The three big wireless operators in the U.S. have all completed their fourth quarter 2022 earnings reports. And the analysts at LightShed Partners are calling out smartphone upgrade rates at these operators.
The analysts — Walter Piecyk and Joe Galone — note that people are keeping their smartphones longer than they used to. They said T-Mobile, AT&T and Verizon all reported notable declines in their smartphone upgrade rates in Q4.
“T-Mobile’s decline was the most dramatic,” wrote LightShed. “Its upgrade rate plummeted to 3.9% from 5.8% last year. That drove a 28% drop in the number of phones it sold in Q4. In fact, T-Mobile sold fewer phones in Q4 than it did in Q3. We don’t recall that ever happening before.”
It’s interesting that upgrade rates declined at AT&T, as well. That operator raised prices on some of its lower-tier plans in 2022, and made a concerted effort to convert those subscribers to newer plans, which logically often causes people to upgrade their phones.
AT&T’s CFO Pascal Desroches recently said that in 2022, “Our fastest growing plans are our higher-tier plans. The uptake to the higher-tier plans was a little bit better than we anticipated.”
Another variable is phone payment plans.
AT&T, and more recently Verizon, have begun extending the length of phone payment plans from two years to three years. “We suspect T-Mobile won't be far behind,” wrote LightShed.
By extending the length of phone payment plans, carriers benefit from reduced churn. Customers who are paying off their phones are more likely to stick with their current provider. But the downside is that these customers don’t give much thought to upgrading their phones, or their plans, during their phone payment periods.
The U.S. carriers finally embraced eSIM in 2022, which makes it easier for subscribers to churn from one carrier to another without having to manually switch SIM cards.
But this might result in people keeping their existing phones even longer. They no longer have to visit a retail store to switch providers. And visiting the retail store is where they would be up-sold to a newer phone.
So, eSIM could have the negative effect of increased churn without the opportunity of selling more phones on payment plans and upselling to higher-tier plans.
Apple and Samsung
The fact that people are keeping their phones longer is not good news for Apple, which reports its earnings this afternoon. Apple also had to deal with major factory disruptions in China during its latest quarter, which are predicted to dampen its iPhone sales.
LightShed wrote, “The largest operators in the U.S. alone sold over 115 million phones in 2022, and we believe Apple has north of 50% market share. Qualitatively, we believe the declining upgrade rates in the U.S. provide a valid indicator to replacement cycles globally.”
Yesterday, Samsung unveiled its latest line of smartphones, the Galaxy S23 series.
Unlike Apple, the new Samsung phones do not include any mobile-to-satellite connectivity.