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Cellular handset sales will hop in the second half, pumped up by aggressive carrier discounting and promotion, stepped up retailer promotion, and the growing availability of feature-laden phones that encourage replacement sales, suppliers said.
The competitive frenzy is driven largely by wireless numbers local portability (WLNP), which is encouraging carriers to work aggressively to retain current subscribers while stealing their competitors' subscribers. It's also encouraging large retailers to take advantage of WLNP's potential to win new activation commissions.
Continued net-new subscriber growth, however, will also contribute to strong second-half and fourth-quarter sell-through, with much of that growth occurring in sales to a key carrier target: kids in their early teens.
At least one supplier, Samsung, expects retail-level sales to grow 10 percent to 20 percent in the second half. At the wholesale level, the Telecommunications Industry Association expects full-year unit-sales growth of 8.3 percent to 68.4 million units compared to 2003's 7.7 percent gain to 63.2 million. In-Stat/MDR forecasts 9.9 percent unit-wholesale growth to 98.9 million units for the entire North American market.
For the second half, replacement sales will be driven by color-screen phones, whose prices will fall in select cases into the free-phone category; camera phones, whose prices will drop to as little as $49 for near-VGA-quality models; and the first 1-megapixel camera phones, which will be available from multiple suppliers and are expected to start as little as $149, said Randy Smith, VP of product marketing and business development for Samsung Wireless Terminals.
The first phones that support high-quality streaming music and video will also be available in the second half with video quality perhaps as high as 15fps, he added. High-quality video streaming is supported by EDGE and CDMA 1x EV-DO, which are already deployed, and by W-CDMA, which is expected to be available later this year in select markets.
The proliferation of phones with these features is contributing to accelerating replacement sales, suppliers said. On average, cellular subscribers are getting a new phone every 14 to 18 months, Samsung's Smith said, despite the proliferation of two-year contracts. Smith attributed the faster turnover rate to several factors, including WLNP-induced competition that has spurred carriers to offer current subscribers steeply discounted phones only 14 to 16 months into a two-year contract.
"We're seeing more of it this year," he said. "A lot of contracts are up now, but carriers are focused on ways to keep their current customers happy."
The continued growth of prepaid service, which comes with no contract, has also helped drive up handset turnover, Smith said.
Motorola's Joe Woods agreed that LNP has played a role. "LNP has enabled people to go for upgrades," said the strategy and market development VP in Motorola's personal communications sector. Carriers are offering aggressive replacement-handset pricing to subscribers to build customer loyalty in an LNP world, he explained. Giving subscribers access to new features and benefits, he added, also gives carriers the opportunity to drive increased usage and average subscriber revenue. "It's a positive for both our customers," he said.
Camera phones account for a "disproportionate percentage of phones sold," Woods noted.
Woods expects the market's strength in the first half to continue into the second, driven by falling camera phone prices, multimedia features such as video playback and capture, and a greater selection of popular low- and mid-tier clamshell-style phones.
In the second half, Motorola will offer mid-tier VGA-quality cameraphones for GSM and CDMA networks, Woods said. Motorola's first megapixel camera, the 1.3-megapixel CDMA 1X trimode V710, will be available "imminently" with removable Trans-Flash memory card, he added.
The selection of popular clamshell-style phones will also grow in the second half, suppliers agreed. "We plan to drive the clamshell into the mass market," Woods vowed. In the second half, Motorola will offer a low-tier clamshell and a high-tier model, the latter with camera. Low-tier phones usually retail from free to $49. To date, the selection of low-tier clamshells has been narrow, he said.
Nokia will also do its part in driving clamshell sales by offering its first digital clamshells in the U.S. in the second half, the company told TWICE. They are the midrange 850/1,800/1,900MHz 6170, a GSM model with stainless-steel finish; and the CDMA 6625. Both are due in the fourth quarter.
Also due from Nokia in the second half: an entry-level 850/1,900MHz model with color screen might be available in the third quarter as a prepaid phone, the company added.
Also due from Nokia: its first megapixel camera phone, the 7610, and its first EDGE-equipped smartphone, the 6620. Both will be available in the third quarter.
Many of the industry's new phones will launch at a time when carriers, suppliers, and major retailers have all become even more aggressive in promoting cellular. "Carrier and supplier promotions are bigger this year," said Smith. "There has been more investment in training and more dollars overall." Retailers, he added, "have become more aggressive in advertised price points. Carriers and suppliers "have always worked together on promotional funding," he said, but now retailers are contributing through sharper prices or with their own promotional funds."
"A bigger pool of promotion dollars means better prices for consumers," Smith added.
Smith speculates that retailers are more aggressively promoting cellular this year because of cellular's high penetration rates. Cellular "crosses a broad customer spectrum" compared to other consumer electronics segments, such as car audio, and "it's still fairly lucrative," he said.
This TWICE webinar, hosted by senior editor Alan Wolf, will take a look at what may be the hottest CE products at retail that will be sold during the all-important fourth quarter. Top technologies, market strategies and industry trends will be discussed with industry analysts and executives.