NEW ANALYSIS: The increasing number of smartphone models priced under the $100 mark is the main driver of consumer migration from basic and feature phones to smartphones.
GSMA Intelligence research shows that by 2020, around two thirds of all connections globally (excluding M2M) will be smartphones, illustrating the rapid shift away from basic and feature phones, which encompassed more than half of global connections in 2014. Data terminals (e.g, dongles, tablets, routers) make up the remaining share of connections (at just below 10 per cent in 2014).
Smartphones began as a developed world phenomenon…
In many developed markets, smartphone adoption is approaching the 70-80 per cent ‘ceiling’ at which growth tends to slow. Across the developed world, basic and feature phones represented only around a quarter of all connections in 2014, while only a residual share of the market is expected to run on these devices in 2020 as smartphones become ubiquitous.
While heavy operator subsidies have contributed significantly to this shift in device migration in the developed region, the availability of smartphones at the same price as basic and feature phones shows that the latter device category is rapidly becoming obsolete.
A study of Best Buy’s portfolio of ‘unlocked’ handsets in the US shows that the vast majority (84 per cent) of mobile phones offered in the country are smartphones (most of them running on Android), with a number of them priced at the same level as that of the remaining basic and feature phones – less than $100 (Average Selling Price, before discounts and subsidies). Around half of smartphones on offer are priced below $200, while 29 smartphones are priced between $47 and $80. Devices that form the portfolio of basic and feature phones on offer still hold a slight pricing advantage, but this may not be the case for long.
Figure 1 (click to enlarge): Best Buy USA, online portfolio of ‘unlocked’ handsets, December 2014
Source: GSMA Intelligence
… but the focus is shifting to developing economies
In 2010, the global smartphone connections market was equally distributed between the developed and developing regions. However, almost seven in every ten smartphone connections were located in the developing world in 2014. We expect that the rate of smartphone adoption will continue to increase over the coming years, driving the region to encompass four in every five smartphone connections globally by 2020. The wider availability of more affordable smartphones is an important factor behind this trend, however we expect that the transition away from basic and feature phones in the region will take longer as the availability of low-cost smartphones (below the $50 price point) is still limited.
As of 2014, less than a third of all connections in the developing region are smartphones, showing the large prevalence of basic and feature phones currently. By 2020, we expect that only around 30 per cent of connections in the region will still be running on basic and feature phones.
Figure 2 (click to enlarge): % of regional total connections (excluding M2M)
Source: GSMA Intelligence
Our research shows that, while smartphone prices have declined since 2008 – by 30 per cent in Asia, 25 per cent in Latin America and 20 per cent in Africa – the majority of smartphones in the developing world are priced above the $100 mark, whereas the ‘sweet spot’ for these regions is considered to be in the $25-$50 range.
Mozilla is one of the pioneers of low-cost smartphones, announcing a $25 smartphone design at Mobile World Congress in 2014. The company’s COO, Li Gong, explained that Mozilla’s success in driving down the cost of smartphones using its Firefox OS was down to optimising its software for lower-cost hardware.
Gong noted that “sometimes the margin on the low-cost phones could be actually bigger than higher cost hardware because it’s a question of what OS you put on and what optimisation you can get from the OS. We heard lots of demand for lower prices — below $50, below $40 phones. And we hear loud and clear that the market for that sort of segment, where you convert feature phone users to smartphone users, [is] a huge market for us”.
Last year, a number of smartphones priced between $25-$50 were introduced across the developing region, with new models from several handset manufacturers. These launches only mark the start of a price expansion trend towards low-cost levels that will spread to more developing economies, contributing to the adoption of smartphones in the region – but this will not happen overnight.
Last May, Ooredoo Group explained that in the markets it operates in, “not everyone has got a smartphone. In fact, the majority have got feature phones or 2G phones […] certainly in the developing market in Iraq and Indonesia and Algeria. The smartphone revolution is happening but it is not there yet.”
By Gu Zhang, Analyst – Forecasting, GSMA Intelligence