Is the secondary mobile device market ready for a 4G device deluge?

Telecoms.com periodically invites third parties to share their views on the industry’s most pressing issues. In this article, Alan Bentley, President, Global Strategy at Blancco, looks at anticipated 5G device sales forecasts and considers the impact that they could have on the secondary device market.

The global device market has been under criticism in recent years. Many industry commentators have bemoaned slowing levels of innovation when it comes to new smartphone functionality. Global OEMs have been trying to maintain high prices for premium high-end devices, despite minor improvements in features and technology. While on one hand, device prices have sustained themselves, on the other, consumers are keeping their old devices for longer and global smartphone shipments and sales have started to decline.

Global OEMs and operators have been looking to accelerate their sales figures. Both have pointed towards 5G as the catalyst to build much healthier pipelines and grow revenues. 5G promises greater capacity, richer content and faster processing speeds. The hope is that it will excite mobile consumers in new ways and persuade them to part with more money for the privilege of consuming it.

5G device demand is looking strong

The good news is that industry predictions seem to support these hopes. Only last week, industry analyst Canalys predicted that 1.9 billion 5G smartphones will ship over the next five years. Global volumes will increase from an anticipated 13 million devices this year, to a daunting 774 million by 2023. This suggests that the current period of smartphone upgrade inertia we’re experiencing will end.

However, the success of the secondary mobile device market will be a significant contributing factor to the success of 5G devices and network service uptake. Over the past few years, it has helped improve consumer affordability for high-end devices, while helping OEMs sustain high prices. In other words, if OEMs and operators hope to sell high volumes of 5G devices, they must also be ready to collect almost the same number of used 4G smartphones.

Secondary strain from primary market pain

There is a clear link between the success of the new smartphone market and the secondary device ecosystem. If the primary market stalls, so will the secondary market. The affects of this link have been felt over the past year. According to Counterpoint Research, the secondary market grew just 1% in 2018, compared to around 13% the year before. The primary reason was the 11% drop in new smartphone sales in the same period. If consumers aren’t upgrading, old devices simply can’t be collected. However, the secondary market still grew. Consumer appetite for 5G is reflected by the 5G device shipment forecasts and there is also increasing comfort for engaging in the secondary market, assuming data security standards remain high. This will lead to a deluge of 4G devices hitting the secondary market in the next 12-18 months and the supporting ecosystem needs to be ready.

Is the secondary market ready?

The commitment from every stakeholder within the secondary market ecosystem is clear. OEMs, operators and the logistics providers that manage buyback and trade-in programmes on their behalf, are investing significant time and money to scale secure device collection. While Canalys predicts that 582 million 5G smartphones will ship in 2022, Counterpoint Research predicts that less than half, just 220 million devices will be collected in the same year.

Canalys smartphone forecast

This feels conservative. Operators and OEMs are marketing buyback ad trade-in programmes very hard. Earlier this year, Apple’s Tim Cook openly stated that its iPhone buyback programme was central to its strategy of stimulating device sales and maintaining premium pricing. Several of the world’s largest operators are known to be predicting or expecting significant revenue from used device collection and resale this year (and in future years).

Most now advertise their buyback programmes on their website homepages and include the ability to trade-in used handsets for all new device purchases. There is also strong consumer incentive to engage in the process. Recent statistics from HYLA Mobile suggest that the secondary market returned more than $2 billion to US consumers that traded in their devices in the US last year alone. All secondary market stakeholders have significant incentive for the entire ecosystem to deliver.

More devices, more speed, more risk

The significant increase in 4G devices hitting the secondary market will drive greater efficiency enhancements across an increasingly complex supply chain. Mobile device processors will be judged according to a variety of factors. Perhaps the main one is speed – of device diagnosis, repair and resale. Technology advancements, including the use of AI and automation continues to drive through mobile device processing efficiencies. Mobile devices can now be processed in seconds, rather than minutes. This is vital in retaining as much of the latent value held in used devices as possible.

However, with greater speed comes greater risk, especially given the importance of maintaining consumer trust in data management practices tied to the secondary market. If consumers lack the confidence in operators, OEMs and logistics companies to keep their data secure, they won’t trade-in their old devices. What’s more, upgrade inertia will continue.

The mobile industry is dependent on 5G to grow revenues. This requires a healthy device upgrade cycle. It’s time for all parties in the process to play their part in ensuring that the secondary device market is booming, for a strong and secure future.

 

alan-bentleyAlan Bentley is President, Global Strategy at Blancco. An industry veteran, he joined the company in October 2016, and has worked closely with Blancco’s many customers and partners to implement data erasure solutions to mitigate security risks and ensure regulatory compliance. This gives him a unique insight into the market and business requirements driving the needs of today’s businesses.

Samsung dropped in the deep-end for Aussie smartphone lies

The Australian Competition and Consumer Commission has opened up legal proceedings against Samsung suggesting it made false, misleading and deceptive claims over water resistance.

The claim from Samsung is a relatively simple one; S10 devices are IP68 water resistance, meaning the devices are good for up to 1.5 metres for a period of 30 minutes. Advertising for the S10 also depict a number of different scenarios from swimming pools to the beach, suggesting the device performs effectively in different environments.

The ACCC believes Samsung did not test or know of testing to substantiate these claims, and therefore mislead Australian consumers through more than 300 advertisements.

“The ACCC alleges Samsung’s advertisements falsely and misleadingly represented Galaxy phones would be suitable for use in, or for exposure to, all types of water, including in ocean water and swimming pools, and would not be affected by such exposure to water for the life of the phone, when this was not the case,” said ACCC Chair Rod Sims.

“Samsung itself has acknowledged that water resistance is an important factor influencing Australian consumer decisions when they choose what mobile phone to purchase.

“Samsung’s advertisements, we believe, denied consumers an informed choice and gave Samsung an unfair competitive advantage. Samsung showed the Galaxy phones used in situations they shouldn’t be to attract customers.”

Samsung Pool

Interestingly enough, Samsung seems to have dug itself into a whole with this one. Despite suggesting to the consumer on billboards, social media and TV advertising, a statement on its website confirms the images are misleading:

not advised for beach or pool use.

Interestingly enough, phones which had been advertised as water resistant were sold at a higher price. This is all well and good is you fancy taking your phone into the bath but don’t plan on living any form of Australian stereotype; no beaches and no pools for Samsung users.

Unfortunately for those who believe the advertising and don’t have the eagle eyes to spot small print on websites, Samsung also denied warranty claims for phones which were damaged when used in water.

Despite the fact Samsung has clearly misled consumers about the performance of S10 devices in non-fresh water, the firm is standing by its marketing and plans to fight the case. This is a slightly tricky area however, as there is some flexibility build into advertising rules. No-one expects to get a burger which matches the images on McDonald’s adverts, but this exaggeration is accepted.

Samsung might be able to squeeze out of this situation and consumers might continue to be lied to. That said, people should be able to put their phone down for a couple of minutes if they fancy a dip.

Samsung surfboard

Apple CEO triggered by reports of design decline

When Apple’s famous head of design decided to call it a day last week, there was widespread speculation around what may have caused such a move.

The most Juicy gossip came from the Wall Street Journal, which wrote a piece contending that Jony Ive started the process of clearing off long ago and that it was motivated, at least in part, by CEO Tim Cook’s relative disinterest in the design process. This in turn demoralised Ive who, according to the account, became an increasingly distant figure at Apple Towers.

Tim Cook has always been known as an operations specialist with a particular talent for managing an efficient supply chain. Since he took over from the more creative, mercurial Apple founder Steve Jobs in 2011, these talents have ensured the company has gone from strength to strength in terms of revenue and profitability, but there has always been speculation that this has come at the expense of innovation.

That last truly disruptive move from Apple came with the launch of the iPad in 2010, but it looks like Ive was hoping the Apple Watch launch in 2015 would be a similar inflection point. While Apple has flogged quite a few of them and doubtless trousered a pile of cash in the process, there’s very little that differentiates the Apple Watch from its competitors and the category itself has failed to set the technology world on fire.

So it’s easy to see why a narrative that contends innovation at Apple is being suffocated with him in charge might trouble Cook somewhat, which seems to be confirmed by his response to the WSJ piece. Uncharacteristically he publicly took issue with the story via a statement sent to NBC News, in which he asserted it was at odds with his own perception.

“The story is absurd,” wrote Cook. “A lot of the reporting, and certainly the conclusions, just don’t match with reality. At a base level, it shows a lack of understanding about how the design team works and how Apple works. It distorts relationships, decisions and events to the point that we just don’t recognize the company it claims to describe.”

Grizzled Journalists soon recognised this as the kind of non-specific denial companies often send out when they want to cast doubt on the legitimacy of a story without calling out any specific inaccuracies. Cook is essentially saying he disagrees with the conclusions but then he would, wouldn’t he?

Ive’s departure doesn’t seem to have done Apple’s share price any harm, but it does increase the pressure on the company to prove it can still be a consumer technology trailblazer without him. While Apple hasn’t shown much evidence of this for a while, that lack of differentiation was largely put down to the maturity of the smartphone form factor and the openness of the component supply chain. If Apple still hasn’t invented anything revolutionary in a few years’ time, people now might pin the blame on Cook.

Understanding the collateral damage from Trump’s trade aggression

President Donald Trump might be back on friendly terms with China’s President Xi Jinping, but his efforts to kill Huawei’s business produced friendly fire, hitting companies based in allied nations.

This is the unintended and unavoidable consequence of a targeting a single company or country with sanctions and tariffs, the US’ version of an economic dirty-bomb; such are the complexities and wide-spread nature of today’s global supply chains, you are going to cause damage to innocent parties. We suspect Trump does not care, as long as his objectives are achieved, but here we’re going to have a look at the indirect friendly-fire.

The Nikkei Asian Review has broken down Huawei’s latest smartphone, the P30, listing off the individual components of the device and also giving an estimation of cost. Japan supplies the largest proportion of components for the device, 53.2% or 869 parts, while the US supplies 0.9% of the components and South Korea provides 34.4%. Interestingly enough the costs tell a slightly different story.

The financial output from Huawei is an interesting split. It is estimated that a P30 costs $363.83 to manufacture, with 38.1% of the expenditure remaining with Chinese suppliers. The 15 parts supplied by US firms account for $59.36 per device with Micron Technology collecting $40.96 for its DRAM chipset. Japanese suppliers gain $83.71 for every device manufactured, while $28 heads to South Korea and $28.85 to Taiwan.

What is important to consider when you are assessing the friendly-fire is the direct and indirect impact of Trump’s actions. The direct impact is easily measured; by banning US companies from working with Huawei you can see the financial detriment of losing a customer. If you go one stage further, you can see the indirect impact. By taking a shot at Huawei, less devices are being sold, therefore less cash is being paid out to every supplier.

The table below gives an overview of some of the international organizations which have been impacted by Trump aggression towards China:

Company Country Component Supplied Cost
Micron Technology US DRAM $40.96
Samsung South Korea NANDflash memory $28.16
Sony Japan Rear camera $15.15
Sony Japan Front camera $12.16
Skyworks Solutions US Communication semiconductor $8
Sony Japan Rear camera $7.6
Qorvo US Communication semiconductor $3
Alps Electric and Alps Alpine Japan Touch panel $3
Corning US Cover glass $2.7

Estimates courtesy of Nikkei Asian Review

What is worth noting is the aggression towards Huawei is temporarily on hold. At the G20 Summit this weekend, the US and China have made positive statements about getting trade talks back on track, though this would mean Trump would have to stop his campaign of terror against Huawei. Suppliers to the firm will be relieved, but you have to wonder whether the damage has already been done to the smartphone business.

Just like the telcos for networking equipment, consumers will want assurances the devices will continue to work over the lifetime of the product. As Google is a US firm, and therefore subject to the Entity ban, consumers were much less likely to buy a Huawei device when there is no guarantee Android will work as effectively and securely as it should.

The statements from the two Premiers are all well and good, but considering Trump’s opinion seems to change as often as the tides, how can anyone guarantee the effectiveness of the Android operating system over the course of the device’s lifetime? There are other factors to consider here, Huawei’s homegrown OS for example, but this is an unknown factor and consumers rarely trust the unknown en-masse.

This is where we believe the damage has already been dealt; it takes a lot to earn consumers trust but not much to lose it. Huawei has been gathering momentum in the smartphone market for years, and entry onto the Entity List might have set it back to the beginning. Rumours have emerged suggesting the company is preparing for a 40-60% decline in shipments for the remainder of 2019; how long will it take the firm to recapture these customers?

Apple considering a Chinese exit amid international tensions

It seems Apple does not consider itself immune from collateral damage, as whispers about a China exit are becoming louder and more plentiful.

For China, and those Chinese citizens who are dependent on Apple for their livelihood, the news will come as a shock, but this is a development which some have been expected for a while. According to the Nikkei Asian Review, Apple is considering moving 15-30% of its production capacity out of China.

This is a trend which we are starting to see pretty much everywhere. Supply chain management is a very difficult aspect of an international business, and while it might have looked attractive to take advantage of cheap labour in developing markets during yesteryear, it seems a concentration of operations is getting Apple executives twitchy today.

The quoted sources are suggesting diversification of the supply chain is a sensible way to manage some tensions floating back and forth across the Pacific Ocean.

In terms of the clues this development was on the horizon, it is worth looking back a couple of weeks. Foxconn executives have already said 25% of production is already located outside of China, and there is enough capacity to meet the demands of Apple as a customer should tensions have a negative impact on the Apple business. This appeared to be a largely unprompted statement, but perhaps the conversations were already happening behind closed doors.

What is also worth noting is that Foxconn certainly has some incentive to bend to the will of Apple executives; if it doesn’t have the capacity, a smart idea might be to spend some cash buying a company outside of China sharpish. Although not confirmed, Apple supposedly accounts for roughly half of Foxconn total revenues. If Apple wants to move production capacity out of China, Foxconn should quickly learn the moves to the new dance.

For the Chinese employees in the supply chain, this will be a very worrying time. Five million workers rely on Apple’s presence in the country, with Apple only employing 10,000 directly. Interestingly enough, there are now more named suppliers in China than in the US (41 Chinese firms vs. 37 US suppliers). What is worth noting is that China will remain the centre of Apple’s supply chain for the foreseeable future; shifting such a complex and monstrous operation would take a considerable amount of time, investment and planning.

Other countries would of course want to woo Apple, but China is a very attractive base for the iLeader. Not only does it have the necessary infrastructure, it has the skilled workers in place. 90% of Apple’s products are currently manufactured in China and replicating this successful operation will not easily be done elsewhere.

Although this would be a precautionary move from Apple, the threat is genuine. Huawei and ZTE have already shown there are heavy consequences if supply chains are too concentrated in a single market, and due to the aggressive actions of the White House it would surprise few to see retaliation from the Chinese Government.

On the supply chain side of things, Apple has been making other efforts to shift around operations. The firm has been working to move the production of some premium handsets to India in an effort to avoid the 20% import duties in the country. Apple has continued to struggle in India, partly due to the price conscious nature of consumers. Anything which can be done to reduce the price of handsets will be explored to improve market share.

Whatever your thoughts of President Donald Trump, you cannot argue the Oval Office is having a much more profound impact on the technology industry than previous administrations. Perhaps his actions will lead the Chinese semiconductor market grow, while the manufacturing and assembly operations will be spread into other Asian markets. Another couple of years and the segment could almost look unrecognisable.

Ericsson raises global 5G subscriptions forecast by 27%

In its latest mobility report, Ericsson has upped its forecast for global 5G subscriptions significantly thanks to everyone getting their act together quicker than it expected.

Ericsson now reckons global 5G subscriptions will hit 1.9 billion by 2024, 27% up from its November forecast of 1.5 billion. This is a response to the number of operators around the world that have flicked the 5G switch earlier than even Ericsson, which must have a fair bit of visibility into these things, anticipated. The company is revising a bunch of other expectations accordingly.

“5G is definitely taking off and at a rapid pace,” said Fredrik Jejdling, Head of Networks at Ericsson. “This reflects the service providers’ and consumers’ enthusiasm for the technology. 5G will have positive impact on people’s lives and businesses, realizing gains beyond the IoT and the Fourth Industrial Revolution. However, the full benefits of 5G can only be reaped with the establishment of a solid ecosystem in which technology, regulatory, security, and industry partners all have a part to play.”

Here are a bunch of charts taken from the report. In the first you can see how pretty much all mobile subscriptions are expected to be driven by 5G. The second shows the regional split, with North America expected to lead the way in terms of 5G subscriptions, while the third shows how smartphone subscriptions are expected to evolve between now and 2024. Lastly we have a look at the types of devices that will be launched to support the various 5G frequency bands.

Ericsson mobile subscriptions june 19

Ericsson mobile regions june 19

Ericsson smartphone subscriptions june 19

Ericsson 5G devices june 19

How is 5G getting on?

With the FCC announcing the results of its latest spectrum auction, we’re having a look at how the networks and supporting ecosystems are developing around the world.

Of course, it is critically important to deploy 5G networks, this is the most expensive and time-consuming aspect of the connectivity euphoria, but all the other cogs have to click into place as well. Without the devices and applications on the market to make use of the speed, you have to actually wonder what the point is.

But to start with, how many countries have actually hit the on-switch?

DISCLAIMER: We appreciate we haven’t covered every possible country, telco, product, offer and service, but that would be a monstrous task. If you consider this more of a summary of progress, you might not be disappointed.

US and South Korea take the lead, but not by much

It will have surprised very few that the US and South Korea were first to market, this was a prediction made years ago, though there were quite a few countries are following quickly.

Who made it first is a bit of a contentious discussion. The three major MNOs in Korea hit the on-switch first, though Verizon claims as the connectivity euphoria was only available for celebrity influencers, it should be considered the first. Starting on April 11, Verizon launched 5G in Chicago and Minneapolis. Since then more cities have been added to the mix.

What is worth noting is that this is mobile 5G. Technically both Verizon and AT&T launched home services in 2018, though as there were no mobile devices available it was nothing more than a misleading marketing plug. AT&T is now present in various cities throughout the US, while Sprint has launched in a handful of regions, making use of its 2.5 GHz spectrum, at the end of May. Completing the big four in the US, T-Mobile US will start to launch towards the end of 2019.

Sticking with North and Central America, the Canadian telcos have plans to launch 5G services in 2020, as does America Movil in Mexico. The rest of Central America will stagger in over the next couple of years, dealing with 4G connectivity challenges first.

In Asia, we have already discussed South Korea, but it is worth noting it is hoovering up subscriptions. Contrary to Verizon’s claim, the telcos insist it was a full-service switch-on, while the Ministry of Science and ICT said 260,000 5G subscriptions were added in the first month.

South Korea is also steaming along with network densification plans, claiming to have deployed 54,202 5G base stations by the beginning of May. This is where other nations might face more of a challenge, considering how concentrated the South Korean population is in Seoul and the size of the country.

China is a country which fits into this challenging mould. Despite being one of the technology leaders in the 5G world, it is not one of the fastest to market. China Unicom launched some test projects this year, with plans to launch in 2020, while China Mobile is planning to have 10,000 5G base stations by the same date. The big question is how quickly China can roll out hardware across such a vast geographical area.

Elsewhere in Asia, Japan’s telcos are also targeting a 2020 launch date, as is Viettel in Vietnam and StarHub in Singapore. The Indian Department of Telecommunications has 2020 plans across the industry, while Reliance Jio is being predictably aggressive, also suggesting it will launch its own device.

In Europe, it has been suggested the telcos will be slower off the mark than others around the world, though there are some bright spots defying the trends.

EE has already switched on its network in the UK, while Vodafone will follow next month. O2 plans to launch towards the end of 2019, as will Three. One of the issues facing the UK in the immediate future is the price of tariffs, which are notably higher than 4G. Once all four MNOs are up and running this might calm down, but for the moment, 5G is just for the wealthy.

Switzerland is a country which is seemingly leading the European charge however. Having launched 5G in April, Swisscom plans to have 90% of the population covered by the end of the year. Sunrise has also launched, while a third MNO Salt will be in hot pursuit before too long.

In Finland, Elisa Oyj first turned on its 5G network in 2018, and has been scaling the deployment to various different cities across the first couple of months as devices have become available. Telia has also launched in a handful of cities, while DNA plans to launch not only a mobile service, but also a FWA offering in Vantaa.

Orange in France and Telecom Italia in Italy are two other telcos which plan to launch across 2019, though the majority seem to be targeting 2020 for any 5G buzz.

The Middle-East is another region which is at the front of the 5G pack, and perhaps it should come as little surprise considering the wealth of the citizens and also the smaller size of the nations involved.

Ooredoo in Qatar is another telco which is claiming to be the first worldwide to deliver commercial 5G services, while it has also launched in Kuwait alongside Zain. UAE 5G became available via Etisalat UAE on May 30, while du is planning on launching in the immediate future. Bahrain will also see launches in 2019, according to the government, while it looks like it will be 2020 for Saudi Arabia, though many of the messages from here are confusing.

As you would expect, many of the 5G rollout plans in South America are somewhat being the curve, though there are some exceptions. Entel in Chile is targeting 2020, as is Telefonica in Columbia, while Brazil is also confident.

Africa is similar to South America, with some of the wealthier nations pushing ahead while the majority are still tackling the massive digital divide.

In South Africa, Vodacom and Rain are planning to launch 5G this year, while MTN hasn’t announced any timelines. Telecom Egypt and Nokia have reportedly come to an agreement to launch in 2019, although specifics are light on the ground, and Safaricom also have 5G plans this year. The Nigerian government has set 2020 as a target.

How long will we have networks without the devices?

Of course, the networks are largely redundant without the devices to make use of the connectivity euphoria.

Starting with the biggest device manufacturers, Samsung has already released its first 5G-compatible device onto the market. The Samsung S10 5G is available through most MNOs who are heading towards the finish line, while some other device manufacturers have signed exclusive agreements.

The second biggest smartphone manufacturer is somewhat of a different story however. With Huawei facing problems with its operating system, Google has paused the partnership thanks to the ban put on working with Chinese companies by the White House, many telcos are wary of selling the devices. In the UK, for example, both EE and Vodafone have removed the Huawei Mate X from their websites, refusing to accept pre-orders until the issues have been clarified.

Apple is one brand which is sitting out the first wave of 5G smartphones, though this is hardly a surprise. This seems to be the strategy from Apple in many different areas; you don’t necessarily have to be the first but be the best. By the time Apple comes to launching its own device, the initial bugs and bumps will have been identified (and hopefully corrected) to deliver the experience which consumers have come to expect.

Looking at the best of the rest, Motorola might have been one of the first to market, but it has fallen out of the headlines since. The issue was the 5G component of the device was a module which could be clipped onto a standard smartphone. Why would anyone consider such a device when there are better alternatives?

The OnePlus 7 Pro has launched exclusively with EE in the UK and Elisa in Finland, while the LG V50 ThinQ looks like a very useful device targeting multi-taskers and gamers. The Oppo Reno 5G and Xiaomi MI MIX 3 are also available.

There are also various connectivity plug-in hubs, smart home appliances and FWA devices which are either currently on the market, or soon to be, available for consumers. The issue which many will face over the remainder of 2019 and early 2020 is a tsunami of devices which will be compatible with 5G. All of these devices will be fighting to attention, so be prepared for 5G to be plastered across every billboard, radio message, TV ad and double decker bus.

What to do on the impossibly fast phone

This is the issue which many will face over the coming months; you have the device, you have the 5G contract, but what’s the point?

In some cases, it does make sense to have a contract without the applications. In central London, for example, when 4G networks are congested, 5G will address a challenge. However, many will be hoping for more.

There are some interesting ideas floating around. Most will focus on faster download speed, though this is largely redundant. If you can get speeds of 100 Mbps, 80% of it will largely be data headroom as there are few applications currently on the market (and applicable to the everyday user) which would require the full-potential of 5G.

In South Korea, telcos are offering customers add-ons to reduce latency. It would be considered a premium, and a very niche service to offer, but for gaming enthusiasts this might be appealing for an extra couple of quid each month. Real-time gaming, VR, immersive content, these are applications which are most relevant today, but it won’t be long before others emerge.

The killer 4G application did not appear straight away either. It took time for the developers to play around with ideas, test out the potentially good ones and scale the few which were realistic. Right now, 5G might look like a solution without a problem, but it won’t be too long before we are all demanding the speeds which seem so unnecessary today.

Are telcos asking for too much cash?

This is the big question; how much do you charge for 5G?

On the one hand, it has cost the telcos a lot of money to roll out the networks. The bean counters will want a return on investment sharpish, encouraging marketing teams to push premium tariffs. However, when you look at the efficiency gains of 5G, it makes the delivery of connectivity much cheaper for the telcos, setting lower tariffs to encourage more people to upgrade might be a better long-term solution for pressures on the spreadsheets.

It does look like the telcos are opting for the more expensive option in the first instance however.

EE and Vodafone have announced their tariffs in the UK, and should you want to get a satisfactory amount of data for the month, you’ll have to send north of £70 a month. This would not be deemed as acceptable to most.

In the US, Verizon is offering customers the chance to upgrade for an extra $10 a month on more premium 4G contracts, while AT&T is charging $70 a month. T-Mobile US, the company most likely to disrupt the pricing strategies of this pair, has not made any announcements to date.

In South Korea, the tariffs are a little bit friendlier, with the option to get data allowances of up to 250 GB being a lot more expensive. Overall, there is little consistency, with different regions taking different approaches to both pricing and data allowances.

With only a handful of operators offering 5G connectivity, there is always a risk of pricing themselves out of the market. As more launch, the price will come down and, in a few markets, there will be disruptors running loss leader packages. To get a better handle on pricing, we will have to wait a while.

Apple poised to enter the foldy-phone fray

A patent for a new foldable phone has emerged in the United States Patent and Trademark Office, signalling Apple’s entry into the desperate battle for innovation.

Filed on March 28, the document describes an electronic device with ‘bendable or flexible layers’ to move towards creating a new form-factor for the iLeader. Although Apple has been relatively quiet in the foldable arena to date, it wasn’t going to be too long before the smartphone giant made some noise.

While this innovation might have appeared to be a flash-in-the-pan, the idea of a foldable device will keep imaginative engineers busy. The smartphone industry has been crying out for innovation for years, and while the initial introduction of foldable devices might have been a flop, there is certainly potential in the long-run.

Although the underlying theme of Mobile World Congress this year was the gradual movement towards 5G, devices always seem to wrestle some attention in the headlines. The return of Nokia devices snatched it in 2017, while a Matrix style device caught attention last year, but it was foldable devices in Barcelona this February.

samsung foldable phone

Samsung was the first to start talking about the concept last summer, while Huawei certainly attempted to steal some of the thunder. However, it was Samsung who won the race at Mobile World Congress, though the devices have failed to live up to expectations. Reviewers for a host of different media titles reported faults with the devices, leading to numerous delays and recalls. The official release date was supposed to be May, before being pushed back to June, and now it seems there might be further delays with no concrete date in sight.

And while Samsung is facing engineering difficulties, Huawei’s are much more troublesome. A major disruption to its global supply chain, owed to the White House, puts the prospects of many devices in question, most notably due to Google putting its relationship with Huawei on pause.

The foldable devices segment has seemingly ground to a halt, fading from the headlines after claiming its 15 minutes of fame.

And then Apple makes its debut on the folding stage.

If we were being honest with ourselves, this was always going to be nothing more than a minor set back for foldable devices. The smartphone segment has been searching for innovation, with the last genuine disruption coming back in the noughties when Apple ditched the keyboard. A lack of buttons might have disturbed consumers at the beginning, but who would go back to that era now?

The same will be said about foldable phones. Once they enter the market, consumers will find reason to like them. Whether it is multi-taskers on the tube, gamers with more real estate to enjoy, or watching movies on a wider screen. There are usecases now, and new ones will emerge in the coming years. The devices might not intrigue everyone, but there will be a place in the technology.

It also gives smartphone manufacturers a reason to ask consumers to spend more money. Right now, consumers are being asked to spend extortionate amounts on incremental upgrades. Demand has gone down, we have seen this in the smartphone shipment figures each quarter, and the refurbished devices market is growing steadily. Consumers are sick of taking out second mortgages for much the same.

And when Apple decides to showcase its own device, you can pretty much guarantee there will be queues around the corner.

Line at Apple store

Apple is the master of creating and cultivating a brand identity and loyalty amongst its customers. Some might say the closed ecosystem is forced loyalty, but many Apple customers life and breathe the brand. There are a few faltering at the moment, you can see that through Apple’s sliding market share, but they may well be brought back by genuine innovation.

However, what is worth noting is that Apple does make excellent products. It would be unfair to credit all of its success to the marketing department; the engineers do chip in as well.

Most of the time the specs are market leading and the reviews are some of the highest around. Apple’s engineers live through a culture of perfection, dating back to the leadership of Steve Jobs, which is represented through the price of the products and the loyalty of the customers.

One of the issues which all manufacturers will face is the thickness of the phone. Smartphones are increasingly becoming sleek devices, incredibly light and not that intrusive. Foldable devices which we have seen so far certainly do not fit this description. Such is the challenge of doubling the size of the screen, and the power demands which accompany this real estate, these devices are bulky. It might turn off some consumers.

LG has come up with an interesting concept, somewhat of a halfway house, with its latest device, the V50ThinQ 5G. The smartphone can be plugged into a separate module, which includes a second screen. This product effectively has the same advantages of a foldable screen, double the screen space, but the phone can be taken out of the module for everyday use. It isn’t the full-blown promise, but it is an interesting addition.

fznor

Another minor irk for some reviewing the devices is that they are not completely flat. Even when fully extended, there is still a slight bend in the screen. This is really nit-picking, as it won’t impact experience that much, but hyper-techno-enthusiasts will pick on this minor ‘flaw’ in the devices.

Price is another consideration; can Apple create a product which is friendly enough to the wallet? Apple customers are of course used to paying a premium, but foldable devices could take this to a new extreme. Huawei’s first foldable device was priced at $2,600 while Samsung’s was $1,920. Apple is traditionally more expensive than these two, but that would surely be too much to ask of customers.

The second-wave of foldable devices are likely to be cheaper, and soon enough economics of scale in the manufacturing facilities will kick-in. But whether smartphone manufacturers are pricing themselves out of the market remains to be seen with future launches.

Finally, the durability of the devices needs to be questioned. Smartphones are already delicate pieces of kit, just look at the number of cracked screens which are being carried around today, and introducing a fold introduces another weakness for the clumsy and drunken to take advantage of.

These are a challenges Apple engineers will have to consider if it wants to woo its followers back into line.

That is not to say Apple customers blindly follow however. Not only have you got some switching to more price-friendly alternatives, you have to remember how long it took the Apple Watch product line to gain traction. Even now some might say this is a product line which is struggling to live up to the promise.

But Apple is Apple…

If anyone can crack the foldable devices market, Apple would certainly be a sensible bet.

EE 5G hits the ground running

Sneaking in-front of Vodafone to debut on May 30, EE’s 5G proposition will be launched across six cities in the UK with a range of different devices and interesting bundling options.

While the launch of the network was announced last week, BT Consumer CEO Marc Allera gave much needed colour to the deployment plans at a media event in London and to be fair to BT and EE, it does look pretty impressive.

From today, customers will be able to pre-order bundles from EE as well as choose from multiple devices. The Samsung Galaxy S10 5G will of course be one of the options, though customers will also be privy to exclusive deals with the Samsung Fold, Oppo Reno 5G and the LG V50 ThinkQ, as well as Huawei’s FWA device and the HTC 5G Smart Hub.

While all of the devices certainly promise a lot, the LG approach is perhaps the most interesting. The device itself is pretty much as you would expect, though a separate module is also included, allowing the device to be clipped in to add an extra screen (as you can see below). Head of LG Mobile UK Andrew Coughlin said the product has been designed with multi-taskers in mind, with each screen working independently of the other.

The device also has the potential to open up entirely new experiences when it comes to gaming.

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What you will not see over the next few months is a Huawei device launched in partnership with EE. Allera suggested the pause button has been hit on this relationship, due to the difficulties the firm is facing with its Android licence. If EE cannot guarantee performance of the device throughout the customers mobile contract, it will not partner with Huawei.

But onto the launch itself, six cities will experience the 5G euphoria on Day One, with another 10 added to the mix over the remainder of 2019. Building on the already completed work, EE plans to upgrade 100 base stations to 5G a month, taking the total to 1500 by the end of 2019.

“Today is Day One of our 5G journey, we are going to be the first in the UK and one of the first in Europe to bring our customers 5G,” said Allera.

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Always connected is not a new concept from EE, though it would not be a surprise to see the message ramped up over the next couple of months. With 4G, broadband, wifi and, soon enough, 5G, EE has a lot of connectivity assets to shout about. When you combine these different segments with the largest geographical 4G coverage of all the UK MNOs, this is a selling point which would genuinely interest our internet-obsessed society.

That said, advertisements will need a bit of ‘sexing up’ if they are to catch the attention of the mass market.

On the speeds side, it does look like EE will be launching its 5G network with the ambition of reaching 200 Mbps. However, the message will be more focused on reliability and consistent experience as opposed to peak speeds.

“Peak speed might be the headline, but it is not the story,” said Allera.

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Creative tariffs and bundling are where EE might be able to attract the most attention. 5G customers will not only gain access to faster download speeds and more reliable connections but will get the option to choose from various different zero-rating options to make the most of the connectivity euphoria. These options can be swapped out as the customer desires.

Finally, EE will be also be the exclusive partner of Niantec for the highly-anticipated follow-up to Pokemon Go; Harry Potter, Wizards Unite. Although Pokemon Go was a bit of a sham when it came to delivering on a genuine augment reality experience, the Harry Potter game looks much more immersive and truer to the definitions of AR. Considering the popularity of Pokemon Go, Niantec could certainly be onto another winner should it be able to nail the AR experience with this new title.

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What is worth noting, is this is only the first phase of the EE 5G strategy. The aim will be to have 5G present in 50 cities across the UK by this time next year, though in the first phase it will only be in the busiest areas. Although the geographical rollout will be quite limited, 8% of base stations will be 5G, these assets will deliver 25% of the total traffic running across the EE network.

The second phase of the deployment, starting in 2022, will see the rollout of EE’s brand new 5G core, as well as the introduction of new spectrum. This will be when the UK will be able to experience a genuine 5G network, with the prospect of cloud gaming, AR and immersive content living up to the promise. The final phase, 2023, will see the introduction of mission critical applications focusing on the low-latency angle of 5G.

Interestingly enough, despite all the criticism faced by Huawei in the press, EE will be launching its 5G proposition with Huawei at the core of the network. This is unavoidable and will only be temporary, EE will gradually phase out Huawei from the core, but it is a fact which has seemingly been overlooked or cleverly managed out of the public domain by the BT PR team.

5G is about to become very real for the consumer and soon enough there will be a battle between the MNOs to fight for attention. EE and Vodafone might be scrapping for the 5G lead right now, but this approach from EE looks very promising.

Apple investors hope short-term pain will lead to long-term gain

16% growth in the steadily growing software and services business seems to be enough to rally investor confidence in the face of declining revenues.

Perhaps this is another lesson Apple can teach the world; how to effectively manage investor expectations. Total revenues are declining faster than the service division is growing, but with a 5.4% jump in share price in overnight trading, Apple investors seem to be buying into the short-term pain, long-term gain message from the technology giant.

For some the earning call might have been a shock to the system, explaining the immediate 1.93% drop in share price before markets closed. Total revenues for the quarter ending March 30 declined to $58 billion, down 5.2% year-on-year, while iPhone revenues dropped to $31 billion, a 17.8% dent in the same shipment figures from 2018. But the services division is the glimmer of hope.

“We had great results in a number of areas across our business,” said CEO Tim Cook during the earnings call. “It was our best quarter ever for Services with revenue reaching $11.5 billion.

“Subscriptions are a powerful driver of our Services business. We reached a new high of over 390 million paid subscriptions at the end of March, an increase of 30 million in the last quarter alone. This was also an incredibly important quarter for our Services moving forward.

“In March, we previewed a game-changing array of new services each of them rooted in principles that are fundamentally Apple. They’re easy to use. They feature unmatched attention to detail. They put a premium on user privacy and security. They’re expertly curated personalized and ready to be shared by everyone in your family.”

Although the Apple DNA is not rooted in the software and services world, this has to be the future. Overarching trends are indicating hardware is becoming increasingly commoditized, refreshment cycles are growing, and consumers are less likely to pay a premium for trusted brands. Apple is a company which defied these trends for a period, though not even the iLeader could deny the inevitable.

This is the critical importance of the software and services division; renewed, recurring and new revenues to replace the increasingly difficult, demanding and diversified hardware world, which is epitomised by the dreary global smartphone market.

Although Apple recently decided against releasing shipment figures during its earnings calls, it is still breaking out the revenues associated with products. The iPhone, the segment which drove growth in recent years, declined by 17.8% year-on-year. Part of this can be pinned on changing consumer behaviour, though you also have to look at the individual markets.

In China, Apple has been struggling. Canalys estimate smartphone shipments in the market have declined 3% year-on-year for Q1, though the locals are turning towards domestic brands. In years gone, Apple was a brand seen as somewhat of a status symbol, though it appears this is a concept which is quickly dissipating as the firm only collected 7.4% of market share over the first three months of 2019, a year-on-year decline of 30%.

Total revenues for China have not declined quite as dramatically, a 21.6% year-on-on-year dip to $10.2 billion, though Apple is not alone. OPPO, Xiaomi and Vivo also saw their year-on-year sales dip, with only Huawei coming out on the up. Here, Huawei managed to grow its shipments by 41%, taking 34% of the Chinese market share for Q1.

Another challenging market for Apple has been India. The story here is more forgiving however, as this is a much more cash-conscious market. Apple will of course want to maintain it position as a premium brand, therefore India, despite all the promise it offers, is not tailor made for its ambitions. Until consumer attitudes shift towards more premium devices, Apple will struggle.

Globally the smartphone market has not been helping either. According to Strategy Analytics, shipments decreased 4% year-on-year for the first quarter, with Apple slipping to third place overall.

Market share Q1 2019 Market share Q1 2018
Samsung 21.7% 22.6%
Huawei 17.9% 11.4%
Apple 13% 15.1%
Xiaomi 8.3% 8.2%
OPPO 7.7% 7%

These figures are not the end of the world, but it is a demonstration of consumer trends. There might still be an appetite for purchasing new devices, though there is seemingly a preference for those brands which might are cheaper. Such is the minimal differentiation between brands these days, why spend a premium when there is little need?

However, there is hope for Apple. Consumers might be getting frustrated over a lack of innovation in the hardware space, leading to longer refreshment cycles and a preference towards cheaper or refurbished devices, but the introduction of 5G might well change this.

With 5G devices being launched consumers will have something different to think about. Although 5G-capable devices are certainly not a necessity, and won’t be for a considerable amount of time, the ability to shout about something genuinely new might reinvigorate consumer appetite for purchasing new, and premium, devices. This could work in Apple’s favour.

That said, with Apple unlikely to release a 5G-capable device until 2020, the next few quarters could also demonstrate similar year-on-year declines. Apple seem to be happy to swallow this decline, sacrificing the ‘first to market’ accolade, but this how Apple traditionally approaches the market; it doesn’t aim to be first, but best.

For the moment, and the long-term health of the company, this does not seem to be the central point however. Apple is seemingly attempting to slightly shift the focus of the business, becoming more reliant on software and services, and it does seem to be working. As you can see from the table below, the ratio is shifting.

Product revenue Services Revenue Ratio
Q2 2019 46,565 11,450 81.3/19.7
Q1 2019 73,435 10,875 88.2/12.8
Q4 2018 52,919 9,981 84.1/15.9
Q3 2018 43,717 9,548 82.1/17.9
Q2 2018 51,947 9,190 85/15
Q1 2018 79,768 8,471 90.4/9.6
Q4 2017 44,078 8,501 85.9/16.1

The results in the table above do look quite confusing, though you have to consider that Q4 is usually the period for Apple’s flagship launch, skewing the figures towards the product segment, while Q1 accounts for Christmas, again tilting the figures. The general trend is looking favourable for the software and services division.

The last couple of months have seen Apple release several new services which will continue to bolster this division also. Whether it’s the content streaming service, news subscriptions, credit cards, iTunes or the App Store, the business is driving more investment and attention to this strange new world of software and recurring revenues. The ratio should continue to balance out, though we strongly suspect it will never get close to parity.

Another factor which you have to consider when it comes to the investors is the monetary gain. Yes, the long-term picture is looking healthier, but the firm has also announced it is increasing the dividend by 5%. This will keep cash-conscious and short-term investors happier, encouraging more to hold onto shares despite the downturn in revenues. The team has also announced a share buy-back scheme, up to $75 billion, which could be viewed as another move to protect share price. Although these could be viewed as short-term measures to cool the market, the overall business is looking healthier.

Apple is recentring the business, with more of a focus on software and services. The firm has defied the global hardware trends for some time, but they do seem to be catching up. What is important however is the management team recognising hardware will not be a suitable floatation device for Apple in the long-run. To continue dominating the technology world, Apple will have to spread its wing further into software, just as it is doing.

And perhaps the most critical factor of this transformation; investors seem to have confidence in the team’s ability to evolve.