Cellphone Recycling Rate Falls as Smartphone Penetration High, Recon Says

new services. Of the 143 million mobile phones sold in the U.S. in 2014, nine in 10 were smartphones, said Recon analyst Roger Entner, which compares with smartphone sales of roughly 50 percent the prior year. With device sales and new subscriber additions declining, the handset replacement rate has “abruptly slowed to the lowest rate since we began calculating the metric,” said Entner. He forecasts device sales will decline 5 percent to 136 million in 2015 and slip again in 2016 to 131 million. Consumers’ phone purchase patterns have changed, said Entner, with a growing number delaying upgrades to fulfill two-year contract obligations for lower monthly service plans. Consumers replacing their phones focused on newer, higher-priced devices, which resulted in device revenue slipping only 5 percent in 2014 despite the 15 percent drop in unit sales, said Entner. Short term, the movement to higher-priced devices bumps up revenue and profitability for mobile carriers, he said. The long-term trend is negative, because it takes longer for new devices to reach the network, exacerbated by the introduction of equipment installment plans (EIP) that have extended the handset replacement cycle by 4.1 months to 26.5 months in 2014, Entner said. The percentage of devices being replaced every year grew from 45 percent in 2013 to 49 percent last year, compared with the percentage of devices that replaced obsolete devices, which jumped from 15 percent in 2013 to 35 percent a year later, said Entner. Devices replaced on the traditional two-year schedule fell from 40 percent in 2013 to 16 percent last year, he said. A wedge, Entner said, is forming in Americans’ purchasing behavior between those who upgrade phones every year and those who upgrade when the phone breaks or becomes obsolete. App capabilities may be “artificially restrained” as developers cater to a consumer less prone to take advantage of new technologies to improve the utility of the device and service, he said. Software developers will have to consider that a large percentage of smartphones in use won’t be able to run cutting-edge apps, said Entner. Some developers won’t build the latest features into their apps, slowing the pace of innovation, he said. Older devices in the market that don’t have the latest electronics won’t be able to access new spectrum bands as they come online, said Entner. A six-year-old iPhone 3GS will achieve download speeds of 2 Mbps with its first-generation WCDMA chipsets, compared with an iPhone 6 that can download the content 25 times faster and access newly licensed spectrum, said Entner. “As fewer people upgrade their devices, the pace with which consumers can use new unused parts of the networks on new spectrum slows down and consumers are stuck on congested legacy spectrum,” Entner said, underscoring that mobile operators spent more than $45 billion on new spectrum in the recent AWS-3 auction. The transition to Voice over LTE (VoLTE) could be slowed by an “embedded base of older devices,” said Entner, and consumers' experience with speed and graphics could suffer, leading to buffering or long waits as content loads. “Longer-term developments could be largely offset in the short term by the slowed innovation and cramped spectrum caused by delayed handset replacement,” the researcher said. While following T-Mobile into the EIP space, AT&T has been able to defend its base against T-Mobile and other operators that offer EIP financial benefits as “device subsidy expenditures have declined significantly,” said Entner. He envisions AT&T encountering the same problems as T-Mobile as “the device universe" of its customers ages. Verizon is holding on to the status quo while offering consumers the option to do EIP, said Entner. Verizon benefits less from the short-term gains of EIP but “will also not suffer as much from a lengthened handset replacement cycle,” Entner said. He called Sprint, which “dabbles” in EIP offers, a “long-term winner.” The carrier's 24-month handset leasing program is a “viable plan” to both retain the device upgrade cycle and “reap the benefits from a customer base with newer devices,” Entner said.