Time to dump smartphone data plans? Why not? The cell phone market is stagnating--and worse while only a fraction of wireless customers own smartphones. Any way you look at it, the global cell phone market appears to be in miserable shape.
Some recent headlines to consider:
• Motorola loses $3.6 billion
• Sprint Nextel announces plans to cut 8,000 jobs
• Nokia's profits plunge 69 percent
• New subscriber growth at T-Mobile USA (which coincidentally offers the only Google Android phone in the U.S. market) suffers a steep decline.
• While the fourth quarter is usually the best time of the year for carriers, global vendor shipments fell in the period by more than 12 percent compared with a year ago.
(Credit:
Strategy Analytics, Bernstein analysis)
Against this backdrop, the (increasingly few) optimists out there believe that smartphones will ride to the rescue of the wireless industry. Ryan Reith of IDC put it this way:
"As long as operators are able to continue to subsidize these devices, and developers continue to enhance applications, then this segment will be a silver lining to an otherwise gloomy market."
That's the conventional wisdom and it might be the right prescription during a normal period. But we're living through such a rough patch that not only is North America reaching a cell phone saturation point, but even the optimists at IDC worry that sales may wilt in the face of weakening demand, currency volatility, and reduced access to credit.
In tech-obsessed areas, such as Northern California, New York, Boston, and Los Angeles, you'll find lots of people who have traded up and bought fancier, higher-margin smartphones. They are in the minority. Fact is that smartphones represent 17 percent of the 1.3 billion mobile handsets expected to be sold around the world this year.
The rest may be dying from iPhone envy or whatever. But they ain't close to signing their name to the line which is dotted. The culprit: the exorbitant cost of the various data service plans.
I'm not concerned here with the geeks, the cool kids with the big bank accounts or the corporate types who can justify the purchase to their bosses. For the average Joe, who already pays a fortune for subscription television and Internet service, paying a monthly data service on a smartphone qualifies as a luxury that can be postponed until normalcy returns. A dowdy cell phone is more than enough to put you in touch with the wife and the kids and hey, you can also call Sal's Pizza for Saturday night delivery. Your cell phone may not run Google Latitude just yet. But trust me, Western civilization will survive.
In the meantime, I'd like to offer a modest proposal, courtesy of Bernstein Research's reliably incisive Toni Sacconaghi. In a note published Wednesday, Sacconaghi discussed the impact of the monthly charge for required data service and the effect on sales of Apple's iPhone. Here's the crux of the argument:
"Apple is effectively not participating in 83% of mobile handset market today. To more effectively address this part of the market, we believe Apple should offer an iPhone that does not require the user to sign up for a data plan. Note that we do not necessarily believe that a non-data plan iPhone needs to be priced significantly lower at retail than the current 3G iPhone ($199 in the US, with service contract), but waiving the data plan requirement alone would save users on the order of $30 per month, or $720 over two years-making it accessible to a much larger base of users."
Sacconaghi was writing about Apple and AT&T, but let's extend the analysis elsewhere. Maybe other carriers wind up subsidizing less of the upfront cost of their devices. (Or maybe not.)
That wouldn't be charity. There's a good business case to be made. In Apple's case, Sacconaghi estimates that a non-data plan iPhone represents an additional $7 billion in annual sales and $4 billion in gross profits (assuming 3 percent market share).
Of course, the carriers may deem this nonsense and instead decide to hold out as long as they can. It wouldn't be the first time they resisted change, but there are tens of millions of potential new subscribers up for grabs in an increasingly volatile world.
There's already a lengthy wish list as users ponder the invention of the "ideal" smartphone in 2009. All well and good. But I submit that next year's most important technology development won't have anything to do with a new feature or application.
Instead, it's going to boil down to whether mobile device makers open smartphones as widely as the personal computer. Manufactures and carriers, scared to death about the possible security implications, may decide that it's wiser to instead keep their devices closed. How long they can ignore the pressure is unclear.
That's because it's only a matter of time before smartphones supplant mobile and desktop PCs--maybe not today, but eventually. A recent report on mobile Web usage forecast the number of highly capable Internet browsers on smartphones expanding from some 130 million units this year to around 530 million by 2013.
Even before the market reaches that point, the implications for smartphone security are likely going to be profound. Not the least because smartphones will face the same sorts of security and virus breaches that have become commonplace in the PC scene. Let's face it, people are creatures of habit and if past is prologue, they'll get lazy about virus protection. Odds are they're going to commit the same stupid acts of omission and commission with their smartphones that they do with their computers.
"Smartphone owners have been sending mixed signals about whether they see the need or the responsibility to deal with security, or whether they see it as the responsibility of carriers to put it in right out of the box," said Jan Volzke, a McAfee exec I spoke with recently.
If you think about how people have used their cell phones, it's basically been for sending messages and communication only. Only recently have devices gotten more complex. When it comes to Internet viruses, worms, or phishing, it's all available.
That's where the pushing and pulling between advocates arguing more open is better and those arguing just the opposite becomes especially relevant. For the companies behind Android, the iPhone, the BlackBerry, and Symbian, more openness means more software development and thus, more creative applications in the market. But as Khoi Nguyen, Symantec's group product manager for its mobile security group, told me, the downside is that this invites the attention of malicious virus writers.
"New technologies are being introduced. Lot of these smartphones have Wi-Fi connections and lots of users will go onto Wi-Fi connections or install voice over IP apps on their devices," he said. "It will be interesting to see how that plays out and to see whether hackers try and take advantage. We expect that they will."
So why haven't there been major smartphone attacks yet?
Chalk it up to the absence of anything approaching the Microsoft "monoculture" in PCs. The smartphone market is fragmented among Symbian, Windows Mobile, Apple, Java, etc., thus making it harder for writers of malicious code to come up with their incarnation of (literally) a "killer app." Turns out then, notes Volzke, that the No. 1 protection in mobile boils down to counting noses: "It's still easier for hackers to make money working on the PC side than on the mobile side...Fragmentation protects us and equals out to a very poor return on investment (for attackers). "
Not exactly a consoling thought but it does mean that we've bought some time. How long, of course is anybody's guess.
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