The more things change in smartphones, the more they stay the same

Verizon Samsung Galaxy S9 (Verizon)
The Samsung Galaxy S9 is among a new crop of more expensive top-tier smartphones. (Verizon)

Two big trends are impacting the market for smartphones: Customers aren’t upgrading their phones every two years anymore, and they’re now paying much more for their top-tier devices.  

But according to new figures from analyst firm BayStreet Research, smartphone aficionados are still paying roughly $325 per year for their device, despite these major changes to the very structure of the smartphone industry. To understand BayStreet’s conclusion, it’s worth digging into these two trends.  

First, wireless carriers are mostly unanimous in their discussion of smartphone upgrade periods: They’re getting longer and longer. 

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“Our average customer now holds onto a device for 30 months. And industry information suggests this could lengthen out some more yet,” said U.S. Cellular’s Kenneth Meyers during the carrier’s recent quarterly conference call with analysts, according to a Seeking Alpha transcript of his remarks.  

Meyers’ statements dovetail with comments from other carriers as well.

“What you're seeing is really an elongation of a handset lifecycle. Right now, it's about 34-35 months for a smartphone,” T-Mobile's Braxton Carter said earlier this year.  

That’s a big change from the wireless industry of just a few years ago, when virtually every wireless customer upgraded without fail to a new smartphone at the end of their two-year contract. Now, thanks in part to the widespread acceptance of equipment installment plans, customers are more aware of the full cost of their smartphones and are therefore hanging onto their phones longer. 

The second, and more recent, trend in the smartphone industry is the rising cost of top-tier devices. Take the new Samsung Galaxy Note9, released earlier this month with a 6.4-inch Super AMOLED display and a massive $1,000 price tag to match. That price tag lines up with prices of other high-end phones like the Apple iPhone X.  

The most expensive smartphone on the market a few years ago topped out at $700 or $800, but today some devices are as much as $1,200 or more. 

But, as BayStreet pointed out, these two trends—rising smartphone prices and lengthening upgrade cycles—are essentially canceling each other out.

“Between 2014 and 2018, U.S. smartphone upgrade cycles elongated from 24 to 36 months, while premium smartphone prices increased from ~$650 to ~$1,000,” the firm wrote in a recent report. “Interestingly, regardless of operating system, premium customers willing to hold onto their smartphone for three years, are on a per year basis still paying ~$325 per year.” 

Thus, the more things change in the smartphone market, the more they stay the same, at least for consumers. 

Importantly, though, BayStreet went on to point out that this situation might create challenges for Android smartphone makers—and opportunities for Apple. 

Specifically, the firm explained that most Android smartphone vendors provide software updates and support for devices for around two years. Apple, on the other hand, has shown some willingness to provide software updates and support to devices more than two years old.

“Thus, while Android OEMs are increasingly matching Apple’s pricing, we do not see them matching Apple’s customer care, likely leading to different price elasticity between Android and iOS,” the report said.

BayStreet’s Cliff Maldonado said that Apple continues to slowly but surely gain market share against Android in the U.S. market, and that this discrepancy could aid the iPhone vendor in its quest to continue stealing share in the maturing smartphone market. 

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