Will New, More Complicated Dataplans Cost Smartphones the Market Majority?

As I indicated earlier the Nielsen Company estimates that about 25% of the US mobile phone population now consists of smartphones. The company further expects smartphones to cross the 50% threshold by Q3 next year.

Today I was having a conversation with Placecast's Blair Swedeen about the rise of smartphones and he made a simple but profound point that I had not been focused on: the "gating" effect of data plans on further smartphone growth. Even as more people contemplate buying ever-more-powerful $200 smartphones (subsidized) they may be held back by costly and ambiguous data plans. 

There are two competing trends in the US mobile handset market: 1) a movement toward smartphones and their associated dataplans and 2) a simultaneous movement by the budget conscious toward lower-cost prepaid plans.

Simultaneously Verizon and AT&T are moving toward tiered, usage-based pricing to generate more revenues from heavy users and help moderate the strain on their networks by discouraging aggressive data usage. ´╗┐The introduction of usage based pricing adds both uncertainty and complexity to the market and is contrary to consumer interests, though the carriers argue that most people will save money under the new pricing schemes. 

T-Mobile and Sprint have so far not indicated they will follow the pricing changes of the larger carriers. 


´╗┐According to a consumer survey (n=2,000), conducted at the end of 2009 and published in March of this year, by the New Millennium Research Council "prepaid cell phone subscribers accounted for nearly two thirds (65 percent) of the 4.2 million net subscribers added by U.S. phone carriers in the fourth quarter of 2009."

In other words, pre-paid growth (17%) is outpacing growth of contract-based customers (3%). Additional verbatim findings from the survey include the following: 

  • The prepaid segment of the wireless market grew by 17 percent in the 4th quarter of 2009 to 54.4 million subscribers, up from 46.3 million in the same quarter in 2008. By contrast, contract-based cell phone service grew only 3 percent over the same period of time.
    One out of five cell phone subscribers are now using prepaid phones.
  • The prepaid segment represents a larger proportion of subscribers in the US than ever before, hitting 20 percent in the 4th quarter of 2009, up from 18 percent at the end of 2008.

The carriers are counting on data-revenue growth to help sustain them as voice revenues decline over time. However the introduction of tiered pricing and the ambivalence about data-network usage that these plans manifest may further slow or limit growth of smartphone and related dataplan adoption.

There are some smartphones available to prepaid customers and eventually more such handsets will migrate "down market." However the newest and "sexiest" handsets will always be used as an incentive to get customers to commit to contracts. Nonetheless it's very possible that more complex pricing and uncertainty over mobile data costs (from usage-based pricing) will dissuade a meaningful number of people from getting the newest sexy smartphone.

Consequently the 50% penetration figure may turn out not to be just another milestone in the inexorable march of smartphones toward market domination. It may turn out to be something of a celiing on consumer-smartphone adoption instead.