People are just trying to get the best long-term deal, says Stephen Baker at the NPD Group:

“In a quarter without a major product launch from either of the two market leaders, consumers refocused their attention away from the postpaid wars and toward finding the best value for their dollar.”

Those two market leaders, of course, are Samsung and Apple. But Apple is hardly even a participant in the prepaid market.

The portion of the market sold prepaid has been increasing for years, says Baker.

“Sales of prepaid smartphones doubled from the previous year, continuing a string of more than 12 quarters of triple-digit sales increases.”

Apple’s share looks tiny, especially in a U.S. market where it has dominant market share, but it has quadrupled year-over-year since the first quarter of 2012. However, with the prepaid market growing so quickly, Apple’s latest –and typically expensive — phones have not been the big sellers. Rather, it’s the year-old iPhone 4S that is Apple’s leading contender in prepaid, just as one of Samsung’s top prepaid sellers is the now somewhat aged Galaxy S II.

Even outdated models get pricy — the iPhone 4S can cost $400 to $600 unlocked and brand-new, while the Galaxy S II can be between $300 and $400. But consumers make up the heavy upfront cost by saving on cheaper plans, potentially saving hundreds, if not a thousand dollars over the lifetime of their phones.

For Apple, however, capitalizing fully on this fast-emerging market trend means bringing out a cheaper iPhone that can be sold as a new, current model-year device at a price point closer to Android models from Samsung and LG. And Samsung has some work to do, too — while its market share remained stable from 2012 to 2013, competitors such as Apple and HTC have gained share.

Where are people buying prepaid phones? Mostly at retail, NPD says.

“Prepaid has proven to be a real winner for national retailers,” said Baker. “The easy purchase cycle and grab-and-go nature of the product play into the strength of large-format stores. Certainly, companies like AT&T recognize this shift in purchasing as they ramp up their focus on prepaid phones with their recently announced ‘Aio’ product branding initiative.”

In a column with an unsubtle title, “For Apple business, must stay business,” Chinese-government-controlled Global Times praised Apple for responding to Chinese state media criticism of its warranty policies with Tim Cook’s apology letter, posted yesterday.

But  the column ended with an equally unsubtle finale:

“It will be wise for Apple not to entangle itself into political debates.”

In another editorial on the same site, Global Times said that Apple deserves respect.

“As the world’s leading high-tech enterprise, Apple can adjust its attitude in a timely manner, showing its professionalism and flexibility. Its reaction is worth respect compared with other American companies,” the op-ed column said, while also managing to be remarkably candid in acknowledging that there are still issues for international companies doing business in China.

“China’s market economy has experienced soaring development, while its rules are not mature enough and laws not so sound. … The blame should not only lie in foreign companies, but also China’s business environment.”

This is good news for Apple, as China is its second largest market, and it’s a critical growing economy where Apple needs to succeed if it wants to do well globally. CEO Tim Cook’s quick response — only his second official company apology since taking the office — is a measure of how important the country is to Apple revenues.

Interestingly, the articles acknowledge a political tinge to the recent spanking Apple has been taking in China, saying that Chinese networking and mobile companies Huawei and ZTE “have long been restricted in the US markets under security and other accusations.” Just this January, Los Alamos National Laboratory tossed out Huawei network switches under suspicion that China’s military had infiltrated the company and installed backdoors into its equipment. And in December, the U.S. Congress Intelligence Committee said that Chinese networking equipment could not be trusted.

At the time, China had issued a vague threat, saying the U.S. should “do more that is beneficial to Sino-American economic and trade ties, rather than the contrary.”

However, point made, China may have been pacified by Apple’s apology. But it suggests that Apple stay on its toes:

Apple has won respect from Chinese consumers with its perseverance in developing leading technologies and styles. But the company is not impeccable. Like its continuing stride in exploring for technological breakthroughs, the company also needs to keep working hard to raise its service quality.

photo credit: lemagit via photopin cc

In 2012, Samsung sold just over 30 million smartphones in China — a 300 percent increase from the previous year and good for almost 18 percent of the Chinese market. In a stat that shows just how explosive the Chinese smartphone market is, that 18 percent market share is up only 5.3 percent from 2011, despite the tripled number of units.

That compares to Apple’s 11 percent market share.

Apple, which has achieved astonishing success in China, including selling two million iPhone 5 units on its opening weekend, still does not have a deal with China Mobile, the big kahuna of Chinese carriers, with more than 700 million mobile subscribers. Morgan Stanley recently suggested that Apple could triple its Chinese market share with an “iPhone mini,” a clear sign that even a month ago, the data on Apple’s sales in the Middle Kingdom were not where they could be.

But the big loser in China was not Apple.

Eleven percent market share in a vast and growing market — with a premium product — is actually a very good performance. The title of biggest loser goes to Nokia, which lost almost all of its share, dropping from 30 percent to 3.7 percent in a now-familiar story.

Lenovo is now the number two smartphone seller, with 13.2 percent of the market in China. Huawei captured 9.9 percent, and Coolpad trailed with 9.7 percent.

photo credit: My Daily Sublime via photopin cc

July 9-10, 2013
San Francisco, CA

Early Bird Tickets on Sale

Mary-Ann Parlato is Global Insight Director for Kantar Worldpanel ComTech

With some 70,000 visitors in Barcelona this week for the Mobile World Congress, the tone is being set for the next phase of the dynamic mobile telecommunications industry.

This is coming at a particularly pivotal time in its history as mobile technologies dominate digital communications worldwide and platforms, and operating systems are locked in ever intensifying competition.

Against this backdrop, some important trends are emerging.

Connecting with the next billion consumers

With smartphone usage globally growing exponentially, manufacturers are focusing on expansion to the next generation of consumers. The tagline “connecting the next billion consumers,” is almost an official theme for the gathering. Key brands driving this trend this year are Huawei, Nokia, ZTE, and Firefox.

The Huawei and ZTE brands are showcasing a multitude of products across the entire spectrum of low to high end. One new entrant in particular is generating intense interest: ZTE Open with Firefox.

Firefox OS offers a user friendly interface that provides a few unique functionalities, such as the ability to create your own apps from online searches. These devices will be extremely useful for low end consumers in developing markets.

Smartphone penetration is currently low in these markets due to the expense of current smartphone products and tariffs. Yet many in the market have proved a desire to use an OS as ownership of “smartphone lookalikes” has increased over time. These devices have the benefit of looking like a smartphone, yet only include a few advanced features such as messaging, without any OS. These handsets and plans are generally lower in price and thus more affordable for the low end consumer in these markets.

The availability of more OS brands and devices will lead to fierce competition and ultimately provide consumers in these markets with affordable smartphone options for the very first time.

It’s not the OS, it’s the form factor that matters

In many booths, companies’ product showcasing and pitching seemed to stop at the point of physical inspection. This is thanks to the expansion and perceived equivalence of key operating systems dominating most of the new devices at MWC.

Now, differentiation surrounds the physical product — the materials, the size, the look and in particular, the feel. In other words, like the pre-smartphone era, the manufacturer brand’s physical product is of key focus moving forward.

For a consumer deciding to purchase, a physical trial of the product is important. Kantar Worldpanel ComTech latest US data shows that 24 percent of consumers that considered the purchase of a smartphone in December 2012 wanted to test the phone themselves. This is in fact the most influential source in considering a new smartphone, followed by a promotional offer at 15 percent, and the in-store display at 14 percent.

Fablets, the physically larger flagship devices, were an interesting range of products at the show. Smartphones with a 5″ or larger screen were prominent across the show, from Huawei’s Ascend Mate to ZTE’s GRAND Memo. Five inch screen flagships are almost becoming the norm from what one can see at MWC.

Category 4 connectivity & BYOD

“Ultrafast” connectivity was the tagline at Huawei’s stand.

New devices’ — think Ascend P2 and P1 — major selling point was the LTE category 4 connectivity which delivers up to 150 Mbps download speeds. Kantar Worldpanel ComTech data showcases that connectivity is important to consumers, ranking in the top five reasons why consumers are either satisfied or dissatisfied with their current phone.

While consumers are satisfied with current functionalities such as the camera and internet browsing, only 26 percent of current smartphone owners say they are satisfied with their connectivity.

Another particular roll out to notice was Samsung’s new KNOX system. This BYOD system from Samsung will be aimed at the enterprise market, providing consumers with the ability to have their personal and business phone all in one and will be available on key Galaxy devices later this year in the UK. Kantar Worldpanel ComTech US data shows that of those who bought a smartphone for themselves in January, eight percent have their company paying for their calls.

This shows that BYOD approaches are currently being utilized across businesses and are likely to continue.

Kantar Worldpanel ComTech USA maintains the largest continuous consumer research mobile phone panel of its kind in the world, conducting more than 240,000 interviews per year in the U.S. alone. ComTech tracks mobile phone behavior and the customer journey, including purchasing of phones, mobile phone bills/airtime, and source of purchase and phone usage. 

photo credit: LGEPR via photopin cc

Reuters is reporting that Los Alamos discovered and removed at least two switches which were in the process of being installed at the lab.

The fear is that China’s military — which does have notoriously close relationships with the nation’s top companies — has infiltrated the company and potentially put backdoors into communications equipment, which China can then use to spy on the U.S and its top companies.

That exactly what Congress said just a few months ago, releasing a draft report that stated, in part, that Huawei and other Chinese vendors “cannot be trusted to be free of foreign state influence” and that, therefore, U.S. companies should “seek other vendors.” Australia’s government has similar concerns, having banned Huawei products from its new nationwide high-speed Internet network early last year, and as far back as seven years ago, Huawei was blocked from Indian government telecommunications projects.

So what’s a poor Chinese-based multinational to do?

Well, call in the Chinese government, for one. The Chinese government’s commerce ministry struck back at that Congress report, saying it was “suggestive guesswork” and obliquely warning of trade consequences for the “speculative” claims.

Huawei VP of external affairs William Plummer also struck back, telling Reuters that “there has never been a shred of substantive proof that Huawei gear is any less secure than that of our competitors, all of which rely on common global standards, supply chains, coding and manufacturing.”

A little more of that might help — repeated calls to Huawei’s press contacts in North America were not returned in time to add their comments to this story.

Even better, Huawei might consider allowing trusted third parties — or even government inspectors — review their equipment and code in full detail to prove or disprove their innocence once and for all.