The $30 smartphone: the true inflection point?

The $30 smartphone: the true inflection point?

The Delta Perspective
The mobile phone turned 40 this year and 3.2 billion people have the privilege to own one. However, only a half of them currently own a smartphone (defined as 3G enabled phones with an identifiable open OS)2.  With the latest released smartphones priced above $500 (e.g. 16GB iPhone 5S - $649, Samsung Galaxy S4 - $500), cost is clearly a prohibition on smartphone ownership.
For telecom operators as well as OTTs, what’s at stake is the opportunity to connect 2 billion people digitally. Although a few feature phones now have functionalities that enable its users to go online using GPRS/EDGE technologies, only smartphones will let the bottom-of-the-pyramid users truly experience the full potential of the internet (e.g. emails, OTT, social networks, IMs). As declining voice and SMS revenues continue to loom, mobile operators would benefit significantly by converting these 2 billion users into becoming potential mobile data subscribers. While mobile data is getting more affordable, the prices of smartphones remain excessive, with very few models on the market below $100.
Enabling these “next 2 billion” people to transition from their basic/feature phone to a smartphone will hugely benefit the stakeholders (i.e. handset manufacturers, telecom operators, OTTs) of the TMD value-chain. Therefore, it should be a shared vision to pursue the $30 smartphone.

Why $30?

The $50 threshold has been an industry target for a while; "The $50 Android smartphone is about to hit the market worldwide", Andreessen, the Netscape co-founder turned venture capitalist, said in April. "Smartphones are about to be put in the hands of another 3 billion people who don't have them. And that's probably the single biggest thing that's happening right now."3 George Ferreira, VP of Samsung Africa, seems to share this view as he revealed at the end of September about Samsung’s plan to launch a $50 smartphone within the next six months.
However, we believe that the $50 mark is still too high. Our benchmark of seven countries within the emerging markets illustrates that at least one device under $30 ranks among the top 3 most used handsets in each market (see the following chart).

Not only are under $50 handsets very popular in emerging markets, but several consumer surveys by Jana (Global Research Insights)4 and TNS (Discover Mobile Life)5 have confirmed that for a significant share of the population, the propensity to spend on handsets is clearly less than $50. For example, close to 40% of the mobile users in Indonesia paid less than $50 for their handsets.

How realistic is a $30 smartphone today?

Closer to reality than ever thought. Several announcements over the past months have shown that a $30 smartphone could be a reality for mass adoption in the next 18-24 months. This was heavily discussed during the AfricaCom Conference a few weeks back when MTN Group’s CTO announced the launch of a white-labelled smartphone priced at just $50. Earlier this year, Airtel’s CEO Manoj Kohli and Wikipedia founder Jimmy Wales also underscored that a sub-$50 smartphone was a needed reality. ”A sub-$50 smartphone” is also the driving idea behind the Firefox OS project, although the first Firefox based smartphones are still priced at around $90.
If 2013 is the year of smartphone commoditization in mature markets, 2014 could see the mass adoption of smartphones in emerging markets attributed to the $30 price tag.

There is no doubt that telecom operators have a central role in this quest.

They could consider the following five options in their device strategy to achieve this.
  • Partnering with manufacturers has proven to be a good option in lowering prices in emerging markets. Exclusive agreements between the operator and the manufacturer, coupled with the dedicated sales and distribution resources supplied by the operator to sell the manufacturer’s devices, are ways for operators to decrease the final price of smartphones.
  • White-labelling is an option where operators can rebrand and customize the phones to focus on the most needed features, thus reducing the manufacturing cost. As procurement of these devices can be done on very large scales (especially for large regional telecom groups), wholesale price would also drop significantly.
  • Offering Reverse Subsidies where a consumer would pay the full price of the smartphone upfront but would receive with it several months of free or discounted voice and/or data bundles. Not only does this approach decrease the perceived cost of a “smartphone + plan” bundle, but it also encourages mobile data take-up by the consumer at an early stage.
  • Refurbishing of used smartphones is also a great option that operators can consider. A possibility is to partner with companies that are already in the industry of restored second hand phones such as Berry Direct in South Africa or Used Phone Wholesale in Poland. This new industry is growing at 25% per year and is certainly a mutually beneficial option.6
  • Micro Financing is a considerable option where operators or even manufacturers can partner with micro financing institutions to offer favorable installment payment plans suitable for customers.

Affordability is evidently the main barrier keeping the next 2 billion consumers from connecting to the internet sphere through a smartphone.
The $30 smartphone will be an inflection point for smartphone adoption as surveys have indicated that $30 is the propensity to spend on a new phone for at least one-third of mobile users in emerging markets.$30 handsets are commonly ranked among the top 3 most used devices in emerging markets as well.
The good news is reality is closer than ever.  A $30 smartphone is technically possible and several recent initiatives have brought the low-cost smartphone threshold closer to the optimal $30 price tag. There is still a last push needed to make this a reality and telecom operators are central in placing the $30 smartphone in the hands of the “un-connected” 2 billion.

1 GSMA Intelligence
3 http:\\news\2013-04-29\-50-android-smartphones-will-start-eating-the-world-this-year-andreessen-says.html