6 months or in slightly less than 9 years

• Prepaid subscription rates vary from 0% in Korea to 96% in India

• Incomes vary from $3,339 in India to $47,284 in the United States measured in PPP$


Rapid Handset Replacement Cycle Comparison with Key Drivers

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2010Handset Subsidy

Income in PPP$

Brazil 80.8 $67 profit $11,239

Canada 33.0 $529 $39,057

Finland 74.5 $84 $34,585

France 30.8 $379 $34,077

Germany 45.7 $473 $36,033

India 93.6 n/a $3,339

Israel 76.5 n/a $29,531

Italy 51.5 $351 $29,392

Japan 46.3 $556 $33,805

Korea 26.9 $499 $29,836

Mexico 39.6 $303 profit $14,430

South Africa

38.2 $1,309

profit

$10,498

United Kingdom

22.4 $660 $34,920

United States

21.7 $460 $47,284

• iPhones are a great handset subsidization case study

• Small number of SKUs allow reliable ASP calculation, which in turn allows handset subsidy calculation

• Interesting trends appear• Less affluent countries treat

iPhone and often phones in general as luxury products and price accordingly because subsidization cannot be recouped through voice and data plans

• More affluent countries treat the iPhone and other devices as every day products and price the device lower due to widespread willingness and financial ability to use voice and data plans


Handset Subsidization: The iPhone Case Study

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• A regression analysis computed the following formula

• r2 = .64 i.e.; the above formula explains 64% of the events shown in the data

• Without any other factors consumers will change their handset every 74.9 months or roughly every 6 years

• The impact of income and prepaid usage in a country has virtually no impact on the handset replacement cycle

• For every $10,000 income, the handset replacement cycle goes up by 1.1 month• A fully postpaid country has a handset replacement cycle three months shorter

than a fully prepaid country

• Handset Subsidies are a major driver for handset replacement.For every $100 in handset subsidy, the handset replacement cycle shortens by 8 months


Handset Subsidies Drive Handset Replacement Cycle

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• Through handset subsidies consumers enjoy a greater value for money experience than when paying full price

• Empirical evidence shows that consumers prefer subsidized handsets with contracts over full-price devices without contracts

• 1st Generation versus 2nd Generation iPhone is a good example

• Early termination fees are no significant impediment to replacing handsets

• Common contract in the U.S.: 2 years – handset replacement cycle 21.7 months• Common contract in Canada: 3 years – handset replacement cycle 33 months

• Through a quicker handset replacement cycle, consumers are able to take advantage of new capabilities quicker, such as:

• Higher speed networks• Larger screens• Faster processors• Better cameras• More storage www.reconanalytics.com | The Handset Replacement Cycle

Handset Subsidization Benefits

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• Innovation happens in new products and services

• Innovation really takes off when there is a large market that is constantly willing to try new handsets and take advantage of new products and services

• The more companies get rewarded through sales of their new products the more likely the are to innovate and the more likely it is for new companies to enter the market.

• New devices can take advantage of the newest network features and speeds that allow developers to realize new ideas and bring innovation to consumers

• This is a virtuous cycle where all participants benefit – consumers, device manufacturers, software developers, service providers, operators, and the government


Handset Subsidization Drives Innovation

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• Through rapid innovation caused by the fast handset replacement cycle in the United States, mobile devices are now• Handheld computers with a constant connection to the internet• More powerful than what NASA used to bring men to the moon

and back• Using built-in cameras that are more powerful than $10,000

cameras 10 years ago• Through the fastest handset replacement rate in the world, the

United States has become a hot bed of wireless innovation and• Leads the world in:

• the adoption of smart phones• overall data consumption• mobile application usage

• Last but not least: a multi-billion dollar industry


Tangible Consumer Benefits

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Roger Entner

Analyst and Founder, Recon Analytics

617.823.3363

[email protected]

Download the pdf report:

www.mobilefuture.org/page/handset-replacement-cycle.pdf

mailto:[email protected]

http://www.mobilefuture.org/page/handset-replacement-cycle.pdf

handset replacement cycle - final

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