Operators may have to subsidise ‘expensive’ 5G smartphones

Mobile operators may have to subsidise the first wave of 5G smartphones in order to encourage early adoption of next-generation networks due to high cost and the absence of new use cases, analysts have claimed.

Verizon launched the world’s first 5G network earlier this month, offering Fixed Wireless Access (FWA) broadband to a number of major US cities. However, most operators are waiting until the first compatible handsets arrive at some point in 2019.

Strategy Analytics says early devices will be larger and have greater power demands than current generation smartphones and will only offer minimal performance gains for existing applications.

5G smartphones

Over time, the faster speeds, greater capacity and lower latency of 5G will enable new use cases such as Virtual Reality (VR), Augmented Reality (AR), and a raft of business applications. But the only major selling point in the embryonic stage of 5G will be faster mobile broadband.

Meanwhile the first 5G smartphones are expected to cost more than $1,000, with premium handsets costing much more.

While Apple has managed to break the mental barrier of paying more than £1,000 for a smartphone with the iPhone X, Ken Hyers, director for emerging device strategies at Strategy Analytics, says the lack of a compelling reason to upgrade combined with high prices will stifle adoption.

“This isn't to say that 5G is not worth it for consumers – clearly it will be,” he said. “But as with previous cellular generations, there will be teething issues during the transition period. 5G smartphones will get noticeably better, adding new features such as faster processors, better AI and foldable displays. Services and applications will appear that will take advantage of faster speeds and lower latency.

Price challenge

“But a big stumbling block for 5G phones will remain: price. In a market environment where phone replacement cycles are lengthening due to higher prices and a perceived slowing of innovation, it will be a tough sell to get consumers to pay more for a phone that offers fewer obvious benefits for customers.”

The cost of 5G handsets will eventually come down as the technology improves, sales figures rise, and manufacturers achieve economies of scale, but Hyers says early handsets will be out of reach in key markets like China unless something is done.

“To kick-start 5G smartphone sales carriers will be forced to employ subsidies in order to bring customers onto their 5G networks. Phone vendors will be pressured to meet price points for their 5G devices that will leave them with razor-thin margins.”

“By 2025 half of all smartphones sold will be 5G. But in the near term there will be challenges for device makers as they navigate the transition to 5G. In every previous generation change at least one major phone maker has stumbled badly, and this generation will be no different.”

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