Mobile World Congress (MWC), the conference that unites all the major stakeholders that shape the present and future of the mobile industry, is just around the corner and our excitement extends beyond the feasts of tapas awaiting us in Barcelona. This year’s event will be especially exciting as in-person attendance is expected to return to pre-pandemic levels, following the event’s cancellation in 2020, a hybrid format in July 2021, and scaled-back attendance with no handshakes and lots of fist bumps in 2022.
What drives my enthusiasm is the hope that the industry will finally display tangible examples of how the new generation 5G networks have helped to solve real challenges for consumers and enterprises. Rather than reducing content download time or enabling home internet services based on fixed wireless access (FWA) technology, my colleagues and I are hoping to hear about how these networks have facilitated smarter grids for cities or enhanced telecare services to justify mobile carriers’ years of capital expenditure spending.
Carriers’ monetization of these new generation networks is more crucial than ever because the U.S. market, which happens to be one of the world’s most lucrative and high-margin markets, is gradually gravitating towards a race-to-the-bottom pricing model that has taken hold in many European markets. Mobile carriers are facing fierce competition with thinning revenues as mobile virtual network operators (MVNOs) are driving down prices for basic connections, so monetizing 5G will be a major success factor.
For example, in MWC’s host country, Spain, Vodafone offers a bundled home internet service (with 600 Mbps downlink speeds) plus two mobile lines with unlimited calls, text, and 5G data, as well as basic cable TV service for 65 Euros (~$70) per month. Customers can upgrade to the next tier, which adds free access to two streaming services (HBO Max and Amazon Prime or Disney Plus and Amazon Prime) for 75 Euros per month (~$80). More price-sensitive customers can find similar home internet and mobile line bundles for under 50 Euros per month (~$55) if they sign up with low-cost MVNOs such as O2. A similar solution will cost at least 50% more in the U.S. market, and that is if a customer signs up for Spectrum’s One bundle or Comcast’s just released bundle, where prices escalate after the first year.
Each market has its own dynamics. We see such affordable rates in Spain because the fiber providers are forced to share infrastructure with other service providers, and the intensified competition drives prices down. In the consolidated U.S. market, there are three large mobile operators controlling the majority of connections, but their ability to safeguard margins is slowly deteriorating as cable companies have poached over 10 million mobile customers with aggressive rate plans and promotions. Cable MVNOs and other new entrants, like Dish Network’s Boost Infinite, have lowered the cost for unlimited 5G plans to $25 per month, and the top postpaid carriers are following suit.
Consumers win when providers compete on price, but in this case, there may be collateral damage – smartphone makers. U.S. consumers are accustomed to receiving subsidies for smartphone upgrades. In fact, NPD estimates that nearly 37% of smartphone owners plan to trade-in their current phone when upgrading, up from 32% year ago. But due to rising financing costs and service pricing wars putting strain on the bottom line, U.S. carriers are pulling back on promotional spending and shifting their focus to bring-your-own-device promotions. The impact of this shift will be felt by smartphone manufacturers, because consumers will be less motivated to replace devices when they are not being offered the high trade-in values they have come to expect.
Smartphone manufacturers have been working tirelessly to enhance their product offerings and motivate consumers to upgrade beyond the necessity scenarios, such as declining battery life or device performance. While the newest versions of the industry’s top selling flagship phones are already out, innovative announcements will be coming from other brands at MWC. However, all smartphone brands serving or planning to serve the U.S. market should embrace the new carrier subsidy reality and be ready to pitch in more than ever to convince consumers upgrade faster. And as for new generation 5G use cases… I will be all ears!