Fewer Smartphone Upgrades Give U.S. Telecoms Something to Worry About

There are more and more great and powerful smartphones coming out all the time, but, according to figures from UBS reported by The Wall Street Journal this week, the rate at which Americans are upgrading is more than slowing down -- it's going backwards.

Last year, 9% fewer people in the U.S. upgraded their handset than did the previous year.

Hence, the new postures on upgrading phones early, first from T-Mobile (NYSE: TMUS  ) , and then from AT&T (NYSE: T  ) , and soon, according to Droid Life, from Verizon (NYSE: VZ  ) .

As one of T-Mobile's self-described "Boldest Moves Yet," the carrier unveiled its JUMP! program last week, which allows subscribers to upgrade their phones up to twice a year after the first six months.

"At some point, big wireless companies made a decision for you that you should have to wait two years to get a new phone for a fair price," said T-Mobile's CEO John Legere in the company's press release.

AT&T has also announced a path to quicker upgrading for to smartphones or tablets. It calls its plan Next, and it allows upgrades after one year, not the usual two.

Why?
One of the reasons few people are upgrading is that the phone industry has reached the point of diminishing returns for the traditional handset. Having a smartphone has dropped the mantel of being cool, because so many people in the U.S. have one.

Plus, there really is less room for some super, game-changing function to come on the scene -- improvements are now coming incrementally, not in large leaps forward as they once did.

So what's in it for the carriers, making it easier and -- supposedly -- cheaper for subscribers to upgrade? Strange and unexpected things do occur from time to time, but altruism from a mobile carrier will never be one of them -- no matter how much Legere says otherwise.

It's the data, stupid
Smartphones have become commodities and profit margins on such are very little. The money for the carriers is in the service fees, and the biggest moneymakers now are data usage fees.

A faster phone with a high-resolution screen on a speedy 4G LTE network almost compels subscribers to watch data sucking videos. So it's in the carriers' best interests to provide the fastest data delivery device it can to its subscribers.

On the flip side of that equation, if customers don't upgrade to LTE devices, why did the carriers' spend so many billions of dollars on upgrading their infrastructure to handle the new LTE networks?

The more LTE handsets out there getting data from the growing number of LTE networks brings in more revenue. So making it easier to upgrade to higher data rate phones is really a no-brainer for the mobile carriers. It's like giving a bigger cup to a Starbucks addict.

Of course, when wearable mobile devices like Apple's rumored iWatch and Google's Glass start hitting the streets, the "Wow!" factor may again come into play and bring back upgrade envy to the masses.

If you're on the lookout for high-yielding stocks like AT&T, The Motley Fool has compiled a special free report outlining our nine top dependable dividend-paying stocks. It's called "Secure Your Future With 9 Rock-Solid Dividend Stocks." You can access your copy today at no cost! Just click here.


Read/Post Comments (4) | Recommend This Article (1)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On July 17, 2013, at 7:51 PM, SuntanIronMan wrote:

    Seems like carriers win either way. If more people upgrade to higher data rate phones, carriers can charge more. But if customers do not upgrade as frequently, carriers don't have to subsidize expensive new phone purchases (while the customers are still paying for their old phone's service).

    Is that a too simplistic way or looking at it or is this just a win-win for carriers?

  • Report this Comment On July 17, 2013, at 7:52 PM, SuntanIronMan wrote:

    *Is that a too simplistic way -of- looking at it...

    (typo)

  • Report this Comment On July 18, 2013, at 9:05 AM, Computerworgen wrote:

    Hard to Upgrade when a new phone costs $650+ with no subsidies. Apple iDiots may have the cash for that but the rest of us don't have the funds to replace a Galaxy S every year. & I have seen $100 price differences between the same model phones on T-Mobile & Boost.

  • Report this Comment On July 18, 2013, at 9:16 AM, Computerworgen wrote:

    In the early Days of Smart Phones, Upgrades were once a year. Then carriers got rid of that in the same way they got rid of Unlimited Data, & made the annoying 2 yr contract with 2yr Upgrade. They need to bring back the 1 Yr Contract with 1 Yr Subsidized Phone Upgrade.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2542247, ~/Articles/ArticleHandler.aspx, 10/2/2014 1:08:05 PM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement