Caitlin Devore is watching her budget and eating out less these days. But when the 20-year-old student starts paying for her own cellphone...
Caitlin Devore is watching her budget and eating out less these days. But when the 20-year-old student starts paying for her own cellphone plan for the first time next month, she’s not planning to skimp.
“I really want the iPhone, which probably goes against saving money,” said Devore, who also considered the BlackBerry Pearl smartphone. Apple’s iPhone costs between $399 and $499, but Devore has used a cellphone since seventh grade and wants a device that can play music and browse the Web.
Consumers like Devore are expected to gird handset manufacturers against an economic slowdown in the U.S. Even with fears of a recession looming, the cellphone has become an item most Americans can’t seem to forgo. Eighty percent of the population carries a mobile device, according to industry figures.
“If a true recession hit the U.S. economy, clearly it would delay people from upgrading their devices,” said Robert Laikin, chief executive of cellphone distributor Brightpoint. “But, in my opinion, there would be a lot of other things people would give up before upgrading their devices.”
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Growth rates for the industry are slowing in the U.S., mostly because the base of potential new customers has shrunk. According to Citigroup, North American handset shipments are expected to increase just 5 percent this year, decelerating from 7 percent in 2007 and 10 percent before that.
This trend indicates “a more mature cycle in North America,” said Citigroup analyst Jim Suva.
The two-year contract cycle in the U.S., coupled with a typical handset life span around four years, effectively guarantees a steady flow of subscribers buying new phones.
But wireless carriers and handset manufacturers will have to fight harder to win customers, or to persuade existing ones to spend more money.
Analysts say they expect carriers to offer even bigger phone rebates if they sense a slowdown in disposable income. This would be positive for cellphone makers and consumers.
Service providers will “continue to use subsidies as a good lever for growth,” said Hamilton Sekino, a partner at Diamond Management & Technology Consultants. “In a tougher economic environment, you have to offer incentives.”
Last month, the country’s major carriers began offering unlimited plans for upper tiers of subscribers. The wireless companies also are heavily subsidizing sophisticated phones for mass-market consumers, hoping to capture more revenue from data usage.
Smartphones like the BlackBerry Pearl and the Palm Centro, which sell for between $300 and $400 without subsidies, are both available for $99 with a contract.
“The name of the game for 2008 and beyond is going to be getting consumers who already have experience with a mobile phone to replace their phone,” said Ehtisham Rabbani, vice president of product strategy and marketing for LG Mobile Phones. “The challenge for LG and other manufacturers is: How do we keep up with this more sophisticated consumer — how do we stay one step ahead?”
Rabbani said the “highest end of the market is just exploding,” which is a positive for the handset industry because deep-pocketed consumers tend to be the most resistant to an economic slowdown.
LG’s Voyager, an iPhone competitor with a touch screen and full keyboard, was sold out at Verizon Wireless for three straight months.
Not everyone is tethered to their mobile phone. Diane Sosa, 28, got rid of her data plan several months ago to curb her spending. “I was using my cellphone more than my landline, and now that’s reversing,” Sosa said.
Given the diversity in consumers, handset manufacturers have to be prepared with offerings at all segments. Motorola, which entered 2008 with a weak product lineup, will have a tougher time keeping up with rivals that have broad portfolios.
“Competitive intensity in the Americas will grow, so we don’t take it for granted,” Motorola Chief Executive Greg Brown told analysts at a conference earlier this month. “I expect it to be very rugged, particularly for the remainder of 2008 and into 2009.”