As countries around the world ease pandemic-related restrictions on consumers and businesses, it is abundantly clear operators and smartphone vendors now inhabit a fundamentally changed economic landscape. Covid-19 (coronavirus) sent shockwaves through every sector of the economy, and while it has been better insulated than some, the telecom industry will inevitably feel the effects of the 3 per cent global GDP contraction the IMF predicts for this year.
Operators and smartphone vendors are now facing the ominous dual prospects of a severe global recession and a prolonged slump for traditional in-store retail, where most phones were sold before the pandemic.
Through the economic gloom, there is nevertheless some good news for smartphone manufacturers. At a basic level, lockdowns have, if anything, further demonstrated the critical importance of mobile devices for enabling everything from remote business transactions to staying connected to friends and family to prevent social isolation.
Beyond this, there are at least two more positive notes which should help the industry this year:
Despite some delays, many countries have forged ahead with planned 5G rollouts this year. The rollout of the new networks should be a boon for smartphone vendors, as it is during this time that operators are the most likely to engage new manufacturers and make changes to their roster of suppliers.
Although brick-and-mortar smartphone retailers face enormous challenges as a result of the pandemic, operators and vendors have spent years developing robust online sales channels which can fill the gaps left by traditional retail.
So we expect that, like most consumer categories, smartphones will be in for a bumpy ride, but ongoing 5G rollouts and a new emphasis on digital retail channels offers hope and should form a lifeline for the industry which will help it ride out the economic turbulence ahead.
New launches, new opportunities
Even as the pandemic raged, operators were still making moves to prepare for the 5G era: in May, with lockdowns still implemented across much of Europe, Oppo and Vodafone, for example, announced a deal to bring Oppo 5G handsets to customers across the continent. These kind of moves are by no means limited to Europe: in a recent survey , 81 per cent of operators globally indicated they planned to make changes to their smartphone vendor roster in 2020.
And the most important factor they consider when adding a new vendor? 5G compatibility (see chart, right, click to enlarge). The Oppo/Vodafone deal is a perfect example of what many operators will look to do as 5G becomes more prevalent: add a vendor which can bring a full complement of 5G handsets available at a variety of budget-friendly price points.
And the price point of the handsets should start to matter now more than before the pandemic, when our survey was in field. With millions unemployed and countries facing a dire economic outlook, it is safe to assume an annual or bi-annual device upgrade, often with only minor improvements over the last model, will for some consumers be put on hold for the foreseeable future. Instead of incremental upgrades, the operators we surveyed are betting support for 5G network technology is what will drive consumers to invest in a new smartphone. Obviously, operators will therefore prefer manufacturers which have an array of affordable 5G handsets available, which poses a significant problem for those who do not.
Of the top three smartphone vendors in the world, only Samsung is currently well positioned to succeed in this emerging landscape where operators emphasise 5G compatibility above all else. The others have significant challenges to overcome:
Apple has not yet released a 5G iPhone, and there is a great deal of uncertainty as to whether it will do so this year.
Because of the US-led sanctions, Huawei phones lack a full complement of Google applications, putting them at a significant competitive disadvantage.
As we discuss in a new report , this creates room for smaller players to manoeuvre, potentially enticing operators into new distribution deals if these manufacturers can differentiate on 5G capability or on the (increasingly important) price factor.
A seismic shift in retail strategy
While operators and vendors are betting big on 5G phones to withstand the forecasted economic downturn, they must simultaneously adapt to a threat to their largest channel of smartphone sales: the high street retailer. The worsening economy and the emergence of post-lockdown social distancing measures pose an existential threat to brick-and-mortar shops.
Before lockdowns, operators reported a majority (52 per cent) of their smartphones were sold in-store, but also said they expected stronger growth in online sales over the next two years. As we have seen elsewhere , the pandemic condensed multiple years’ worth of predicted industry trends into a few short months, and with high street retailers facing massive obstacles, we expect online sales to overtake in-store in short order. In fact, AT&T in the US and Virgin Media in the UK have already announced they will be closing some or all of their retail outlets as a result of the pandemic.
For a device segment often thought to be reliant on “hand feel” to guide purchases, the rapid shift to online as the dominant sales channel could further complicate an already challenging situation for smartphone manufacturers. Vendors with strong and established direct-to-consumer online sales channels are obviously best positioned to succeed in this new landscape, and we may see the arrival of new marketing strategies as vendors look to reorganise around online channels in the medium- and long-term. But for the short term at least, because operators seem prepared to rely on their speedy new 5G networks to drive interest in new handsets, it is here that smartphone manufacturers must also focus their attention to stay aligned with operators and maximise their opportunities to forge new alliances.
The way forward for vendors
Vendors must adapt to operators’ laser-focus on their 5G networks and the reduced importance of brick-and-mortar retail in order to thrive in the post-lockdown world. But how can smartphone manufacturers best navigate these challenges?
An important step for vendors is to understand operator plans for driving 5G uptake and tailoring their messaging to build on this theme. One way to do this is to emphasise the importance of new phones in influencing 5G upgrade intent among consumers: our research  shows that across seven markets which have or will launch 5G in 2020, a brand new 5G handset can boost upgrade intent by about 10 per cent. Knowing where their customers stand on 5G is one of the keys for vendors to unlock new strategic partnerships with operators that will help both thrive in the new economic landscape.
Vendors can also ensure they are supporting the move to online sales by shifting the co-marketing resources given to operators to market their devices to online and social channels. This can help to smooth the transition and avoid a precipitous decline in device sales.
These strategies will allow manufacturers to adapt to the challenges that the pandemic has ushered in. They will also have long-term benefits for both operators and vendors, as the current state of affairs is likely to be more than temporary. Preparing for the new normal is important and necessary for the industry to withstand the turbulent times ahead, and move with confidence into the next phase of the 5G era.
– Jason Reed – lead analyst, Digital Consumer, GSMA Intelligence
The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.