Telecom Manufacturing & Equipment
Date July 2019
- The market for used smartphones is forecasted to expand as much as five times faster than the overall smartphone market, with industry experts estimating the category will grow to 222.6 million units by 2020
- The U.S. telecommunications networking equipment manufacturing industry will continue to experience revenue declines over the next five years as networks are upgraded and the number of broadband connections increase
- Profit margins have dramatically decreased over the past five years, as companies have been under pressure to keep prices low due to heavy import competition
Approximate net recovery on cost
Demand for Data to Drive Growth of Subscriber Connections: Demand for mobile data services grew at a strong pace over the five years from 2014 to 2019. The industry’s major players capitalized on this trend, as the number of wireless subscriber connections grew from 223.5 million in 2014 to an expected 365.6 million in 2019, representing an increase of over 63 percent in just five years.
Wireless providers have struggled to keep up with demand, devoting a significant amount of resources to expanding network capacity. The battle for wireless spectrum has been a large source of competition, and the struggle for new subscribers in this saturated market has been challenging. Carriers’ appetite for more spectrum as well as more subscribers has played out in a series of competitive auctions and merger and acquisition attempts. In 2018, it was announced that T-Mobile and Sprint signed a merger agreement for $26.5 billion. Although facing opposition, including a lawsuit by 10 state attorneys general, if approved, the new company will likely have a structure owned two-thirds by T-Mobile and one-third by Sprint.
Continued Market Growth for Used Smartphones: The market for used and refurbished smartphones has seen rapid growth over the past several years, thanks to a wide variety of trade-in and buyback programs across multiple channels and platforms, as well as the increasingly prohibitive price of new phones. In December 2018, Device Atlas noted that the most popular smartphone in many countries was Apple’s 2016 iPhone 7. Many users see no benefit to upgrading while their cell phone still performs well. Additionally, with top-tier prices for many new smartphones at $1,000 or more, upgrading has become less of a priority to the average user.
Premium-brand refurbished and used mobile phones are expected to remain in demand, with sales expanding at a high single-digit compound annual growth rate through 2025. Meanwhile, sales of mid-priced brand refurbished and used cell phones will account for comparatively higher revenue than low-priced brands and comparatively lower revenue than premium brands by the end of 2025.
5G Technology Gaining Traction: After years of hype about gigabit speeds that will let users download full-length movies in seconds, 5G is now a reality. Domestic 5G smartphone sales will exceed five million units in the second half of 2019 as carriers ramp up their 5G network and device portfolios. Global 5G smartphone sales are expected to reach 22 million units in 2019, according to industry estimates. Overall, the United States will lead the market in terms of 5G smartphone sales, followed closely by China.
Concentrated Marketplace in Domestic Wireless Industry: The U.S. wireless industry exhibits a medium to high level of concentration. In 2019, the top four major players in the industry Verizon, AT&T, T-Mobile, and Sprint are expected to account for approximately 64 percent of industry revenue. This higher concentration is consistent with the high level of merger and acquisition activity that took place in the space over the past decade.
Given the level of concentration, and an increasingly homogeneous supply of products and services, operators are now scrambling to build subscriber bases. A large subscriber base is critical to competitiveness, as it delivers considerable economies of scale and enables carriers to offer lower prices and attain higher margins.