The arbitrary and damaging obsession with smartphones (vs others)

Will smartphones end up killing the operator ARPUs?

Okay, let’s take a step or two back. In the mobile phone industry, there are few things more misleading than the split to smartphones and other phones. The concept of “smartphones” has several problem; first, people don’t exactly agree on what is a smartphone and what isn’t. This fact alone leads to the production of different statistics on the same things and differing and confusing terminology – IDC, for example, calls smartphones “converged mobile devices”. And since smartphones are cool, more expensive, more technically sophisticated etc, the press and the industry as a whole is entirely, myopically, focused on them.

And it leads to absurd news headlines, such as this one from Bloomberg Business Week: Apple iPhone Captures 72% of Japan Smartphone Market – anybody who knows the types of phones in use in Japan will find this figure hard to believe. That’s because it’s basically bogus, stripped of any usability by MMRI’s definition of a smartphone; a definition that neatly dismisses DoCoMo’s Symbian- and Linux-based “featurephones” from the figures.

But that’s fine, really. It’s not the main problem. Even if everyone were to agree on what is a smartphone and what is not, the major issues would remain. That’s because all smartphone vs non-smartphone statistics matter precious little when nobody takes into account how the phones are used. Industry players make implicit assumptions that smartphones generate more app sales, more traffic, more this and that and ultimately more revenue. But let’s take a look at the most common activities people use their phones for – in order of popularity:

  • Voice calls – with voice calls, it hardly matters what type of phone you have. Right? Voice calls still make up the vast majority of the industry revenue, so I find it interesting that the whole industry has been dragging its feet on introducing improvements to the voice quality with features such as WB-AMR. It’s as if everyone assumed that we can leave that service on the “good enough” level that it’s been at for the past decade and just milk it ad infinitum.

  • SMS – the most absurdly profitable business the world of telecommunications has ever seen. SMS probably has better profit margins than ponzi schemes. Yet, as with voice calls, SMS usage has nothing to do with a phone being a smartphone. Or does it?

  • Contacts – i.e. your phone book. This at least has nothing to do with being or not being a smartphone. Big battles are being raged over the control and “ownership” of the contacts list, with most players duly forgetting that it’s supposed to be the customer who “owns” his/her contact list.

  • Camera – most people use the mobile phone camera if they have one. The high-end ones even take decent photos. So smartphones are better for taking photos and, due to other features, more likely to be used for sharing/uploading those photos.

  • 3rd party apps – Facebook is by far – by far – the most used application on many mobile platforms in most of the Western world. Other social networking apps dominate elsewhere. Smartphones obviously have an edge here, because one definition of a smartphone is that you can significantly extend its functionality through 3rd party software; i.e. apps. And apps often mean increased data usage.

  • Music – smartphones generally have an edge on storage capacity, so they are more likely to be used as music players. In the case of services like Spotify, this means increased data usage.

  • Internet browsing – smartphones generally also have a bigger screen and better browsers than “feature”phones and are thus more likely to be used for browsing the Internet. Increased data usage.

  • Maps & Navigation – mostly possible only with smartphones for now. For some models (Ovi Maps), this means nothing in terms of data traffic, but with some (Google Maps), it means increased data usage.

So from this very light and superficial glance, it is apparent that what we call smartphones “need” a data plan if you are to use the features they are good at. That means additional ARPU for the operator which is precisely why we see operators across the globe promoting data services, from Facebook to videos to whatnot. Promoting someone else’s service to push your own is interesting in its own right but let’s gloss over that for now.

The problem? The other shoe has yet to drop.

Unfortunately, as we know each day has a finite number of minutes and hours; hence, each day has a finite amount of time you will be spending fiddling your mobile phone and whatever feature you use, the time is away from something else. At first, mobiles enabled us to talk to our friends instead of strangers on the train, or instead of reading the paper. As new devices, mobiles obviously cannibalized only non-mobile-related activities.

Curiously now, the most important, most-used features smartphones are better at than other phones – namely taking and uploading pictures, social networking & other apps and browsing the Internet – are all likely to lower your usage of voice calls and SMS. Mobiles now cannibalize other mobile use cases.

For the mobile operators looking to make an extra buck from the data services, this is in fact bad news. Having subscribers sign up to flat-rate (or just big enough) data packages will, at first, drive up the ARPU. And in order to take advantage of the things smartphones are better at, the consumers will be rightly encouraged to sign up for one when they buy a smart-enough-phone. But get this: when customers learn to actually use the marketed abilities and services, they will be spending less time on the most profitable parts of the business: voice calls and SMS.

Based on mostly anecdotal evidence, the resultant decline in voice and SMS revenue more than offsets the increase gotten from the data packages. With all the Internet services at hand 24/7, my mobile voice call usage now averages 2.6 minutes per day. That represents a decline of approximately 90% in 10 years. My monthly voice ARPU of $50-70 has been mostly replaced by a data package worth $10.

Basically, operator revenues are screwed because their customers learn to use the features they themselves marketed and promoted.

Oops.

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