Why mobile handsets hold the key to 5G

30 Apr 2019

Consumers could miss out on 5G's transformative potential unless carriers facilitate a change in behaviour in relation to buying and using mobile handsets.

While mobile phone carriers around the globe are investing heavily in 5G infrastructure, significant uptake of 5G handsets is required to ensure that consumers can actually benefit from the faster download speeds promised to them.1

But with rising handset costs, people are keeping their mobile phones for longer, potentially delaying the benefits 5G promises, believes one of Macquarie's senior Technology, Media and Telecommunications specialists, Nicola Eichorn.

The rising cost of new technology

“People used to update their mobile handset every 24 months when their mobile plan ended but that pattern is changing in the developed world," Eichorn says.

“Now they're more likely to buy their handset independent of a plan and hold onto it for longer than two years."

This is reflected in handset sales figures. In the first quarter of this year, smartphone shipments declined 6.6 per cent. This was the sixth consecutive quarter of smartphone decline, according to market research company IDC.

Eichorn suggests the rising costs of handsets is an explanation for this trend. As manufacturers continue to evolve their product, the cost of components will continue to climb and the release of 5G compatible smartphones is proving no different.

To capitalise on the faster speeds and lower latency of 5G networks, sophisticated handset enhancements such as new antennae and nanometre chips are needed. Accordingly, the cost of manufacturing high-end smartphones continues to increase.

To further compound these rising costs, these invisible enhancements are being bundled with additional external features such as foldable screens, further increasing the cost of handsets to around $US2,000.

5G has an enormous role to play in the development of the Internet of Things (IoT) as devices become more connected to one another.
Nicola Eichorn, Technology, Media and Telecommunications specialist, Macquarie Group

A loss of potential?

Eichorn is of the view that the growing tendency of consumers to prolong their handset life could deter product innovation, including that associated with 5G enablement.

Eichorn says “5G has an enormous role to play in the development of the Internet of Things (IoT) as devices become more connected to one another.

"But without a significant uptake of 5G enabled handsets, consumers can't access the day-to-day benefits of 5G, meaning they are unlikely to invest in a broader 5G ecosystem. A lack of consumer demand could therefore have a negative knock-on effect on product innovation."

That, in turn, could raise further questions for carriers in relation to how to get those 5G enabled handsets into the hands of their customers.


Why the solution could lie in subscriptions

Eichorn believes that the solution is tied to the changing role of carriers. She has seen experts across the industry noting a shift from the traditional utility models once fostered by carriers, to a new focus on subscription services, which sees carriers operating as entertainment and content providers.

“There is substantial growth in the number of people subscribing to Netflix, Spotify and other services through their mobile handset and I think they are getting used to the idea that they don't have to physically own everything they use," she says.

“Many people may be happy to simply subscribe to use a mobile handset in the same way they subscribe to use content – especially if it's cheaper than owning it."

Through a subscription service, Eichorn says carriers can offer the latest handsets at a significantly lower monthly cost than on a traditional plan and give customers increased flexibility to upgrade to the latest handset as it becomes available.

"For the carriers, the opportunity to upgrade customers at much shorter intervals could also serve as a powerful retention tool."

If carriers choose to take this path it could go some way to making the switch to 5G an obvious and painless path for consumers. And that, in turn, should help them recoup and eventually profit from the estimated $US 326 billion that will be invested globally into 5G infrastructure between 2018 and 2025.

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