US consumers need more than incremental gains from 5G

The last few years has seen an increasing number of consumers hold onto devices for longer, and the trend does not seem to be changing right now.

According to research from NPD, the second-half of 2018 saw the number of consumers in the US holding onto devices for longer increase yet again. The global slowdown in the handset market has been well documented, and this report demonstrates the difficulties users are having to dig deep into pockets to fork out for much the same.

“Rising price tags, extended longevity of new generation devices, and lack of innovative features beyond imaging enhancements, are a few factors reducing consumer motivation to upgrade,” said Brad Akyuz of NPD.

“The emergence of 5G could help to accelerate upgrade cycles, as consumers will look to leverage faster speeds for mobile entertainment, but despite strong consumer awareness, this is expected to be a longer-term result.”

When asked how old devices were, 29% of US consumers said at least two years old. Less than 20% of the respondents indicated they were ready to upgrade their device in the first-half of 2019.

This is perhaps not the news many in the industry were looking for. 5G is supposed to be a shiny new red ball to get the consumers excited, but NPD does not appear to believe it will be enough to turn current trends.

The issue which many in the consumer world seem to be facing is a lack of innovation. New devices are appearing each year, but there doesn’t seem to be anything new. The camera is better, the battery lasts longer, the device is lighter and shinier. But these are all incremental upgrades perhaps not justifying the price increases. Unfortunately, 5G seems to be falling into the same trap.

What does 5G offer you according to the telcos today? Faster download speeds. An improvement, but not exactly the breakthrough many were hoping for, especially when you consider the incredibly limited coverage maps. It is being sold as another incremental upgrade right now, and that clearly does not get the consumer excited anymore.

Heading back to the research, only 33% of consumers stated they would have an interest in purchasing a 5G device when it become available. Note the word ‘interest’ here; the actual figure is likely to be a lot smaller when the realities of handing over money come into play.

Although these reports are far from gospel, they do indicate market sentiment and give the industry a nudge in the right direction. 5G is being sold as an incremental upgrade on speed alone and that doesn’t seem to be good enough. Admittedly, there is little more which can be sold at the moment, but telcos and the handset manufacturers will have to dig deeper into the creativity mines if they are to turn the trends of the last few years.

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.

Google wins FCC approval for gesture control tests

Google has finally won regulatory approval from the FCC to start testing the more advanced features of Project Soli, a radar-based motion sensor to allow the user to control devices through gestures.

The approval document, which you can read here, will allow Google’s Advanced Technology and Projects unit greater freedoms in testing the technology, which might look familiar if you are a fan of Tom Cruise’s Minority Report. Just when innovation is grinding to a halt in the smartphone segment, Google’s whacky scientists are working on something which could completely revolutionise the smartphone.

Project Soli initially came to be in 2015, though due to concerns the radar system would interfere with other spectrum users, power levels were limited. However, the waiver now allows Google to play with higher power levels while users can also operate the devices when on airplanes.

The idea is of course very simple. Radar sensors are in a small chip which features in the device, which detect hand and finger movements with high accuracy. Various different movements could be used to operate different features of a smart device, perhaps making the touch-screen redundant in the future. Check out the video at the bottom of the page for more details.

Interestingly enough, the FCC has not only decided Google is allowed to pursue this technology as there are no technical reasons not to do so, but also believes this project could be in the public interest.

“We further find that grant of the waiver will serve the public interest by providing for innovative device control features using touchless hand gesture technology,” the document states.

The last few years have been a bit of a baron time for smartphone innovation. Apple’s recent financial bombshell perfectly demonstrates this; not even Apple can rise above the mediocrity of innovation and grow revenues. This sort of innovation might just be what the smartphone segment needs.

And perhaps this is a sign of things to come; who knows what a smartphone or smart communications device will look like in the future. Maybe users will revert back to having two separate devices; one specialised for entertainment and the other for communications. With gesture control and voice recognition technologies, is there any need for a screen if communications is the purpose? And if you don’t need a screen, do you need such a big battery? Devices could become significantly smaller and much more power efficient.

Over the last 20 years, mobile communications devices have changed significantly. From big to small and back to big, foldable, slidable and closable, through colourful, sleek and offensive, the concept of the mobile device has always been changing. Who knows what it will actually look like in ten years’ time…

Qualcomm points the industrial espionage finger at Apple

The long-running legal battle between Qualcomm and Apple has been stepped up a level as the chipmaker effectively accuses the iLeader of industrial espionage.

After Apple released the iPhone XS without a shred of Qualcomm technology inside, it was only going to be a matter of time before there was a reaction. In a filing with the Superior Court of California, seen by Bloomberg, Qualcomm suggests Apple leaked trade secrets to Intel to overcome performance and develop a more suitable alternative in its chips.

The accusations come as an amendment to a complaint filed in November, which again suggested Apple broke confidentiality agreements by sharing information with Intel. With the trial already scheduled for April 19, if the judge allows this amendment it could push back the courtroom date. Qualcomm are pushing for the timetable to remain the same however.

The filing states:

“Apple has engaged in a years-long campaign of false promises, stealth, and subterfuge designed to steal Qualcomm’s confidential information and trade secrets for the purpose of improving the performance and accelerating the time to market of lower-quality modem chips, including those developed by Intel. Apple used that stolen technology to divert Qualcomm’s Apple-based business to Intel.”

The initial complaint came from Apple blocking Qualcomm attempts to audit the iPhone maker’s use of Qualcomm’s trade secrets. At the time, Qualcomm suspected Apple was leaking information to Intel, though there was little evidence to support the claim. Apple had requested deep access to its software and tools, but with strict limits on how those products could be used. Apple’s reasoning was to improve the performance of the devices when using Qualcomm chips, though this is now being contested.

While this is the latest chapter in the long-running tale which has seen dozen of complaints and counter-claims lodged with the courts, it all comes down to a single issue. Apple believes the royalties charged by Qualcomm to use its technology in its products are too high. The original argument has blossomed into a complex tapestry, offering collateral damage to other companies in the supply chain, but keeping the legal team at both the technology giants in gainful employment.

Apple first began using Qualcomm chips in 2011, before eventually using them exclusively. In 2016, it started using some Intel chips though due to the difference in performance, it was unable to drop Qualcomm completely. After the legal back-and-forth started in early 2017, the relationship continued to deteriorate until the point Apple decided to exclusively use Intel chips in its devices.

While this is certainly a considerable customer for Qualcomm to lose it does not look like the relationship can be repaired. Reading between the lines, Qualcomm does seem to have accepted this and is looking to salvage something from the disastrous ending. For some, this could be seen as more pressure to force Apple into settling outside the courtroom.

That said, Qualcomm’s loss is Intel’s gain. Securing an exclusive supplier relationship with Apple is certainly a win for the business.

Apple warns of higher prices with looming Chinese tariffs

Apple’s relationship with the White House looks to be straining at the seams as the iLeader continues to criticise the impending trade war, while the President offers little knowledge of how supply chains actually work.

Using his favourite means to spread tripe, President Donald Trump took to Twitter to hit back at a filing make by Apple with the US Trade Representative. In the filing, Apple argues the tariffs would lead to higher consumer prices, slower economic growth in the US and Apple being exposed to higher competition from foreign rivals.

“Apple prices may increase because of the massive Tariffs we may be imposing on China – but there is an easy solution where there would be ZERO tax, and indeed a tax incentive,” the President wrote in a tweet. “Make your products in the United States instead of China. Start building new plants now. Exciting!”

While some of Apple’s products have been hit by the current tariffs placed on Chinese exports, the iPhone, which accounted for 56% of revenues over the second quarter of 2018, is yet to be effected. As a company which manufactures the majority of its good in China, Trump’s next tariff proposal, essentially covering everything coming out of China, would have a very negative impact.

On the surface, forcing Apple’s manufacturing process back onto US shores would be a political PR win for the President, though the move could be disastrous for Apple and iLifers. There might well be tax incentives in moving the manufacturing process back to the US, but cost of building the factories would be incredibly high, while labour costs are also much higher. Tax incentives might compensate for these incurred costs, as would a price hike to consumers, but there is a bigger issue at hand which the President doesn’t seem to understand.

Managing a supply chain in the manufacturing trade is more than simply understanding how much labour costs. It’s access to raw and manufactured materials, cheap energy and real estate and finally, skilled workers. Once the plant has been built, the transportation and logistics puzzle to access materials will have to be addressed. Finding the right plot will also be tricky, as real estate will have to be cost effective, but it will also have to be close enough to a large enough workforce. This in itself is perhaps the biggest challenge as important aspects of this workforce do not actually exist at scale in the US.

Precision tooling is an excellent example of one of these skills. Precision tooling is a trade which requires years of training, combining artisanal craftsmanship with precision engineering skills. Apple CEO Tim Cook pointed out a couple of years back at a Fortune conference China actually stopped being the low-labour market and instead has a skilled workforce which enables the manufacture of smartphones and other advanced electronics. There are of course cost savings to be made in Chine, but these skills are critical in the smartphone manufacturing industry, and simply cannot be created overnight in the US.

The risk for Apple when it comes to moving the manufacturing process into the US, isn’t simply the cost as President Trump is suggesting. There are immensely complicated supply chain issues which will take months and years to perfect, this was the case for China as well, but the manufacturing industry here has evolved with technology industry. Skills have been taken forward and adapted to the manufacturing process as more complicated techniques and processes become commonplace. The learning process in the US will have to be much sharper.

When you take these elements into consideration, the risk is much more than financial. Apple could probably absorb a couple of years of heightened manufacturing costs, such is the profitability of the organization, but what it cannot allow is for a glitch in the supply chain. This is an incredibly well-oiled machine which produces hundreds of millions of devices every single year. Poking, prodding, moving and shifting this machine will impact Apple’s ability to meet consumer demand.

On one side of the coin, this is not worst case scenario. Less products on the market create a sense of exclusivity, which is turn increases the value of the products. Many luxury brands limit supply to create this sense of exclusivity which inflates prices. Some in the accounting department might like this idea, but Apple is a different beast. Somehow, Apple has managed to create the image of an exclusive, luxury brand, while flooding the market with supply and still maintaining incredibly high prices. Its contradictory and defies logic in the branding and price game.

If there is money to be made, Apple will profit. If it can offer a customer an Apple product, it will make the offer. When there is an opportunity, Apple usually capitalises. However, this saga threatens to impact Apple’s ability to supply the masses with their iFix.

Most of the time, disagreements are about money. But President Trump doesn’t seem to understand anything more than surface complications here. Tax incentives and price hikes will not compensate for the massive issues the Apple supply chain could face.

Xiaomi taking big steps on the global stage

After taking the lead in the Indian market, Xiaomi has continued the solid progress by snapping up second spot Indonesia, another one of the world’s most lucrative markets.

According to estimates from Counterpoint Research, Xiaomi has collected second place in the market share rankings for second quarter shipments (22%), only trailing behind worldwide leader Samsung (25%). Indonesian smartphone shipments grew 25% annually and 5% sequentially during Q2 2018, partly due to seasonal demands, but also down to the consumer becoming more entwined within the digital economy.

“The overall tech ecosystem in Indonesia is more robust as compared to a year ago,” said Tarun Pathak of Counterpoint Research. “With smartphone users all set to cross the 100 million mark this year, it presents an opportunity for the players in the mobile ecosystem to tap the growing demand of digital consumption. Users have now started migrating from entry level smartphones to mid-tier smartphones which has increased the replacement rate over the past few quarters.”

Xiaomi might have had a bit of a wobble during the end of 2016 and the beginning of 2017, but that looks to be nothing but a distant footnote now. Aside from leading the Indian market for the last two quarters for shipments market share, progress in the Indonesian market provides an excellent foothold in a digital economy which will only go upwards. While other brands are scrapping to capture the minimal profits in the developed markets, the Xiaomi strategy seems to be focus on the areas where smartphone penetration is low. The massive profits might be years down the line, but patient brand-building is a proven strategy.

Offering users entry-level smartphones begins the relationship, and with a broad portfolio of mid-range devices, Xiaomi can take users on a journey to the much hyped digital society. With smartphone penetration increasing, data tariffs becoming cheaper and digital services becoming more prevalent, it won’t be too long before lives are dominated by the small screen. Creating the relationship with the consumer now will serve Xiaomi very well in the long-run.

The success of Xiaomi has been partly put down to the success of the Redmi series through both offline and online channels, allowing it to lead the sub-$150 device segment. This segment still accounts for more than 50% of the overall market, while the $100-$150 sub-segment was the fastest growing price band across the quarter. The price is starting to creep up, which will start to make Indonesia attractive to other brands who operate at the premium end.

Looking at the premium end of the market, Apple currently has less than 1% of the market, though owing to a globally renowned brand increasing this share once the consumer is ready to spend bigger won’t be much of a challenge; there don’t seem to be many markets Apple can’t dominate. Xiaomi is attempting to create a position for itself at the top-end of the scale with the launch of Poco, but it will have considerable work to do to make sure it can compete with the likes of Apple and Samsung at the branding game.

Building the foundations in the developing markets before scaling the customer up through the low- and into the mid-end device portfolio is a sensible way to do business. Xiaomi is making powerful steps on the global stage through gradual relationship building.

Consumers not convinced by the price-point of new smartphones – report

The smartphone is central to our lives, but it doesn’t seem like we are being bought by the latest fads as easily anymore.

According to research from Counterpoint (first spotted by the Wall Street Journal), the idea of buying a refurbished or second-hand smartphone is becoming more attractive to consumers, while refreshment cycles are getting longer. Such news could not be worse for a segment which is struggling with profitability and sluggish sales already. The report indicates one in ten devices now being purchased are refurbished models.

Of course Apple is generally excluded from such misery, though there have been rumours that the new iPhone X didn’t meet internal expectations. This is a brand which is usually able to contort it customers into all sorts of uncomfortable positions, but it seems not even the iCultists could swallow the $1000 price tag. This might be a worry for other brands who don’t have the luxury and robust brand positioning of Apple.

According to the research, refreshment cycles are up from two years, pushing towards three, while additional research from Baystreet Research suggests Equipment Installment Plans could also be a contributor to the misery. As these payments are hidden in monthly plans the consumer is less aware of how much a new device actually costs. With telcos becoming less inclined to push the subsidized device model nowadays, more consumers are leaning towards buying devices outright and perhaps getting a shock at the price. Realistically, refurbished or second-hand devices are almost as good, while substantially cheaper. It seems consumers are starting to accept this trade-off.

The iPhone X at $1000 is very expensive, as is Samsung’s Galaxy S9 at $840 which was launched at MWC this year, but what do customers actually get. There are few revelations when it comes to new flagship devices so what is the point in spending such extortionate amounts of cash. Refurbished devices are pretty much the same, unless you are a photograph buff but we question how many people there are who care that much about exceptionally detailed photos and videos.

The slump device manufacturers are in is perfectly demonstrated by the euphoria at MWC this week. Samsung might have launched its device, but HMD’s re-release of the banana phone, grabbed a lot of attention. This is the second year in a row where nostalgia have triumphed over the new and adequately demonstrates our point.

When we were at the event, Heavy Reading Analyst Steve Bell pointed towards graphene batteries which can be charged quicker and last longer as possibly the next big buzz for devices, while Light Reading’s Dan Jones is keeping an eye on the on-device storage improvements. Improvement to batteries is long overdue in the space while improved storage could drastically change the way content is consumed, stored and cached. Both areas could drastically improve performance of the devices.

These are two areas which could reinvigorate the refreshment cycle and get consumers excited again, but right now the trends are going the wrong direction for manufacturers who want to charge more for less value.

Apple rumoured to be ditching Qualcomm chips

A couple of months back we wondered when would be the breaking point in the Apple/Qualcomm relationship, and now reports are emerging that time is now.

It should be noted that these reports are guesswork from analysts as opposed to internal sources, though the rumours have been enough to send the Qualcomm stock price downwards. Nomura Instinet has predicted Apple will be dropping Qualcomm from its supply chain for 2018 in favour of a cheaper chip from Intel. The news sent Qualcomm share price down 6.5%, though there was a bit of a recovery in overnight trading.

Considering the dodgy track record Intel has had in the mobile space, this would certainly be a boost. Nomura Instinet estimates Apple would save in the region of $100 million should it shake up its supply chain. And while it might be good news for Intel and Apple, Qualcomm would suffer in the region of $400 million should the guess prove to be accurate. Qualcomm’s latest forecast already includes this possibility.

Of course such a breakup has been on the horizon for some time. Two companies cannot continually sue each other without causing some damage to the relationship. It was always going to be a matter of time before the two parted ways, especially when the lawsuits moved from IP disputes and onto cases which would have impacted sales. When Qualcomm wrote to regulators in China and the US trying to get iPhone sales banned, we couldn’t see any way back for this relationship.

Such a development would certainly be a bit of bad news for investors, and considering the intentions of Broadcom, there might be a few who become more interested in the hostile takeover bid. Should Apple be lost as a customer, the Qualcomm business will start to look less stable. It certainly isn’t the end of the road, but it is a major loss. Qualcomm investors are after the best possible position for their money, and considering Qualcomm’s issues over the last couple of years (fines, investigations, lawsuits etc.) this might be a good time to take an offer and look elsewhere to invest.

Another twist might be a reduction in the price Broadcom is willing to pay per share. It was only over the weekend a higher offer being tabled to acquire Qualcomm was rumoured, but should Apple be lost as a customer it might well be reversed. Sources cautioned Broadcom CEO Hock Tan could change his mind and this is certainly a factor which will be taken into consideration when putting a value on a business.

Perhaps there will be a couple of panicked phone calls over the next couple of days. Nail down the $80 share price which Broadcom is considering before they decide an Appleless Qualcomm is worth much less.