The Rhythm Is Broken

AT&T Claims There’s No Predicting the US Phone Market

Yesterday, in its results for the first quarter of 2017, AT&T stated: “The company is no longer providing consolidated revenue guidance primarily due to the unpredictability of wireless handset sales.”

Not long ago, some things in the US handset market were certain: Apple released a flagship smartphone in September and the average US mobile subscriber updated their phone every two years. The support mechanism was in place to move devices along in 24-month waves and it worked smoothly.

In contrast to AT&T’s statement, we believe the US market is changing exactly as we expected, with people holding on to their phones for longer than in the past. Our latest forecast projects sales of mobile phones in the US to drop by more than 2 percent in 2017 (see New Phone Forecast Highlights Transition in Technology Landscape).

As the subsidized-handset model that once created a reliable bond between carriers and subscribers fades into memory, much of the comfort of the relationship is gone. The device financing model that T-Mobile normalised a few years ago has thoroughly spread across the US market. Consumers in the US now pay for the device separately from the service plan, changing the nature of the financial arrangement. T-Mobile’s Un-carrier strategy offered a way for a second-tier player to leave a mark on the market. It has.

AT&T still subsidizes smartphones for a thinning percentage of post-paid customers, but it’s eager to point out that the number of subsidized subscribers is falling steadily. During its first quarter of 2017, the carrier provided subsidies for only 8 percent of phones activated as post-paid on its network. It reported post-paid activations of 4.2 million smartphones for the quarter, yet it sold only 3.5 million on its instalment plan called Next. AT&T subsidized 336,000 smartphones, meaning the remaining post-paid consumers either purchased their devices upfront or brought in a device from another carrier.

AT&T, like other carriers in the US, sees slowing sales as consumers hold onto their smartphones for longer. The 24-month upgrade cycle has been stretched considerably as subscribers come to understand the business model. Smartphones are valuable assets, although it didn’t seem that way back in the days when they were perceived to be almost free. The slow evolution of smartphones and the new transparency of their actual worth mean that subscribers are waiting longer for a better deal or a much-improved device, rather than rushing to buy the latest device every year or two.

Market demand isn’t the only factor affecting AT&T’s results: competition in the US market is fierce. The carrier reported a loss of post-paid customers for the first quarter of almost 200,000, although it gained more than 282,000 prepaid subscriptions. A few days ago, its largest rival, Verizon, also reported falling post-paid subscriptions, losing close to 300,000 post-paid customers. By contrast, T-Mobile gained almost 800,000 subscriptions for the same period. The mature US market has become a zero-sum game.

AT&T has told the US market what it already knew: the tempo of the past is gone. Some European operators will read AT&T’s statement with sympathy. Consumers in Western Europe have been changing their behaviour to longer replacement cycles for some time and the handset market has been slowly declining for the past few years. For example, we forecast that in 2017 demand for handsets in the UK market will be 30 percent lower than in 2012. This inevitable change in consumer behaviour is now beginning to affect the US too.

For more information about CCS Insight’s latest global mobile phone forecast, please contact us.