As investors and industry analysts slice and dice the wireless industry’s second quarter 2022 results, buyers appear to be falling into two buckets: the affluent shopper and the budget-conscious buyer. Wireless consumers that previously purchased middle-tier smartphones and rate plans are on the decline.
Canalys Research Analyst Brian Lynch noted this trend in the company’s latest North American smartphone shipment report and credited the drop in mid-tier smartphone purchases to inflation and the fact that consumers are feeling more pressure on their everyday expenses.
“Consumer interest for low-end and high-end devices is sustaining the market, while the appetite for mid-range devices is vanishing fast,” Lynch said. He added that the sales performance of the iPhone SE (3rd generation), the Galaxy A53 and the Galaxy A33 have been poorer than expected, and many buyers who normally would consider higher-priced devices in the range of $250 to $600 are now looking for cheaper options.
Lynch also said that high-end smartphones appear to be exempt from inflationary pressures, and sales of Apple’s iPhone 13 series and Samsung’s Galaxy S series are steady.
Rate plan pressures
But the current economic environment is not just putting pressure on smartphone purchases, it is also impacting the types of rate plans consumers are buying. According to a second quarter 2022 research report from New Street Research, many subscribers today are shifting to value-focused wireless plans instead of moving to prepaid plans. During the economic recession of 2007 when wireless consumers felt pressure on their pocketbooks they flocked to prepaid plans because they were cheaper. However, New Street notes that competition has resulted in cheaper postpaid plans that are easier to obtain because there are fewer restrictive contracts and lighter credit thresholds. That’s why T-Mobile, with the lowest advertised postpaid rates, and cable MVNOs like Charter’s Spectrum Mobile and Comcast’s Xfinity Mobile picked up a significant number of net adds in 2Q and are likely to do well in Q3.
A sign that wireless operators are feeling the pressure from cable MVNOs is that all three have responded by introducing low-cost unlimited plans such as Verizon’s Welcome Unlimited, which is $65 per month compared to the company’s entry-level 5G Start unlimited plan that costs $70 per month. Likewise, T-Mobile offers a Base Essentials unlimited plan for $45 per month compared to its $65 per month Essentials unlimited plan, and AT&T has a $50 per month Value Plus plan compared to its Unlimited Start plan for $65 per month.
MoffettNathanson said in a Q2 research report that these new low-cost unlimited plans are drawing consumers away from the operator’s other entry level unlimited plans because they are cheaper. In addition, mid-level unlimited plans are also losing momentum, MoffettNathanson said. Athough MoffettNathanson didn't point to specific plans, all three big operators offer mid-level plans such as Verizon's $80 per month Do More plan or T-Mobile’s $70 per month Magenta plan.
However, the premium tier rate plans, such as T-Mobile’s $85 per month Magenta MAX, AT&T’s $85 per month Unlimited Elite, or Verizon’s $90 per month 5G Get More plan are still garnering interest from consumers.
Mike Sievert, T-Mobile’s CEO, noted this trend during the company’s Q2 earnings call when he said that adoption of Magenta MAX is strong. “We continue to see great customer adoption of Magenta MAX, which is helping drive our strong ARPU and ARPA trends. With the trends we are seeing, we now expect postpaid ARPA to be up roughly 3% in 2022,” Sievert said.
Likewise, AT&T CFO Pascal Desroches noted on the company’s Q2 earnings call that the company had a 1.1% year-over-year increase in postpaid phone average revenue per user, which he attributed to customers trading up to higher-priced unlimited plans, although he didn’t specify which plans.
Basic and premium
It appears that after years of having a slew of choices, wireless consumers now can be categorized into two groups: Those that want entry-level devices and low-cost monthly rate plans and those that want the priciest smartphones and premium rate plan packages.
I hope this decline of the wireless middle ground is just a sign of tough economic times and not a bigger trend that will have long-lasting implications. I believe the wireless consumer wants more than just a couple of options when it comes to their wireless price plans and smartphone choices.