We already knew the success of the Apple iPhone was phenomenal and you would imagine that could only mean positive things for the mobile market. However a new report points out the negative effects of this. Forget binge drinking, as it seems that the iPhone craze is going strong and could now be shrinking further growth in contract sales.
Instead of binging on alcohol it appears for many people the iPhone is the subject of binging but the results of this may not be what you think. For the first time, sales of wireless contracts appear to have slowed down over Q1 bringing concern to the wireless market in the U.S. Previously the wireless market had been the fastest growing sector in telecommunications and wireless contracts had been the most profitable, bringing in continued payments over long periods of time.
One of the reasons for this is said to be that iPhone sales were so successful last year that consumer appetites for wireless plans has been satisfied, according to Businessweek. If this is indeed the case then there will be less customers for the four major carriers, AT&T, Verizon, Sprint and T-Mobile to grab hold of and also the major smartphone manufacturers including Apple and Samsung will have to sell their devices to fewer customers, creating even more intense competition.
JPMorgan Chase analyst Philip Cusick told how the massive iPhone 4th quarter had sucked the life out of Q1 and described the market as “saturated.” Cusick went on to estimate that around 20,000 contract customers have been lost to wireless carriers over that first quarter. These losses will make it likely that the smaller carriers will suffer, as the larger ones will be more able to step up promotions to attract customers. Some carriers are already making losses on smartphone sales in order to lock customers in to a lucrative two-year contract and this would be likely to develop even further.
Subsidizing the difference between what the carrier has to pay for a phone and what they sell it at to the customer is already costing dearly. For example AT&T income margins have fallen to 15.2%, down from 30% in Q1, 2010. Another analyst, Tom Seitz of Jefferies & Co., also feels that contract user numbers may have dropped in Q1 this year. Seitz said, “The industry is maturing. Given that the pie isn’t growing rapidly any longer, it’s now a game of share- shifting.”
Both Cusick and Seitz say though that after the traditionally slow first quarter then contract sales may start to grow again. We should also bear in mind that prepaid market sales gained over Q1 and this means that overall the wireless industry still added users over that time.
It will certainly be interesting to see if contract sales of phones do start to grow again to negate the poor first quarter. What are your thoughts on the mobile market industry maturing and reaching what looks like saturation point? Send us your comments to let us know.