Phone and plan prices rising, subsidies waning? US carrier customers refuse to upgrade
Retail prices for high-end phones from the big three brands in the US - Apple, Samsung and LG - have been steadily rising from the very beginning of the race when the OG iPhone was introduced to our unsuspecting wallets. That one was $500 at launch, but now the iPhone 8 starts at $700, and you are left with a dollar. The first Samsung Galaxy was also priced $500, while the Galaxy S9 blasts off at $720. When we add expensive but popular "$1k phone" outliers like the Note 8 or iPhone X, we can easily explain the record average phone pricing increase registered last year.
At the same time, carriers are boosting data plan prices as if there is no tomorrow. For a while, T-Mobile sacrificed profits for relentless market share expansion, but its pricing is now only marginally better than what the big two are offering. Disguised as top-tier plans with extra perks are lines that approach the $100/month threshold, and at the same time carriers did away with the two-year subsidy model, giving consumers the choice to pay their phones on installments for the duration.
Well, updated research from NPD Connected Intelligence marks a boost in cell phone ownership duration in America to 32 months. Considering that just a year ago that number was 25 months on average, the difference is eye-popping. If it goes on like that, we will soon be holding onto our smartphones for three years instead of two, with all the implications for sales and profits in the industry.
Thus, wireless customers in the US are reacting to this triple whammy of rising phone and plan prices, plus the lack of subsidies, with the only logical action. They've simply stopped getting new phones as often as they used to. Tucked in a recent Labor Department report for the month of June was the consumer-price index for wireless phone service, which was up for the first time since July 2016, indicating that cell phone service is becoming more expensive, and the price wars are over. The result?
The US carriers are making it harder to upgrade, too, often requiring that the handset is paid in full beforehand, or they put you into leasing forms of payment, making prepaid the fastest path to more frequent phone upgrades, as you can see in the chart above. What can take the mobile industry out from the maturing market doldrums? Why, 5G, of course, according to NPD's Brad Akyuz: