Verizon’s Ronan Dunne is facing a 5G challenge, and he knows it. His problem—one shared by other wireless providers across the world—is that he’s getting ready to start selling new 5G smartphones, but customers are no longer buying new smartphones like they used to.
Specifically, the “upgrade rate” in the wireless industry is lengthening significantly, meaning wireless customers are holding onto their phones for much longer periods of time than they used to. For example, wireless customers used to buy a new smartphone every one or two years, but now the average wireless customer is buying a new smartphone every three or four years.
That presents a significant challenge to Dunne and other wireless industry executives who are hoping to generate significant sales of 5G devices; the more 5G devices they sell, the more opportunities they have to recoup their investment in their 5G networks.
Dunne addressed this situation during an appearance at a Wall Street investor conference this morning: “It’s important to understand why the upgrade cycle is elongating,” he said.
Dunne explained that there are several factors playing into the situation. First, he pointed out that, thanks to carriers’ new equipment installment plans, customers have a better understanding of the full cost of their smartphone than they did under previous subsidized plans (plans that generally offered a new smartphone every two years for $100 or $200). Now, Dunne said, customers can see the full cost of their smartphone, which can run $1,000 or more, and they can also enjoy lower monthly bills when they pay off the cost of that gadget.
Another factor affecting the situation, Dunne said, is that customers are adding more devices to their wireless accounts.
“Traditionally it was one device and one upgrade cycle. Now it’s a multi-device environment and there's a multi-device cycle,” he said, explaining that now customers are upgrading their phones every two or three years, but are also upgrading other devices like smartwatches and tablets during that period as well.
Finally, Dunne acknowledged that "the race of innovation in handsets has started to plateau."
However, Dunne said that he believes 5G may present a new factor that could tip handset upgrade rates into Verizon’s favor. Specifically, he said that Verizon recently announced plans to sell a “high end” 5G device from Samsung in the first half of next year. He said that device will sit alongside the 5G Moto Mod for Verizon that will be available for Motorola devices next year as well.
“We’ll have two high-end [5G] devices in the first half of the year for customers,” Dunne said. “So I think that might well stimulate some upgrading in the market."
Dunne’s expectations are somewhat bolstered by new figures from Ericsson and Cisco. Ericsson recently forecast 250 million 5G subscriptions in North America by 2024. Cisco, for its part, said that it expects that by 2022, global mobile devices will grow from 8.6 billion in 2017 to 12.3 billion by 2022—and over 422 million of those will be 5G capable.