There are more and more great and powerful smartphones coming out all the time, but, according to figures from UBS AG (ADR) (NYSE:UBS) reported by The Wall Street Journal this week, the rate at which Americans are upgrading is more than slowing down — it’s going backwards.
Last year, 9% fewer people in the U.S. upgraded their handset than did the previous year.
Hence, the new postures on upgrading phones early, first from T MOBILE US INC (NYSE:TMUS), and then from AT&T Inc. (NYSE:T), and soon, according to Droid Life, from Verizon Communications Inc. (NYSE:VZ).
As one of T MOBILE US INC (NYSE:TMUS)’s self-described “Boldest Moves Yet,” the carrier unveiled its JUMP! program last week, which allows subscribers to upgrade their phones up to twice a year after the first six months.
“At some point, big wireless companies made a decision for you that you should have to wait two years to get a new phone for a fair price,” said T MOBILE US INC (NYSE:TMUS)’s CEO John Legere in the company’s press release.
AT&T Inc. (NYSE:T) has also announced a path to quicker upgrading for to smartphones or tablets. It calls its plan Next, and it allows upgrades after one year, not the usual two.
Why?
One of the reasons few people are upgrading is that the phone industry has reached the point of diminishing returns for the traditional handset. Having a smartphone has dropped the mantel of being cool, because so many people in the U.S. have one.
Plus, there really is less room for some super, game-changing function to come on the scene — improvements are now coming incrementally, not in large leaps forward as they once did.
So what’s in it for the carriers, making it easier and — supposedly — cheaper for subscribers to upgrade? Strange and unexpected things do occur from time to time, but altruism from a mobile carrier will never be one of them — no matter how much Legere says otherwise.
It’s the data, stupid
Smartphones have become commodities and profit margins on such are very little. The money for the carriers is in the service fees, and the biggest moneymakers now are data usage fees.
A faster phone with a high-resolution screen on a speedy 4G LTE network almost compels subscribers to watch data sucking videos. So it’s in the carriers’ best interests to provide the fastest data delivery device it can to its subscribers.
On the flip side of that equation, if customers don’t upgrade to LTE devices, why did the carriers’ spend so many billions of dollars on upgrading their infrastructure to handle the new LTE networks?
The more LTE handsets out there getting data from the growing number of LTE networks brings in more revenue. So making it easier to upgrade to higher data rate phones is really a no-brainer for the mobile carriers. It’s like giving a bigger cup to a Starbucks Corporation (NASDAQ:SBUX) addict. Of course, when wearable mobile devices like Apple Inc. (NASDAQ:AAPL)‘s rumored iWatch and Google Inc (NASDAQ:GOOG)‘s Glass start hitting the streets, the “Wow!” factor may again come into play and bring back upgrade envy to the masses.
The article Fewer Smartphone Upgrades Give U.S. Telecoms Something to Worry About originally appeared on Fool.com is written by Dan Radovsky.
Fool contributor Dan Radovsky owns shares of AT&T. The Motley Fool recommends Apple, Google, and Starbucks. The Motley Fool owns shares of Apple, Google, and Starbucks.
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