Mobile Market Offers a Few Bright Spots amid the Economic Gloom

There’s been a lot of talk recently about a “credit crunch” and even an impending meltdown of the economy. Things are certainly getting tougher: the German economy shrank for the first time in four years last quarter, and in the UK, the Bank of England recently warned that up to 2 million people could be out of work by the end of the year.

In the mobile market, people are certainly waiting longer to replace their phones. That’s perhaps unsurprising — as any mobile network operator will tell you, most people are still reluctant to use their mobiles for anything other than talking and texting. They see little point in changing a phone that does these things perfectly well.

Looking at our most recent research, I’ve noticed an increasingly polarised market. When people do change their phone, they’re either moving down to low-cost prepaid devices or being encouraged to consider more capable (and expensive) phones as operators try to keep higher-value customers by offering well-subsidised phones in exchange for renewing or taking out a lengthy contract.

Sales of prepaid phones are still robust, with ever-more heavily featured devices being offered at lower prices. A good example of this is at the higher end of the market, where this time last year Sony Ericsson’s 3.2-megapixel K800i sold well; this year, Samsung’s five-megapixel G600 can be bought for about the same price. Sales of very low-cost products (less than €50) are still strong, too.

At the other end of the market there seems to be a sustainable position for high-end smartphones, and the iPhone seems to be doing pretty well. General interest in such phones, combined with heavy subsidies by all operators, suggests that demand for feature-laden devices will stay strong, especially as they continue to be free (or close to free) on contract tariffs.

Inexpensive prepaid phones and high-end smartphones offer two bright spots in the worsening economic conditions. It’s mid-tier devices that seem to be losing ground, as shown by the recent poor performances of Motorola and Sony Ericsson.

As buyers tighten their belts, mobile phone manufacturers will undoubtedly see lower revenue this year. But I’m confident that the number of mobile phones sold in Europe will be similar to last year’s figure, even if the average price comes down.