As cellphone bills rise, Americans aren’t buying new phones

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New research points to the changing cycles of handset ownership. (Pixabay)

New research from NPD Connected Intelligence shows that Americans on average are holding on to their smartphones for 32 months, which is a significant increase from the 25 months that the firm recorded just one year ago.

That finding is notable when compared with new data from the U.S. Labor Department that was recently highlighted by the Wall Street Journal. According to the Labor Department’s data, the consumer-price index for wireless phone service increased 0.3% in June from a year earlier; that’s the first increase in that figure since July 2016. (However, it's worth noting that the CTIA pointed out that the Labor Department's figures fluctuate over time, and the overall trend in prices remains down.)

The recent findings from NPD and the Labor Department dovetail with recent trends among the nation’s wireless operators and the wider global smartphone industry.

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First, the nation’s biggest wireless network operators are clearly working to score more revenues by raising prices. Indeed, just this week Sprint introduced a pair of new unlimited rate plans that generally charge significantly more than the operator’s previous offerings. And that move follows similar price increases by AT&T and Verizon.

Separately, but in a related trend, carriers continue to push equipment installment plans (EIP) for smartphone purchases rather than through two-year subsidies. Meaning customers are no longer purchasing a free or $200 smartphone alongside a two-year service contract and then getting a new phone after that two-year contract is over; instead, they’re seeing the full price tag for the phone through their EIP fee and are paying that gadget off in monthly installments of $20 or $40.

Carrier executives have acknowledged how EIPs—alongside the rising cost of handsets—are pushing Americans to hold on to their phones for longer periods of time. "The consumer before really viewed the handset as disposable [through handset subsidies] … and with phones approaching $1,000-plus, what you're seeing is really an elongation of a handset lifecycle,” T-Mobile CFO Braxton Carter said earlier this year.

But that’s just part of the story, according to NPD. “One factor that has impacted the upgrade cycle is that carriers have tightened upgrade policies,” said NPD’s Brad Akyuz in a statement. “Many carriers require that customers fully pay-off their devices before trade-in, which has slowed down upgrade cycles for postpaid customers.”

But Akyuz said that the handset sales cycle may accelerate in the coming years. “With the debut of 5G networks in the coming years, OEMs and mobile operators will have the opportunity to educate consumers on the benefits of 5G services and convince them to upgrade to devices boasting a 5G chipset,” he said. “This 4G to 5G migration will ultimately result in the acceleration of the device upgrade cycle.”

Article updated July 17 with additional commentary.