Most people around the world no longer buy a phone from a mobile operator, but this remains the retail outlet where all the big brands want to be — for good reason.
Data from the IDC Worldwide Quarterly Mobile Phone Tracker shows that since 2010 the proportion of smartphones sold by mobile operators worldwide has fallen by half, from more than 60% to little more than 30%.
Taken longer term and including feature phones, the number of phones sold through operators has fallen ever more precipitously — from a peak of a billion units in 2008 to 440 million in 2018.
The three charts here show, however, how telco retail is no longer becoming less important in the phone retailing business. (IDC uses “telco” for the operator channel, and that is the term mainly used here. Telco can also include other types of telecommunications operator, but the difference is rarely significant. Value figures refer to retail prices before sales tax.)
The first chart shows the unit decline, but the second chart shows why telco has retained its importance — There is no longer any significant drop in value terms in telco phone sales value measured at retail prices before tax. Instead, the telco channel is not losing its sway and has been retaining share in recent quarters, with total sales of around $200 billion a year.
The third chart shows the reason for this — while the mobile industry as a whole is seeing average sales prices rise, the average sales price through telco outlets is increasing more rapidly than in other retail. This is true of most global regions, according to IDC data.
Developed-Market Bias
North America accounts for nearly a quarter of global telco phone retail units and nearly a third of the value. Europe as a whole accounts for close to another 20% of global volumes and slightly more by value.
Telco distribution in Asia is dominated by China, whose telco retail accounts for more units than Europe. Together the US, Europe, and China account for nearly two-thirds of all global telco sales of smartphones.
In contrast, across a great swathe of emerging markets, operator retail is not very important at all. The countries where operator retail accounts for less than 10% of smartphone sales make up half of the world’s population. Their telco retail total, at 13.9 million smartphones in 2018, is not much more than the number sold by operators in the UK that year.
The key reason for this “telco gap” is that when mobile operators got going three decades or more ago, they did so first in richer countries. With the initial cost of phones very high, it made sense as a business to effectively rent them to users while at the same time charging for their use — hence the “postpaid” model.
When mobile got established, rather later, in emerging markets, a lot of the initial ventures were small-scale with limited capital. Many of these countries were politically unstable and had currency controls on exporting profits or import arrangements where a legitimate business could not compete with grey market operators. Outlays were kept to a minimum, which meant keeping out of the handset business.
This does not quite add up to a close correlation between high average sales price countries against the proportion of telco distribution. There are countries with high GDP per capita and very little telco distribution, such as the nation states of the Persian Gulf. And there are middling developed countries heavily controlled by telco — Latin America is roughly half telco distribution. But in general, telco has a strong developed-market bias.
Privilege and Entitlement
Telco shops are often pretty spiffy and have cool décor and presentation. Nevertheless, aesthetics aside, telco distribution is a bit of an old boys’ club. Long-established relationships with vendors still hold sway. It was no coincidence that the first big set of mobile phone vendors came from telco infrastructure companies, which were already de facto in the club because they already had business relationships with the operators.
The telco club has other common features to other old boys’ clubs: it has privilege, in its access to and relationship to a customer base. Its outlets often have a display room for a limited number of brands (read members’ chairs in the reading room). Fading vendors still tend to be in there (read older members left in peace in their chairs to snooze undisturbed).
As a phone vendor, you might not like the stuffiness of the club or the sense of entitlement, but once you are in, you are in. You can offload lots of inventory to just a small group of buyers, and as there are rarely more than four mobile operators in a country, each is pretty much guaranteed to have a substantial sell-through.
Vendors that try to do it on their own find the going tough. The most successful smartphone brands outside telco distribution — notably China’s Xiaomi, Vivo and OPPO — all started out as scrappy players determined to show you could make it without being members of the phone-making establishment. None of them started out making network telecoms gear either.
In countries with no or a weak old boys’ club in operator retail, the outsiders have done well. They dominate phone sales in India.
Time to Join the Club
But in countries where the club is still going strong — in Europe, for instance — they are having trouble finding their way outside the club and they may have to change tack. That’s not so easy, as the club is not that open to new members. Are they one of us, the membership committee thinks, and will they fit in? Do we have any space with all those old members still snoozing there?
Old boys’ clubs are all about networks, and so are telcos — just a different type of network. Just as clubs want members who will fit in, their sort of people, mobile operators want phones that will fit in, that work well on their networks and use their spectrum seamlessly and efficiently. This has been one of the factors that has spurred some operators to become more involved in phone retail. In Russia, in Bangladesh and in a couple of countries in Latin America, operator share has bucked the global trend and grown in recent quarters.
The launch of 5G is another reason for operators to want a prominent role in phone retail. 5G is not going to happen in many places without some clever bundling of traffic and devices, and that means operator involvement.
Operator stores will remain the main route to selling top-end phones, as they offer postpaid packages that still get consumers swapping out their old models for new ones after a relatively short time. There is a lot of life in the old boys’ club yet, as the smartphone upstarts who chose other routes might reflect. In so many fields an upstart goes from being an outsider to, later in life, joining the establishment.
If you want to learn more about this topic or have any questions, please contact Simon Baker or head over to https://www.idc.com/eu and drop your details in the form on the top right.