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.

Mobile processing efficiency is key to sustaining secondary device market success

Telecoms.com periodically invites third parties to share their views on the industry’s most pressing issues. In this piece Alan Bentley, President, Global Strategy at Blancco looks at the success of the secondary device market but warns against data security complacency.

The secondary smartphone market continues to grow, delivering new revenues and new opportunities to every one of its stakeholders. In fact, according to Counterpoint Research, the market for refurbished smartphones is now growing faster than for new smartphones. A staggering 140 million used devices have now been collected for redistribution. Last year, according to Persistence Market Research, the secondary device market was worth US$19 billion, and is set to more than double in size and reach a valuation of US$44 billion by 2026. That’s impressive scale for a process that started to keep used old devices out of landfill (which remains a critical focus for the secondary market today).

Big business, but time is money

From an operator perspective, the secondary device market is big business. Revenues extracted by unlocking the latent value of old devices is one of the few revenue streams available to them which continues to grow. This is a big deal given how hard new revenues are to come by, and the cannibalisation that has impacted many of their core service revenues from voice, data and messaging.

Operators and OEMs that manage device BuyBack processes, either directly or through partners, can, on average, extract between $100 and $300 per smartphone according to its model, age and condition at the point of upgrade. Realising optimal value depends on how efficiently an operator can process a used smartphone. It begins at the point of collection, goes through diagnosis, repair and refurbishment before being prepared for re-distribution. Put simply, with mobile device processing, time is money. The longer it takes to process a used smartphone, the more of its latent value it loses. Operators, OEMs and the third-party logistics providers that serve them both are all incentivised, therefore, to make marginal gains at every opportunity to protect optimal value.

Efficiency matters, but not as much as customer data integrity

Operators, OEMs and third-party logistics providers have fine tuned mobile processing. While the process from device collection to re-distribution is very involved, it is not unusual to be able to process several hundred devices each day. Typically, the process includes automated device testing, identifying key locks and determining device value. It then quickly and securely erases data stored on each device using properly scoped hardware and configuration, all in line with the necessary certification guidelines. Ideally, each device will then be given a certified tamper-proof audit trail, backed by a certification of data erasure.

With so much focus on operational efficiency, there will always be a temptation to dispense with some of these key steps. At present, the secondary device market is light on regulation. In North America, the leading global market for used smartphone collection, there are the R2 standards. These unite the leading carriers, OEMs and third-party logistics providers behind some common rules – but they are not a mandate, merely guidelines. In truth, pretty much every player in the secondary device ecosystem is R2 compliant – they have to be in order to do business with each other. However, R2 guidelines were not created with the collection and processing of used smartphones in mind, leaving many to consider their relevance and applicability to the larger, much more significant ecosystem that exists today. For example, R2 states that performing a ‘factory reset’ on a device is sufficient in ensuring all data is fully erased. In some cases this is true, in many others it isn’t.

Not a time for complacency

Without a common, mandated and regulated rule book for smartphone processing best-practice, the ecosystem will be subject to abuse and malicious attack. Let’s be clear, the secondary device market has functioned perfectly well up until now. R2 and other standards have done their job, consumer data has, in the main, been preserved. The current ecosystem is made up of multiple stakeholders, who collect devices from various touchpoints and redistribute them to many other parties. Since the speed of device processing is the only critical success factor, and as more and more devices flood the market, the chances of data breaches or issues related to data misuse will become more and more likely.

If operators or OEMs want a lesson in the damage caused by data breaches and the misuse of customer data, they need only look at Facebook. Operators have built a strong sense of trust with their customers – they have historically been reluctant to offer freemium services in return for customer data that can then be resold. This leaves them ideally placed to capitalise on this goodwill, create a raft of new offers and partnerships and target their customers with new digital services. This opportunity will only exist if they remain diligent to all threats and focused on the responsible management of customer data. The secondary device market remains an amazingly lucrative and exciting opportunity for everyone, but only if it retains full consumer confidence – confidence that is built on trust and data integrity.

 

alan-bentley (002)Alan Bentley is President, Global Strategy at Blancco. He joined the company in October 2016 as VP of Sales, EMEA and more recently, has taken on the role of President of Global Strategy. In this role, he is responsible for overseeing sales efforts globally. As an industry veteran, Alan is responsible for leading the sales teams to develop sustainable and scalable revenue growth. Since joining the company, Alan 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.