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Pace at Which Users Upgrade Their Phones Slowing
Explaining New Carrier Programs Trying to Get You to Upgrade More
by Karl Bode 12:29PM Wednesday Jul 17 2013
The rate at which cell phone owners are trading in old devices for the latest smartphones is declining, a stat that not coincidentally coincides with new programs from AT&T, T-Mobile and soon Verizon that urge customers to upgrade more often. According to the latest data from UBS, the rate of new smartphone trade ins have been declining the last several years, but "turned negative" this last year when 68 million people upgraded their phones, down more than 9% from a year earlier.

As the Wall Street Journal notes, there's two things at play here:
quote:
With smartphone penetration approaching 70% of contract subscribers last year in the U.S., there are fewer customers left to upgrade to the Internet-ready devices and data plans. And among existing smartphone owners, fewer are seeing the need to buy the latest Apple iPhone or Samsung Galaxy as the pace of innovation slows.
With fewer "wow" smartphone innovations and fewer new customers signing up, enter carrier programs aimed at getting users to swap out their phones more often, even if these new programs quite often aren't a particularly good deal for the user. Traditionally carriers have stated that plan data/voice/SMS plans are higher to help offset handset subsidies. In AT&T's new program's case, they're eliminating the subsidy but still keeping the cost of services high.

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ADL

join:2000-12-20
USA

Phones are too expensive

Wish more phones were in the 300-400 range unlocked. Nexus 4 was great value.
LTE4LIFE

join:2013-02-28

Re: Phones are too expensive

most phones are probably less than $100 in parts. maybe another $100 in manufacturing. the markup on all the smartphones is probably around 300%.

if you could work out a deal at one of these manufacturing facilities in China, you probably could get them at dirt cheap prices..

ArrayList
netbus developer
Premium
join:2005-03-19
Brighton, MA

1 recommendation

Re: Phones are too expensive

I'd rather not give china any more money.
LTE4LIFE

join:2013-02-28

Re: Phones are too expensive

you do realize that everything is made in China... it's almost unavoidable to purchase anything electronic and it not be made in China.

chlen
Ethically Challenged
Premium
join:2001-01-16
Saratoga, NY

Re: Phones are too expensive

Phones are still made routinely in Korea, Taiwan, Malaysia, and to a much lesser extent Finland, Japan, and US.
Angrychair

join:2000-09-20
Jacksonville, FL

Re: Phones are too expensive

Not to mention the Moto X (when it comes out in August) will be assembled and largely manufactured in the USA.

Looks like Google is putting its money where its mouth is while Apple keeps insisting they have to do their production in China.
Kamus

join:2011-01-27
El Paso, TX

Re: Phones are too expensive

said by Angrychair:

Not to mention the Moto X (when it comes out in August) will be assembled and largely manufactured in the USA.

Looks like Google is putting its money where its mouth is while Apple keeps insisting they have to do their production in China.

That one should be interesting... It's supposed to be a budget phone. But if it's made in the U.S. It makes me wonder how they will accomplish a low price and still manage to have a product with good specs.

atuarre
Here come the drums
Premium
join:2004-02-14
Conroe, TX

Re: Phones are too expensive

said by Kamus:

said by Angrychair:

Not to mention the Moto X (when it comes out in August) will be assembled and largely manufactured in the USA.

Looks like Google is putting its money where its mouth is while Apple keeps insisting they have to do their production in China.

That one should be interesting... It's supposed to be a budget phone. But if it's made in the U.S. It makes me wonder how they will accomplish a low price and still manage to have a product with good specs.

Bring Chinese labor to the US, and pay them the same rates they pay the companies that assemble the devices in China.
Angrychair

join:2000-09-20
Jacksonville, FL
Reviews:
·Comcast
said by Kamus:

That one should be interesting... It's supposed to be a budget phone. But if it's made in the U.S. It makes me wonder how they will accomplish a low price and still manage to have a product with good specs.

Considering the actual parts cost of these devices there is plenty of room for a significant increase in labor costs.

The iphone, for example, literally has a 50% or higher profit margin. In other words Apple makes $300+ on each iphone that gets sold to someone. The number of man hours that go into assembling cell phones is very small. Even paying an American a median level wage of $20/hour plus benefits Apple would see almost no difference in their profit by having the few minutes it takes to stack the components and snap the case together done in the USA instead of a foxconn factory.

ArrayList
netbus developer
Premium
join:2005-03-19
Brighton, MA
no. my nexus 4 was totally made in south korea.
InvalidError

join:2008-02-03
kudos:5
said by LTE4LIFE:

most phones are probably less than $100 in parts.

A good screen usually costs over $50. The newest premium-bin SoCs also cost the better part of $50. So the first $100 are already gone with just the first two most critical components down. You still need to add a battery, RAM, flash, connectors, casing, camera, speakers, microphones, radio ICs with amplifiers and antennas, etc. so you are looking in the neighborhood of $200 in parts for a top-of-the-line phone.

I haven't seen a detailed analysis for Google's Nexus4 but most references I found on Google appear to peg its manufacturing cost in the $200-250 range.
sonicmerlin

join:2009-05-24
Cleveland, OH
kudos:1

Re: Phones are too expensive

I have never seen an ARM SoC sell for $50. The top of the line peak in the 30s.

Pope
Premium
join:2001-08-05
Napa, CA
Nice post. And lets not forget the room full of engineers, developers, and programmers that designed and implemented the software and hardware. That number could cross the 7 digit range. The money needs to be recouped somewhere.
zod5000

join:2003-10-21
Victoria, BC

1 recommendation

What about r&d, and patent fees for the parts of the phone they didn't r&d.

When you buy something you aren't just buying the parts and the manufacturing costs, you're also shelling out for how much the company spend developing the thing.

Rambo76098

join:2003-02-21
Columbus, OH
Reviews:
·WOW Internet and..

Re: Phones are too expensive

That should be recouped in the profit margin. Companies look at the cost of parts, cost of labor to determine cost of goods sold, then start figuring out how much overhead and profit they want included in the price. Some of their profits get reinvested into the company via R&D.
elefante72

join:2010-12-03
East Amherst, NY
Motorolas plan, in addition to assembling phones in the US
LTE4LIFE

join:2013-02-28

Re: Phones are too expensive

assembling from parts that are manufactured in China. Nokia was manufacturing their phones in the 90's with a big manufacturing facility in Ft. Worth, TX. I believe by 2001 the building they had specially manufactured was empty and they had moved the process down to Mexico.
elefante72

join:2010-12-03
East Amherst, NY

1 recommendation

Re: Phones are too expensive

You have to start somewhere. Its not like the logistics chain is going to dance to Motorola overnight. BTW Gorilla glass is made in the US, no reason that the Qualcomm (US co) processors cant. As for the rest, they will probably stay in Asia because the US doesn't have the IP right now to do it in house. Flash maybe, but probably not.

Insourcing takes time. I'm seeing it from lots of my customers today, I would think that why not 100% ideal the fact that Apple is the Walmart of electronics and pretty much moved everything over to Asia, and Motorola/Google is TRYING, there is still negative reaction.

I would certainly preferably buy one if I needed one if technically it was superior or on par with the China phones.

jseymour

join:2009-12-11
Waterford, MI
IMO it isn't the devices that are too expensive, but the data plans.

Jim

koitsu
Premium,MVM
join:2002-07-16
Mountain View, CA
kudos:23

Re: Phones are too expensive

said by jseymour:

IMO it isn't the devices that are too expensive, but the data plans.

My girlfriend would disagree with you -- her issue isn't with the plans, but that the phones themselves cost too much (hundreds of USD, commonly between US$300 and US$500). She can't justify paying such an outrageous amount for a device that's going to be outdated in 2-3 years; to her it's the equivalent of throwing US$300 down the toilet every few years. I myself do not own a mobile phone of any kind (too many reasons to list here), but I completely understand where she's coming from.

Additionally, it doesn't help when you have mobile carriers (ex. T-Mobile) who will let you get the phone "for free" at the time of service contract but increase your monthly bill by $20 or so to make up for the cost of the phone. The days of "sign up with us and get the phone free" are long gone; surely I'm not the only one who remembers that (circa late 90s/early 2000s).

The mobile industry as a whole, at least in the United States, is an immense cash cow. It baffles me how much money people spend on it all.
--
Making life hard for others since 1977.
I speak for myself and not my employer/affiliates of my employer.

Boricua
Premium
join:2002-01-26
Sacramuerto

1 recommendation

Re: Phones are too expensive

Click for full size
said by koitsu:

Additionally, it doesn't help when you have mobile carriers (ex. T-Mobile) who will let you get the phone "for free" at the time of service contract but increase your monthly bill by $20 or so to make up for the cost of the phone. The days of "sign up with us and get the phone free" are long gone; surely I'm not the only one who remembers that (circa late 90s/early 2000s).

The mobile industry as a whole, at least in the United States, is an immense cash cow. It baffles me how much money people spend on it all.

I remember quite well them days. I remember my first cellphone was a Motorola.

I agree about the expenditures the people make over the phone. I bought the Samsung Reality about a year ago and am okay with it. Every time I think how much I would like to get the Samsung Galaxy SIII, I balk as I think about the required data plan and the potential for going over the data limit.
--
Illegal aliens have always been a problem in the United States. Ask any Indian. Robert Orben
millerja01a

join:2005-10-03
Durham, NC
We'll I got both my wife's GS3 and My HTC One X for 99 cents refurbished. Yes they're last year's superphones but that's the point, their specs are premium and well able to handle today's workloads.

Yes that's a new 2 year on both lines but I'm grandfathered unlimited and now that I'm on LTE, my cap is now 5GB which I watch closely. My bill is still cheaper than any of the new plans even with my company discount. AT&T doesn't want me to leave so they aren't messing with my bill...for now.

Bottom line...does the phone have to be latest and greatest? No.

Selenia
I love Debian
Premium
join:2006-09-22
Fort Smith, AR
kudos:2
Why knock T-Mobile for that? At least they make financing optional, unlike AT&T/Sprint/Verizon on contract who build in the subsidy(nice word for financing where you pay double or more in the end and keep being charged for it, whether you upgrade or not). At least T-Mobile's financing comes to an end where you pay rates without that built in or you can totally opt out of it by bringing your own device. There is also prepaid on almost all carriers. Most of those phones are still locked to the carrier, but it can be a good deal buying the phone up front then paying a much reduced rate per month, if you know which carrier you want to stick with. I got sick of the math games and ever changing terms of AT&T contract of late, besides the high rates, and recently paid my way out of it and went with T-Mobile prepaid. Slower data speeds but all I can eat for $50 a month on my unlocked phone. The speeds don't bother me as there are nice caches and web accelerators available, especially for root users like myself. Plus, no more dropped calls and better call quality(AT&T used to be ok but has gotten much worse of late).
--
A fool thinks they know everything.

A wise person knows enough to know they couldn't possibly know everything.

There are zealots for every OS, like every religion. They do not represent the majority of users for either.

anon_anon

@comcastbusiness.net

Carriers should make up their minds already!

First the carriers were complaining that people were upgrading their phones too much, so they eliminated all programs that encouraged upgrades. Their plans have clearly worked and people are not upgrading as often. But now they are complaining that people aren't upgrading their phones often enough.

Sorry carriers, I'm not going to plonk down a few hundred dollars on a new phone just so I can get caught up in a new 2 year agreement with steep ETFs. I'm holding onto my 3g smartphone until it breaks.
averagedude

join:2002-01-30
San Diego, CA
Reviews:
·Cox HSI

Re: Carriers should make up their minds already!

said by anon_anon :

First the carriers were complaining that people were upgrading their phones too much, so they eliminated all programs that encouraged upgrades. Their plans have clearly worked and people are not upgrading as often. But now they are complaining that people aren't upgrading their phones often enough.

^^2nd^^
elefante72

join:2010-12-03
East Amherst, NY

1 recommendation

Re: Carriers should make up their minds already!

The carriers could care less on the phone model or XYZ feature or how often you upgrade, because if they subsidize that is an accounting hit they dont want. The real mission is to lock you in long term as a subscriber and craft plans in the face of subsidy unwinding to keep you as a customer.

These new plans while keeping you locked in serve a few purposes:

1. Once you are into the "renew" program, the ETF or lease buyout is high (to reduce churn)
2. The carriers need to turn their phones over so they can utilize the new LTE bands and VoLTE. Most phones today don't have this functionality, so that will REQUIRE new equipment.
3. Introduce NFC or mobile payments to start going after that lucrative market. If the phone doesn't have NFC, that is a problem.

AName

@torservers.net

its all BS anyway

So, after all it is true that "smart" phone and a hype connected to the "latest + greatest" is nothing more then a useless money drain + personal wearable tracking device.

Yes, I have a "smart" phone. No data plan since I don't need it (there is plenty free wifi around in case i need very occasionally check e-mail or find some place via standalone GPS app). I use my phone as a PHONE and sometimes as audio player since 64GB memory card works with it. I don't need to upgrade and don't want to upgrade. Bite me.

jseymour

join:2009-12-11
Waterford, MI

Re: its all BS anyway

said by AName :

... I have a "smart" phone. No data plan since I don't need it ...

I thought carriers wouldn't put a "smart"phone on their network w/o a data plan. That is Reason Numero Uno I've stuck with my Palm Centro on Sprint. Sprint allows those to be on its network w/o a data plan.

Jim

AName

@torland.is

Re: its all BS anyway

I've bought mine from eBay, unlocked, no contract. Did root it from a get go, all bloat (social network apps, carrier BS etc.) removed, Droidwall blocking all unwanted communication.

jap
Premium
join:2003-08-10
038xx
T-Mo is nicely à la carte and you can bring any phone to the network and - from a network PoV - make it as smart or dumb as you like. No probs buying a dumb-phone plan for a smarty.
tcope
Premium
join:2003-05-07
Sandy, UT
kudos:2

Power

The thing is that the hardware in phones has been exceeding the requirements of smartphones. My S3 is about a year old and it does everything very well (though, this is a tribute to Samsung and one reason why they are selling a lot of phones). So there is no need for me to upgrade. MP of cell phone cameras are really a moot point as the optics is the limiting factor at this point. The CPU and speed of modern smartphone are still much more then the OS and apps really need.

Limiting factors are improvements that Google adds to Android and that manufactures will limit these upgrades. I can also see the breakthrough of bendable screens being a huge boost.

•••

n2jtx

join:2001-01-13
Glen Head, NY

Cannot Think of a Reason

I have an iPhone 4S and I am very happy with it despite being service by Sprint

I have played with an iPhone 5 and there was nothing to get me to upgrade and even a disincentive due to the new Lightning connector that would render my existing accessories useless. Looking at the rumored specs of the 5S (or 6) I still see nothing to get me to switch. If/until I see some feature that I absolutely positively must have, I will stick with my 4S. To get some extended life, I plan to swap it for a refurbished unit at an Apple store in October. I have the two year AppleCare+ coverage and it will be just about at that point and the battery is starting to get soft. Pay the $50 and get basically a new 4S.
--
I support the right to keep and arm bears.

netwire
Premium
join:2001-04-27
Shelby, NC
kudos:1

Prepaid

This is why I moved on to a pre-paid carrier that let's you bring your own device. The money I save from a contract more than allows me to buy a new phone each year at full retail and still come out spending less.
kaila

join:2000-10-11
Lincolnshire, IL

Why should carriers care?

The 'built-in' subsidy fee is a standard part of most carriers rates that never goes down. If no one upgrades, that little extra subsidy revenue eventually becomes pure profit.
GeoTel

join:2013-06-21
Longwood, FL

Features Need To Match Price

As prices continue to skyrocket, but new (and exciting) features aren't growing at the same rate, it makes sense that the drive to always have the newest phone is starting to die off.
TheMG
Premium
join:2007-09-04
Canada
kudos:3
Reviews:
·NorthWest Tel

It's a GOOD thing!

Maybe it's not such a bad thing that the pace is slowing down. All the millions of several-generations-old phones being discarded every year, it's almost sickening.

Why can't people just pick a phone and stick with the same phone for a few years instead of changing phones more than they change their underwear?

Subaru
1-3-2-4
Premium
join:2001-05-31
Greenwich, CT
kudos:1

Re: It's a GOOD thing!

This is how I feel about the iphone
eugeneua

join:2004-09-11
Atlanta, GA

Verizon upgrade options make no sense to me...

I've been due for an upgrade with Verizon for almost a year. At this point I do not see any reason why I should pay $200 for an iPhone 5 plus the totally absurd $30 dollar fee to get into a new contract and lose my unlimited data plan. I'll wait another year and buy a used iPhone 5 for $350.