Barclays’ Mark Moskowitz and his team recently parsed the results of the firm’s latest Wireless Subscriber Survey, conducted in the second half of July, which drew respondents from the U.S., China, U.K. and Germany. They write that the results could be useful to investors looking to understand the growth profiles for both the smartphone industrial complex and mobile network operators, and how they might change in the year ahead.
One major takeaway they found is that smartphone replacement cycles might not be lengthening as much as feared. Moskowitz writes that 41% of survey respondents are planning to upgrade their device within a year of the original purchase date, and 77% plan to upgrade within 24 months. That implies an average replacement cycle of 20.3 months, a figure that is lower than what he expected, given the slowing growth rates in global smartphones in the past year.
Not surprisingly to anyone with an older smartphone, the survey found that battery life is the No. 1 reason consumers decide to upgrade, while virtual and augmented reality ranked quite low, even though they’ve grabbed headlines. Moskowtiz warns that this means investor optimism around Apple’s (AAPL) efforts to build an AR/VR ecosystem could be overdone, which he likes to the AI bandwagon for IBM (IBM) last year.
He writes that there are also some mixed data points to the upside potential for the new iPhone:
iPhone is the lead beneficiary of potential switchers, and the iPhone users in the survey sample exhibit stronger purchasing power. As for sensitivity to larger ASPs, though, only 11% of total survey respondents indicated they are willing to pay more than $1,000 for a next-gen smartphone, but 18% of iPhone users are willing to pay more than $1,000. That last figure is still lower than the 30-35% figure that investors are targeting for sales mix related to a new higher-priced iPhone introduced later this year.
The survey also indicates that U.S. operators will probably continue to see historically low churn levels:
While we expect a seasonal pick up in promotional activity levels, historically low churn levels are likely to remain as 85% of our survey respondents indicated no desire to switch carriers in the next twelve months. Of those that plan to switch, T-Mobile (TMUS) is, unsurprisingly, the top pick, surprisingly followed by AT&T (T). Most subscribers stay with their current operator because of the perceived difficulties of switching plans, and the perception that they already get a low priced offering with compelling enough network quality. Intriguingly, share among our sample set largely mimicked national share of the big four operators.
Ultimately, he writes that competitive service pricing and network quality are the best ways for operators to get subscribers to switch, as these outweigh handset promotions. Bundled services are also attractive, he writes, but have to have flexibility and a compelling price point to lure consumers.