ABI and IDC analysts debate significance of Wi-Fi in driving smartphone sales

Smartphone shipments are expected to outpace that of traditional cell phones over the next couple of years, according to two analysts, but they don’t agree that devices integrated with Wi-Fi are one of the key drivers for smartphone growth. ABI Research analyst Michael Morgan says Wi-Fi is quickly becoming table stakes for smartphones and that growth of these types of devices has exploded in the past year. In fact, the research company says dual-mode cellular/Wi-Fi handset shipments will double from 2008 through 2010. “Most homes that have broadband already have a Wi-Fi router in them,” Morgan tells Report on Wireless. He says that such broad penetration can challenge the business case for femtocells – small base stations that can expand cellular coverage in residential and SOHO environments. Although femtocells are down to $150, at this price-point it can still be difficult to incorporate them into a competitive business model, Morgan concedes. “But with Wi-Fi some companies are building a robust business model,” says Morgan. “For example, with an iPhone you can go to Starbucks and download songs off of Wi-Fi for free. This is more than just device functionality – they are giving you a reason to use it.” IDC Canada analyst Kevin Restivo isn’t so sure Wi-Fi is that significant of a driver for smartphones. He says that because most Wi-Fi hotspots are locked down and local, the appeal is limited. “Increasing numbers of phones have Wi-Fi,” he says. “It can offer short range connectivity, web surfing in a casual environment, but it is not for any length of time or distance. The range of choices doesn’t typically lend itself to voice.” Morgan doesn’t disagree, but sees the difference as being how to make Wi-Fi and other smartphone technologies fit with innovative business models. “Downloading a song over a regular cellular network is no fun,” he says. “It’s not meant for streaming or heavy lifting, but Wi-Fi is. And although 80% to 90% of Wi-Fi phone usage now is for data, there is growing voice use as well. It’s true there have been performance issues with voice, but a lot of that is performing adequately now.” An ABI Research study indicates that the user’s experience appears to be critical in handset Wi-Fi adoption. While Nokia leads the market in Wi-Fi-enabled handsets due to the size of its portfolio, Wi-Fi models only represent a small fraction of its product line. In contrast, every Apple Corp. iPhone has Wi-Fi, with ease-of-use and the appeal of the iTunes experience meaning that as many as 75% of iPhone users are using their Wi-Fi regularly. This brings us to the vendors. As cell phones become commoditized, vendors will scramble up the value chain to capture more of the smartphone market in the hopes of securing profits. This means we may see some new faces. “Potential new competitors are ASUSTek Computer Inc. and Dell Inc., which could be a disruptor, depending on price” says Restivo. “We are seeing ZTE move into the US, and Nokia, which is at single digits in Canada, try and take more market share here from the iPhone and Research in Motion’s BlackBerry.” At the same time, US-based New Millennium Research Council (NMRC), an industry-funded think tank, says the market will see a major shift from contract-based cell phones to prepaid plans, claiming that 39%, or 60.3 million consumers, are likely to cut back on their cell phones to save money. “Pre-paid isn’t necessarily cheaper,” says Allen Hepner of the NMRC. “People don’t often use all the minutes they pay for, and during this recession we are seeing evidence that the consumer is becoming much savvier in assessing plans” If so, that may put a crimp in the analysts’ rosy predictions for smartphones in 2009, given that these expensive devices are subsidized by multi-year contracts. Overall mobile device shipments are expected to slow this year, but significant growth in smartphone deliveries is expected to save the device market from a “shipment recession”, according to Restivo. “The smartphone market is still relatively fast growing when compared to other slices of the tech sector,” he tells Report on Wireless. “The long term trend is that everyone will own a smartphone.” The hardest hit will be the traditional mobile phone segment, which is expected to shrink by 5% this year compared to 2008. IDC says the converged mobile device market – essentially, IDC’s term for a smartphone running a high-level operating system – will save the overall mobile phone market from a “shipment recession”, and should grow by 21% in 2009. IDC has revised down its 2009 estimates for shipments of mobile devices to wireless service providers, from 6.6% to 4%, the lowest in five years.

ABI and IDC analysts debate significance of Wi-Fi in driving smartphone sales

News | March 30, 2009

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