LG Electronics' exit out of the mobile phone business is going to be felt across postpaid and prepaid sectors, but prepaid may be especially hard hit. Of course, if rivals have their way, it won’t be for long.
The South Korean handset manufacturer announced on April 5 that it decided to exit “the incredibly competitive mobile phone sector.” Instead, the company, whose legacy goes back to the Lucky-Goldstar days, will focus on areas such as electric vehicle components, connected devices, smart homes, robotics, artificial intelligence and business-to-business solutions.
The move was not entirely unexpected, as rumors had been floating that it would close or sell the phone business. In the U.S., rival Samsung, which is also based in South Korea, and Apple dominate the handset market for the postpaid sector, although it’s not the same in prepaid.
LG’s share in postpaid is minimal, with 5% or less with the national carriers in recent months, according to Wave7 Research. But in prepaid, “it’s a completely different situation,” said Jeff Moore, principal at Wave7.
For example, LG has more than one-fourth of the share at Metro by T-Mobile, according to Wave7’s reporting. “The Stylo franchise was enormous there,” he told Fierce, noting that’s due largely to its size, memory and stylus.
“The absence of LG will create a vacuum at prepaid,” Moore stated. “This is negative for the carriers, as they are losing a well-known OEM that they can use in negotiations with Apple and Samsung for better pricing and conditions.”
While the industry will feel LG’s exit for some time to come, there’s a “boatload” of other players lining up to take its place, according to Moore. Specifically, Motorola’s name comes to mind; it also offers a popular phone with a stylus, the Moto G Stylus. “I think Motorola is definitely one of the brands to watch,” he said.
Samsung is likely to win share with its lower-tier phones, and OnePlus is gaining share at Metro by T-Mobile. TCL/Alcatel could benefit as well.
Of course, a lot of the handsets that get promoted and sold by the carriers depends on the carriers themselves. TracFone, a big player in prepaid, is in the process of being acquired by Verizon. When it comes to carrier-owned brands like AT&T’s Cricket and Metro by T-Mobile, “there are plenty of vendors who are trying to get in,” said William Ho, principal analyst at 556 Ventures.
Boost Mobile’s situation presumably becomes more complicated with the exit of LG. T-Mobile has said it will shut down Sprint’s CDMA network by January 1, 2022, and millions of Boost customers still use devices that rely on that CDMA network. Boost’s owner, Dish Network, has said that significant device/chip shortages make it even more difficult to acquire compatible replacement handsets prior to the shutdown.
Casualties pile up
A lot of casualties are scattered in the mobile handset space. Once-familiar names like Siemens, Ericsson, Sony Ericsson and Palm are just a few of those that have come and gone. Mitsubishi even made phones at one point. Others are still around but in different iterations than their original forms, like Motorola and Nokia.
“There have been a lot of brands in the past,” said analyst Avi Greengart, president of Techsponential. “The phone business has gone through multiple stages and has been competitive the entire way.”
While U.S. operators are all about promoting 5G in the postpaid sector, it’s also not the same game in prepaid. “It’s getting there, but it’s not doing volumes,” Greengart said.
Right now, if somebody is buying a prepaid phone, they’re shopping on price and value, and “5G doesn’t deliver much value right now,” he said. “Below $200, we don’t have 5G selling yet.”