Vertical Divider
|
Special Report 5G
5G Expected to Re-Energize the Smartphone Industry December 10, 2018 Gartner reported that Q318 smartphone shipments grew at a paltry 1.4% Y/Y and that Samsung shipments were down 14.3% and Apple’s were flat. Table 1: Q318 Smartphone Shipments, Share and Growth 
Source: Gartner
|
|
The industry is facing slow, if any growth, caused by longer replacement cycles, higher prices, technology change that’s uninspiring and in the US a new purchase model, which places the entire price burden on the consumer. So there is nothing like a new technology that requires phone users to upgrade and eradicate the smartphone industry’s doldrums. The introduction of 5G in 2019, has established a new optimism from carriers, OEMs, the display industry and the chip industry. One service forecast sales of 5G phones would reach 1b units by 2023 and almost 1.5b units in 2024. One 5G standard — known as 5G NR and created by the GSMA— has practically everybody on board. Early on, AT&T, T-Mobile, and Sprint were trying to push HSPA and WiMax as their LTE alternatives. But even Verizon, which originally promoted and has already deployed the competing 5G TF standard to deliver wireless internet to homes in four US cities, says all of its future deployments will be on 5G NR instead, and that 5G TF was just a way to push the industry to quickly adopt an actual global standard. For all they knew, 5G TF could have been it.“The game was always the standard,” says Nicki Palmer, Verizon’s chief network officer.So it doesn’t look like we’ll have a 5G standards war — at least not yet. “We need to build a crescendo,” says Amon. Qualcomm obviously has a vested interest in making people believe that 5G is actually meaningfully better than the cell connections we already have now. “You’re not going to change your phone unless the battery life is higher, the form factor is attractive, and you need companies that can actually deliver the performance,” he says. (Early LTE devices were notoriously thick and drained batteries quickly.) That’s why, even out of the gate, 5G will be dramatically faster and dramatically more responsive, to the point that bandwidth-sapping uses like streaming video will feel effortless.
“Today music is streamed everywhere and it isn’t downloaded anymore; even if with low coverage, the quality is sufficient to stream music. 5G will do that for video,” Amon says, before moving on to fancier, further-out predictions like unlimited storage and on-demand processing power from the cloud that can, he imagines, virtually cram the power of a Magic Leap-like augmented reality headset into a normal pair of glasses. High-flying promises of fast Internet and cloud connections are nothing new, but historically they have always crashed into the reality of actual network performance that doesn’t live up to them. And the way that Qualcomm, AT&T, Verizon, and others hope to achievethe performance out of the gate may mean a slightly different, spottier network than the LTE experience. AT&T and Verizon both say they’re exclusively rolling out millimeter wave (mm Wave) radios, which inherently provide farmore bandwidth and capacity than today’s networks. The general timelines for installation and standard adoption are shown in the next two figures.
Figure 1: 5G Timeline
“Today music is streamed everywhere and it isn’t downloaded anymore; even if with low coverage, the quality is sufficient to stream music. 5G will do that for video,” Amon says, before moving on to fancier, further-out predictions like unlimited storage and on-demand processing power from the cloud that can, he imagines, virtually cram the power of a Magic Leap-like augmented reality headset into a normal pair of glasses. High-flying promises of fast Internet and cloud connections are nothing new, but historically they have always crashed into the reality of actual network performance that doesn’t live up to them. And the way that Qualcomm, AT&T, Verizon, and others hope to achievethe performance out of the gate may mean a slightly different, spottier network than the LTE experience. AT&T and Verizon both say they’re exclusively rolling out millimeter wave (mm Wave) radios, which inherently provide farmore bandwidth and capacity than today’s networks. The general timelines for installation and standard adoption are shown in the next two figures.
Figure 1: 5G Timeline
Source: LightReading
Figure 2: 5G Standards Timeline
Source: LightReading
But at 39GHz and 28GHz, those millimeter wave signals also don’t travel as far or penetrate buildings as easily as conventional cellular, which means LTE speeds will be used indoors, and in order to cover the same area as today’s LTE cell towers, carriers will need to provide many more smaller cell sites. AT&T says it’s focusing on outdoor cells first, but is also looking at indoor ones for public venues like stadiums and concert halls.
Figure 3: 5G Use Cases & Requirements
Figure 3: 5G Use Cases & Requirements
Source: LightReading
5G offers gigantic opportunities to component suppliers to supply a billion + unit market with new chips, displays, radios, and enclosures. During it’s third annual Snapdragon Technology Summit in Maui, Qualcomm announced its blazing-fast 5G before the new cellular standard launches in the US. AT&T is promising to launch real 5G NR cellularin 12 cities by the end of 2018. Moreover, there have been a variety of promises, milestones, and one-off demonstrations from other carriers, which plan to launch in early 2019. Qualcomm’s new Snapdragon processor is designed to appear in 5G phones, and a “Snapdragon 1000” processor for a new wave of always-connected Windows laptops. Qualcomm will attempt to use the rising wave of 5G hype to help increase its profile for new chips and make the case that the two are potentially connected.
In the latest salvo in the carrier one-upmanship tussle, AT&T has revealed, it will carry not one, but two 5G Samsung phones next year. The first phone should arrive in the spring, while the second is set to arrive in the second half of 2019, bringing AT&T's tally of 5G devices to three, including a Netgear hotspot. Earlier, Verizon was the first to reveal it would offer a 5G Samsung device next year, while Sprint also has a 5G Samsung device in the works. Samsung unveiled its 5G prototype, which has a notch in the corner of the screen rather than the typical center. AT&T and its rivals are busy building out their 5G networks in various cities, and the technology is expected to be in wide use by 2020. But there won’t be a 5G iPhone until then.
OnePlus’, which has a reputation for offering premium phones without a premium price released the OnePlus 6T, reportedly “the most affordable flagship available.” But the company’s first 5G phone, announced at the Qualcomm Snapdragon Tech won’t be cheap. OnePlus CEO Pete Lau said that his company is working on both the new 5G phone and existing 4G phones in parallel, and that he expects his 5G phone will likely cost $200 to $300 more. “It’s hard to know because there’s a lot of specifics still to look at, but it’s likely in the neighborhood of $200-300 more,” Lau said. That might not be the case for all new 5G smartphones, though. “You may see some OEMs try to monetize as much as they can their existing customer base... on the other hand you may see folks try to gain share and use price as one of those tools,” says Qualcomm president Cristiano Amon, in a roundtable interview.
AT&T currently features phones by 11 manufacturers, with 80% by brand names Apple, Samsung, and LG, which makes the selection of a ‘named’ 5G supplier more difficult.
Table 2: AT&T Current Smartphone Offerings
In the latest salvo in the carrier one-upmanship tussle, AT&T has revealed, it will carry not one, but two 5G Samsung phones next year. The first phone should arrive in the spring, while the second is set to arrive in the second half of 2019, bringing AT&T's tally of 5G devices to three, including a Netgear hotspot. Earlier, Verizon was the first to reveal it would offer a 5G Samsung device next year, while Sprint also has a 5G Samsung device in the works. Samsung unveiled its 5G prototype, which has a notch in the corner of the screen rather than the typical center. AT&T and its rivals are busy building out their 5G networks in various cities, and the technology is expected to be in wide use by 2020. But there won’t be a 5G iPhone until then.
OnePlus’, which has a reputation for offering premium phones without a premium price released the OnePlus 6T, reportedly “the most affordable flagship available.” But the company’s first 5G phone, announced at the Qualcomm Snapdragon Tech won’t be cheap. OnePlus CEO Pete Lau said that his company is working on both the new 5G phone and existing 4G phones in parallel, and that he expects his 5G phone will likely cost $200 to $300 more. “It’s hard to know because there’s a lot of specifics still to look at, but it’s likely in the neighborhood of $200-300 more,” Lau said. That might not be the case for all new 5G smartphones, though. “You may see some OEMs try to monetize as much as they can their existing customer base... on the other hand you may see folks try to gain share and use price as one of those tools,” says Qualcomm president Cristiano Amon, in a roundtable interview.
- Motorola, with its 5G Mod, deferred to its carrier partner Verizon, and Netgear, with its Nighthawk 5G Hotspot, deferred to AT&T. Samsung only has a proof of concept at the show, but has announced two phones so far.
- Samsung’s proof of concept phone has an unusual notch that might be for an additional antenna.
- OnePlus is pursuing a 5G phone regardless of the price because customers demand it, and because it’s important to get out early so engineers can start working through the nuances of 5G, which will help them deliver future phones.
- LG Electronicswill supply 5G smartphones through Sprint (S),which leaves AT&T (T), to choose a 5G supplier, and with Apple (AAPL)likely waiting for at least a year to make a 5G release,
- Huaweiout of the picture in the US due to US Trade complications
- Xiaomiis a possible supplier, although not well known in the US,
- OPPO and Vivoare less known in the US.
AT&T currently features phones by 11 manufacturers, with 80% by brand names Apple, Samsung, and LG, which makes the selection of a ‘named’ 5G supplier more difficult.
Table 2: AT&T Current Smartphone Offerings
One of the challenges will be building 5G phones for multiple cellular carriers that operate on different frequencies. Lau expects it’ll be even more difficult to take a phone from one carrier to another with 5G than it was for 4G, and the company says it hasn’t yet seen a solution that would cover many different carriers around the world. “5G will be particularly difficult to have a device that covers all of the world, or even most of the world’s networks,” says Lau. OnePlus’s 5G phone is targeting just one type of 5G network — the slower-speeds-but-wider-coverage-area “sub-6” spectrum used by EE, its first carrier partner in Europe, compared to the speedier millimeter wave that AT&T and Verizon are focusing on first in the United States.
Figure 4: 5G Moto Mod Prototypes with Antenna Locations
Figure 4: 5G Moto Mod Prototypes with Antenna Locations
Photo by Sean Hollister / The Verge
Lau says that millimeter wave creates its own challenges, and a nice-looking handset is one of them, likely due to the different design required to fit multiple antennas. Motorola placed the 5G Moto Mod’s four-millimeter wave antennas in various distinct places around the device so users could hold it in various orientations without blocking the signal. Samsung’s prototype has an unusual new notch. “On the product level, it’s much more complex than 4G, so a significantly higher level of challenge, especially millimeter wave. “It appears impossible to make a nice-looking flagship device, for now.”
OnePlus is also working on a McLaren-branded revision of its OnePlus 6T, basking in its recent T-Mobile partnershipand (finally) support for Verizon’s LTE networkin the United States. The company says that in the first 30 days the Verizon-compatible OnePlus 6T was on the market, sales jumped 249 percent compared to the OnePlus 6’s first month on the market.
Verizon’s Ronan Dunne is facing a 5G challenge, one shared by other wireless providers across the world since customers are buying new smartphones on a longer replacement cycle.The “upgrade rate” in the wireless industry is lengthening significantly, as wireless customers are holding onto their phones for a longer time than they used to. Wireless customers used to buy a new smartphone every one or two years, but now the average wireless customer is buying a new smartphone every three or four years, which presents a significant challenge to wireless industry executives who are hoping to generate significant sales of 5G devices; the more 5G devices they sell, the more opportunities they have to recoup their investment in their 5G networks.
Dunne has said, “It’s important to understand why the upgrade cycle is elongating,” and there are several factors playing into the situation. First, he pointed out that, thanks to carriers’ new equipment installment plans, customers have a better understanding of the full cost of their smartphone than they did under previous subsidized plans (plans that generally offered a new smartphone every two years for $100 or $200). Now, Dunne said, customers can see the full cost of their smartphone, which can run $1,000 or more, and they can also enjoy lower monthly bills after they pay off the cost of smartphone. Customers are also adding more devices to their wireless accounts. “Traditionally it was one device and one upgrade cycle. Now it’s a multi-device environment and there's a multi-device cycle,” he said, explaining that now customers are upgrading there phones every two or three years, but are also upgrading other devices like smartwatches and tablets during that period as well. Finally, Dunne acknowledged, "The race of innovation in handsets has started to plateau."
He said that Verizon recently announced plans to sell a “high end” 5G device from Samsung in the first half of next year and that device would sit alongside the 5G Moto Mod for Verizon that will be available for Motorola devices next year as well. Dunne’s expectations are somewhat bolstered by new figures from Ericsson and Cisco. Ericsson recently forecast 250 million 5G subscriptions in North America by 2024. Cisco, for its part, said that it expects that by 2022, global mobile devices will grow from 8.6 billion in 2017 to 12.3 billion by 2022—and over 422 million of those will be 5G capable. During the fourth quarter, some of the nation’s largest wireless carriers reported record low levels of churn. That’s due in large part to the fact that Americans are no longer getting a new phone every two years. In the fourth quarter, for example, Verizon reported postpaid phone churn of just 0.77%, a significant achievement for the company and a number below most Wall Street expectations. Similarly, AT&T reported fourth quarter postpaid phone churn of 0.89%. Churn—the measurement of how many customers discontinue their wireless service and switch to a different carrier—can be affected by a variety of factors, of course. But churn rates in the wireless industry in general have been trending down to record low levels, particularly in the postpaid space, for several years. Carrier executives have attributed this trend to a variety of factors, including the success of their various strategies. AT&T, for example, has argued that its record churn levels are due in part to its strategy of bundling its wireless services with its DirecTV video offerings. "The U.S. consumer now understands that these devices are extremely expensive,” said T-Mobile CFO Braxton Carter. He also explained that most smartphones are purchased today through equipment installment plans (EIP) rather than through two-year subsidies. Meaning, customers are no longer purchasing a free or $200 smartphone alongside a two-year service contract, and then getting a new phone after that two-year contract is over—instead, they’re seeing the full price tag for the phone through their EIP fee and are paying that gadget off in monthly installments of $20 or $40. Thus, when customers pay off their phone through their EIP, their monthly bill shrinks. And, as a result, customers may be wary of purchasing a new phone.
"The consumer before really viewed the handset as disposable [through handset subsidies] ... and with phones approaching $1,000-plus, what you're seeing is really an elongation of a handset lifecycle. Right now, it's about 34-35 months for a smartphone. That's significant because when you make that type of investment in a new phone, that's the perfect time to go out and look at, are you with the right carrier and are you with the right plan,” T-Mobile’s Carter said. “We've been in this period of an elongation of the handset cycle. Our thesis is that, at some point, that will reach a natural level, and when that happens, it goes back to a more even flow. So, a lot of the switching has been taken out of the market during this period. So that's a really significant piece of it." Carter added that the other major factor dragging down carriers’ churn levels is that there is now very little difference among carriers’ network performance.
The big question here, of course, is how the handset replacement cycle will eventually shake out. Previously, smartphone vendors like Apple and Samsung could reliably expect wireless shoppers to purchase a new smartphone every two years, when their service contract ended. (And carriers could then reliably look to poach customers from their rivals.) Now, though, it’s unclear how long customers might hold onto their phones. Will it be three or four years?
T-Mobile’s Carter predicted that it would be new smartphone launches, rather than the end of two-year contracts, that will eventually drive customer switching and carrier churn. “We do believe that it will reach a normalization, an equalization, and that switching events will be driven more around iconic phone launches,” he said. Will Samsung’s Galaxy S10 be that catalyst? Or will it be Apple’s next iPhone, likely to be launched this fall? Or will customers balk on the $800 and $1,000 price tags for those gadgets and hang onto their phone for another year?
Figure 5: 5G Adoption by Region
OnePlus is also working on a McLaren-branded revision of its OnePlus 6T, basking in its recent T-Mobile partnershipand (finally) support for Verizon’s LTE networkin the United States. The company says that in the first 30 days the Verizon-compatible OnePlus 6T was on the market, sales jumped 249 percent compared to the OnePlus 6’s first month on the market.
Verizon’s Ronan Dunne is facing a 5G challenge, one shared by other wireless providers across the world since customers are buying new smartphones on a longer replacement cycle.The “upgrade rate” in the wireless industry is lengthening significantly, as wireless customers are holding onto their phones for a longer time than they used to. Wireless customers used to buy a new smartphone every one or two years, but now the average wireless customer is buying a new smartphone every three or four years, which presents a significant challenge to wireless industry executives who are hoping to generate significant sales of 5G devices; the more 5G devices they sell, the more opportunities they have to recoup their investment in their 5G networks.
Dunne has said, “It’s important to understand why the upgrade cycle is elongating,” and there are several factors playing into the situation. First, he pointed out that, thanks to carriers’ new equipment installment plans, customers have a better understanding of the full cost of their smartphone than they did under previous subsidized plans (plans that generally offered a new smartphone every two years for $100 or $200). Now, Dunne said, customers can see the full cost of their smartphone, which can run $1,000 or more, and they can also enjoy lower monthly bills after they pay off the cost of smartphone. Customers are also adding more devices to their wireless accounts. “Traditionally it was one device and one upgrade cycle. Now it’s a multi-device environment and there's a multi-device cycle,” he said, explaining that now customers are upgrading there phones every two or three years, but are also upgrading other devices like smartwatches and tablets during that period as well. Finally, Dunne acknowledged, "The race of innovation in handsets has started to plateau."
He said that Verizon recently announced plans to sell a “high end” 5G device from Samsung in the first half of next year and that device would sit alongside the 5G Moto Mod for Verizon that will be available for Motorola devices next year as well. Dunne’s expectations are somewhat bolstered by new figures from Ericsson and Cisco. Ericsson recently forecast 250 million 5G subscriptions in North America by 2024. Cisco, for its part, said that it expects that by 2022, global mobile devices will grow from 8.6 billion in 2017 to 12.3 billion by 2022—and over 422 million of those will be 5G capable. During the fourth quarter, some of the nation’s largest wireless carriers reported record low levels of churn. That’s due in large part to the fact that Americans are no longer getting a new phone every two years. In the fourth quarter, for example, Verizon reported postpaid phone churn of just 0.77%, a significant achievement for the company and a number below most Wall Street expectations. Similarly, AT&T reported fourth quarter postpaid phone churn of 0.89%. Churn—the measurement of how many customers discontinue their wireless service and switch to a different carrier—can be affected by a variety of factors, of course. But churn rates in the wireless industry in general have been trending down to record low levels, particularly in the postpaid space, for several years. Carrier executives have attributed this trend to a variety of factors, including the success of their various strategies. AT&T, for example, has argued that its record churn levels are due in part to its strategy of bundling its wireless services with its DirecTV video offerings. "The U.S. consumer now understands that these devices are extremely expensive,” said T-Mobile CFO Braxton Carter. He also explained that most smartphones are purchased today through equipment installment plans (EIP) rather than through two-year subsidies. Meaning, customers are no longer purchasing a free or $200 smartphone alongside a two-year service contract, and then getting a new phone after that two-year contract is over—instead, they’re seeing the full price tag for the phone through their EIP fee and are paying that gadget off in monthly installments of $20 or $40. Thus, when customers pay off their phone through their EIP, their monthly bill shrinks. And, as a result, customers may be wary of purchasing a new phone.
"The consumer before really viewed the handset as disposable [through handset subsidies] ... and with phones approaching $1,000-plus, what you're seeing is really an elongation of a handset lifecycle. Right now, it's about 34-35 months for a smartphone. That's significant because when you make that type of investment in a new phone, that's the perfect time to go out and look at, are you with the right carrier and are you with the right plan,” T-Mobile’s Carter said. “We've been in this period of an elongation of the handset cycle. Our thesis is that, at some point, that will reach a natural level, and when that happens, it goes back to a more even flow. So, a lot of the switching has been taken out of the market during this period. So that's a really significant piece of it." Carter added that the other major factor dragging down carriers’ churn levels is that there is now very little difference among carriers’ network performance.
The big question here, of course, is how the handset replacement cycle will eventually shake out. Previously, smartphone vendors like Apple and Samsung could reliably expect wireless shoppers to purchase a new smartphone every two years, when their service contract ended. (And carriers could then reliably look to poach customers from their rivals.) Now, though, it’s unclear how long customers might hold onto their phones. Will it be three or four years?
T-Mobile’s Carter predicted that it would be new smartphone launches, rather than the end of two-year contracts, that will eventually drive customer switching and carrier churn. “We do believe that it will reach a normalization, an equalization, and that switching events will be driven more around iconic phone launches,” he said. Will Samsung’s Galaxy S10 be that catalyst? Or will it be Apple’s next iPhone, likely to be launched this fall? Or will customers balk on the $800 and $1,000 price tags for those gadgets and hang onto their phone for another year?
Figure 5: 5G Adoption by Region
Source: Statista
Apple Inc. plans to hold off until at least 2020 before offering an iPhone that can connect to the 5G phone services coming next year. As with 3G and 4G, the two previous generations of mobile technology, Apple will wait as long as a year after the initial deployment of the new networks before its main product gets the capability to access them, said the people, who asked not to be identified discussing the company’s plans. Apple’s previous calculations -- proven correct -- were that the new networks and the first versions of rival smartphones would come with problems such as spotty coverage, making consumers less compelled to immediately make the jump. This time, 5G boosters argue the switch is a much bigger speed upgrade, making Apple’s decision to wait riskier. The networks will open the floodgates to new types of mobile computing, 5G advocates say. The decision to sit on the sidelines may be related to the company’s feud with Qualcomm Inc., the leader in 5G-enabled chips, and its alliance instead with Intel Corp., which won’t have chips available in time to support 2019 phones. In the past, it hasn’t been a problem for the company to wait a year after much of its competition to release phones compatible with the latest wireless networks. The original iPhone in 2007 was so far ahead of rivals that its slower connection, known as 2G EDGE, wasn’t a deal breaker for early adopters. Even the iPhone 4S with its flashy features like a stainless steel frame and the promise of Siri were enough for some to ignore its lack of true 4G LTE speeds. Huawei and Samsung can build 5G modems -- not just Intel and Qualcomm. But Apple is unlikely to use chips from competitors, and the companies may also struggle to produce enough supply for the iPhone’s huge volumes.