Peter Nowak: Despite the hype, smartphones are getting cheaper

The average selling price of handsets will decline by 4.6 per cent each year to US$236.38 from $293.61.

The annual Mobile World Congress, kicking off in Barcelona this week, is typically a launching pad for new flagship smartphones from some of the world's biggest manufacturers.

This year's event will be no different, with Samsung and LG among those expected to debut flashy new devices with better cameras, sharper displays and whizz-bang features. Increasingly, however, these big product splashes – which eat up no small amount of marketing dollars – are looking passé. Sales of high-end smartphones are slowing and the profits their manufacturers used to reap are trending towards zero, if they're not already there.

The problem is that just about everyone already has a good smartphone – and they’re happy with it, so there’s no need to get a new one. That’s bad news for the companies but good news for consumers because it means one thing – lower mobile prices all around.

Worldwide smartphone shipments are expected to rise to 1.9 billion units in 2019, from 1.4 billion last year, according to the research company IDC. The average selling price of handsets, however, will decline by 4.6 per cent each year to US$236.38 from $293.61.

Much of that drop will result from volume increases in developing countries, where smartphones are cheap by developed-world standards. More people coming online through inexpensive phones will push average prices down.

But some of the decrease will also be because of saturation in developed markets. Even Apple, the king of high-end devices, is not the unstoppable juggernaut it once was. The company’s iPhone sales grew by only 0.4 per cent in its most recent quarter, its smallest increase since the device launched in 2007.

Apple enjoyed a sales spike a year ago when it introduced iPhones with bigger screens, but the lustre is off. The company is its own worst enemy, since the devices’ high quality means people are less likely to upgrade to new ones.

The news is worse for Samsung, Apple’s chief competitor. The South Korean company last month reported a 40 per cent decline in quarterly profit, led by its mobile division. The Galaxy S6 and S6 Edge, unveiled in Barcelona last year, failed to catch on, with some analysts proclaiming them flops. As it stands, Apple makes about 94 per cent of the industry’s profit and everyone else is fighting over the scraps.

Lower-priced devices will inevitably have an effect on wireless service pricing. In most developed markets, high-priced phones are sold through subsidies where the customer pays a relatively smaller upfront fee in exchange for signing a contract for a year or longer.

In the UAE, for example, a full-priced, unsubsidised iPhone 6S costs Dh2,599. On a 12-month contract with du, however, the upfront fee is Dh1,199, after which the customer pays Dh350 a month. The device can also be had for no upfront payment with a two-year contract.

The subsidy model is popular with consumers because it makes it look like they're getting a deal. In reality, manufacturers and wireless providers have been benefiting from obscuring the true prices of devices. Apple and Samsung, up until recently, had been reaping big profits while carriers could lock customers in for the long term and set rates with their captive audiences accordingly.

As competing phones get better and cheaper, and as high-end device sales slow even more, consumers will have fewer reasons to sign on to subsidised contracts. Carriers, in turn, will have to get more competitive with each other to keep customers happy, which means service prices will come down, too.

Wireless providers see this trend on the horizon, which is why so many are turning to so-called zero-rated services as a new way to lock customers in.

Want to watch YouTube videos without them counting against your data cap? Sign on to Carrier X. Want data-free music streaming? For that, you’ll want Carrier Y.

The problem with the strategy is that zero-rating is proving to be a non-starter with competition regulators. India, for example, this month joined a growing list of countries that ban the practice in the name of preserving a neutral internet for all users and services.

Despite the hype that will be on display in Barcelona next week, one thing is certain: smartphones are going to get cheaper – and so will wireless service – and consumers will be better off for it.

Peter Nowak is a veteran technology writer and the author of Humans 3.0: The Upgrading of the Species.

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