The Unintended Smartphone Tax

Prices of 5G devices resist falling in the US

Well into their third year of deployment, global 5G networks are rolling out much quicker than 4G did at the same stage. Clearly, the popularity of smartphones and advances in cellular chipsets have been the fuel for the accelerated pace. Device manufacturers began to migrate their phones from 4G to 5G capability as early as 2019, a full year ahead of schedule, and although the first 5G devices came with astronomical four-figure prices, that was to be expected for leading-edge tech.

Now, as the technology matures, 5G smartphones are available for as little as $200 in markets such as China. This low pricing is a welcome development that helps to lower the cost of entry into the new generation of mobile networks for the masses. But while the prices of consumer electronics are generally falling in most markets around the globe, the US remains a stubborn exception, with a high average selling price for 5G devices. Why is that?

Arguably, the US skews toward more expensive devices because of a distribution model that’s heavily controlled by wireless carriers. However, the answer really has to do with the 5G spectrum portfolio awarded by the Federal Communications Commission (FCC).

A collection of wireless spectrum is vital to mobile operators. Lower-frequency or longer-wavelength spectrum yields larger coverage areas, whereas higher-frequency airwaves provide most of the bandwidth needed for capacity and speed but at the expense of coverage.

As most operators worldwide harmonized their 5G spectrum at 3.5 GHz, their counterparts in the US had to contend with a dynamic of the spectrum-holding landscape that excluded this band from their portfolio. Instead, the major US carriers opted for a strategy of mixed 5G spectrum, featuring millimetre-wave frequencies at 28 GHz, mid-band airwaves between 2.5 GHz and 3.7 GHz, and frequency division duplex (FDD) low-band airwaves as low as 600 MHz.

This “layer cake” strategy may sound like the FCC is offering more choice to US consumers, but the reality is vastly different for phone-makers, because support for extra 5G bands creates challenges for the radio frequency front-ends of their phones. Ultimately, the added complexity of 5G networks in the US equates to higher cost for 5G devices. So compared with the rest of the world, the US is forced to pay an inadvertent penalty — or tax, if you will — for 5G capability.

Despite huge strides by leading component suppliers including Qualcomm and MediaTek in bringing down the cost of 5G modems, unfortunately the cost of the radio frequency front-end is going in the opposite direction.

Our teardown research has determined that the added cost of millimetre-wave 5G antennas alone increased the bill of materials (BOM) by more than $22, representing more than 7% of the overall BOM for a flagship phone like the Apple iPhone 12. Furthermore, the complexity of carrier aggregation between low-band FDD spectrum and time division duplex (TDD) mid- to high-band 5G spectrum, as well as support for hundreds of carrier combinations and permutations, adds considerable cost and complexity to the already challenged radio frequency front-end.

It’s true that with 800 MHz of millimetre-wave 5G bandwidth, blazing wireless speeds beyond 3 Gbps are possible in some parts of the US. Unfortunately, though, there’s a price to pay for this type of 5G leadership.

Join our free webinar on Wednesday 31 March as we draw on the expertise of our new Cost Benchmarking and Device Teardown team to explore the journey to low-cost 5G. Click the image below to register.