Market Insight

Coronavirus impact reaches US smartphone market in mid-March

May 08, 2020

Gerrit Schneemann Gerrit Schneemann Senior Analyst, Smartphones

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Coronavirus impact reaches US smartphone market in mid-March

AT&T, Verizon and T-Mobile have provided insights into how the spread of the Coronavirus outbreak has impacted their mobile handset business. Each carrier reported declines in equipment revenues for Q1 2020: AT&T’s mobile equipment revenue declined by eight percent year-over-year, while Verizon’s equipment revenue declined by 31.5% from Q1 2019 to Q1 2020. T-Mobile split its competitors, by reporting a 15.9% decline in equipment revenue. AT&T and Verizon has seen continuous negative equipment growth since Q1 2019, while T-Mobile started its current downward trend in Q2 2019.

The carriers were able to complete most of Q1 ’20 without significant impact to their business. Now, all three are expecting Q2 2020 to take a more severe hit compared to Q1.

COVID-19 is adding to existing pressure on handset sales for US carriers: Increasing handset prices, leading to longer device life cycles. More financing options, from carriers and OEMs, are available as the industry has moved a way from subsidizing handsets as part of long-term contract agreements.

The sudden halt in retail activity and the uncertain duration of this crisis forces users to reevaluate their spending on technology hardware. In these uncertain times lies an opportunity for carriers and smartphone OEMs to short-circuit increasing device life cycles by highlighting user benefits that are now critical but might have been nice-to-have just two months ago.

Sudden stop, slow recovery

 

Neither carrier felt the dramatic impacts of the outbreak until well into March – saving the quarter for them from a financial perspective. However, each carrier already started to implement safety and health restrictions for their employees and retail locations, ahead of widespread stay-at-home orders. However, even without virus impact, equipment revenue for these three carriers was still under pressure. The health crisis enhanced the downward trend.

The closure of retail locations at a large scale (above 70% of locations for AT&T and Verizon) impacted carrier handset sales at the end of Q1 and will impact sales in Q2 and potentially longer.

Because of the uncertain path to re-opening retail locations, carriers will have to shift more drastically to online and e-commerce platforms to try to capture some of the handset sale potential while access for customers to physical locations is limited. T-Mobile, for example, retrained many in-store employees to become virtual customer service representatives to deal with increased call and chat support requests.

Because of the fragmented implementation of stay-at-home orders, the US market will also re-open in a fragmented fashion. California was one of the first states to release a stay-at-home order immediately impacting over 10% of the US population. As the chart below shows, over 90% of the US population were affected by a stay-at-home order in the second week of April. Governors are working on plans to slowly re-open their state economies, with Georgia starting selective easing of restrictions beginning April 24th. So far it is unclear how other States will follow. Wireless carriers are going to be on their own in trying to come up with a best-practices way to open their own stores. 

Path forward

Regardless of how carriers will address this challenge, the economy will take some time to gain steam as customers adjust to new behavior patterns. US customers still like to go to stores to upgrade their devices, and even pay their monthly bills. A switch to e-commerce, for most device sales and upgrades, will take time. During their quarterly conference call, AT&T and T-Mobile seemed to be more confident of their ability to shift consumer behavior to online than Verizon.

Other retailers, like Best Buy, have changed the way how their customers interact with their stores by limiting the ability to physically browse products before purchasing them. Beyond carrier locations, Apple's stores remain closed in the US. The company has opened stores in China and Korea.

Carriers have tried concierge-like services in the US in the past – delivering handsets to consumers’ homes and providing a personalized set-up experience. These services might have to make a come-back. To overcome the lack of physical retail locations, faster online ordering, personalized support and easier online tools will be required from carriers in the US as soon as possible to limit the impact of the virus outbreak.

All three carriers are confident in the essential nature of their business: providing connectivity. Therefore, churn is likely to remain low in the short term, as customers stick with their current provider. As more users are impacted by the economic outfall of the virus, paying off device installments and switching to a new carrier will be difficult for many.

The opportunity for smartphone OEMs, and carriers, is users might be becoming aware of shortcomings in their existing devices. In a less restricted world, living with an older device might have worked for many, but increased demands on those devices can show their age and make newer and upcoming devices more appealing.

Video calling capabilities are now important features for work and education. New devices, with better screens and more versatile cameras present an instant user benefit. A move to a 5G handset can help secure better connectivity for bandwidth intensive apps and services.

Smartphone OEMs and carriers need to find a balance between supporting customers in difficult economic times, while at the same time highlighting how their new devices and services are critical parts of the new normal.

AT&T, Verizon and T-Mobile have provided insights into how the spread of the Coronavirus outbreak has impacted their mobile handset business. Each carrier reported declines in equipment revenues for Q1 2020: AT&T’s mobile equipment revenue declined by eight percent year-over-year, while Verizon’s equipment revenue declined by 31.5% from Q1 2019 to Q1 2020. T-Mobile split its competitors, by reporting a 15.9% decline in equipment revenue. AT&T and Verizon has seen continuous negative equipment growth since Q1 2019, while T-Mobile started its current downward trend in Q2 2019. 

The carriers were able to complete most of Q1 ’20 without significant impact to their business. Now, all three are expecting Q2 2020 to take a more severe hit compared to Q1.

COVID-19 is adding to existing pressure on handset sales for US carriers: Increasing handset prices, leading to longer device life cycles. More financing options, from carriers and OEMs, are available as the industry has moved a way from subsidizing handsets as part of long-term contract agreements. 

The sudden halt in retail activity and the uncertain duration of this crisis forces users to reevaluate their spending on technology hardware. In these uncertain times lies an opportunity for carriers and smartphone OEMs to short-circuit increasing device life cycles by highlighting user benefits that are now critical but might have been nice-to-have just two months ago.

Sudden stop, slow recovery
  
Neither carrier felt the dramatic impacts of the outbreak until well into March – saving the quarter for them from a financial perspective. However, each carrier already started to implement safety and health restrictions for their employees and retail locations, ahead of widespread stay-at-home orders. However, even without virus impact, equipment revenue for these three carriers was still under pressure. The health crisis enhanced the downward trend.

The closure of retail locations at a large scale (above 70% of locations for AT&T and Verizon) impacted carrier handset sales at the end of Q1 and will impact sales in Q2 and potentially longer. 

Because of the uncertain path to re-opening retail locations, carriers will have to shift more drastically to online and e-commerce platforms to try to capture some of the handset sale potential while access for customers to physical locations is limited. T-Mobile, for example, retrained many in-store employees to become virtual customer service representatives to deal with increased call and chat support requests.

The fragmented implementation of stay-at-home orders will cause the US market to re-open in a fragmented fashion. California was one of the first states to release a stay-at-home order immediately impacting over 10% of the US population. As the chart below shows, over 90% of the US population were affected by a stay-at-home order in the second week of April. Governors are working on plans to slowly re-open their state economies, with Georgia starting selective easing of restrictions beginning April 24th. So far it is unclear how other States will follow. Wireless carriers are going to be on their own in trying to come up with a best-practices way to open their own stores.  

Path forward

Regardless of how carriers will address this challenge, the economy will take some time to gain steam as customers adjust to new behavior patterns. US customers still like to go to stores to upgrade their devices, and even pay their monthly bills. A switch to e-commerce, for most device sales and upgrades, will take time. During their quarterly conference call, AT&T and T-Mobile seemed to be more confident of their ability to shift consumer behavior to online than Verizon.

Other retailers, like Best Buy, have changed the way how their customers interact with their stores by limiting the ability to physically browse products before purchasing them. Beyond carrier locations, Apple's stores remain closed in the US. The company has opened stores in China and Korea.

Carriers have tried concierge-like services in the US in the past – delivering handsets to consumers’ homes and providing a personalized set-up experience. These services might have to make a come-back. To overcome the lack of physical retail locations, faster online ordering, personalized support and easier online tools will be required from carriers in the US as soon as possible to limit the impact of the virus outbreak.

All three carriers are confident in the essential nature of their business: providing connectivity. Therefore, churn is likely to remain low in the short term, as customers stick with their current provider. As more users are impacted by the economic outfall of the virus, paying off device installments and switching to a new carrier will be difficult for many. 

The opportunity for smartphone OEMs, and carriers, lies in users might be becoming aware of shortcomings in their existing devices. In a less restricted world, living with an older device might have worked for many, but increased demands on those devices can show their age and make newer and upcoming devices more appealing. 

Video calling capabilities are now important features for work and education. New devices, with better screens and more versatile cameras present an instant user benefit. A move to a 5G handset can help secure better connectivity for bandwidth intensive apps and services. 

Smartphone OEMs and carriers need to find a balance between supporting customers in difficult economic times, while at the same time highlighting how their new devices and services are critical parts of the new normal.

Category
Mobile Devices
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