Clearly, one of the biggest stories in the last couple of decades has been the rise to ubiquity of cell phones—and later smartphones. It’s reached almost absurd proportions. Many people have more than one device, or more than one subscription for a single device. Thus, the number of subscriptions at some point in the not too distant future will eclipse the population of the planet.
That rate of growth can’t be supported, unless Verizon and AT&T start selling smartphones to extraterrestrials. The Worldwatch Institute released research this week that looked at mobile subscription growth in the coming age of saturation. One interesting takeaway from Worldwatch’s work is that the dynamics of the mobile industry in the developing world are different than they are in the developed.
Most of the infrastructure in the developing world is 2G, for instance. It’s also true that since much of the developing world skipped the wireline step that dominated commerce in the developed world for decades, the business relationships in developing nations are more tightly tied to wireless. From Worldwatch’s press release:
Perhaps one of the most important side effects of the growing mobile phone industry in the developing world is that financial services have become tethered to mobile phone use in poor regions. Areas with high poverty tend to have mobile subscription rates of 50 out of 100 people, while only 37 percent of people living there have access to a physical bank branch. Financial institutions have begun to leverage the existing infrastructure for mobile phones so that a host of transactions—such as opening a savings account, paying bills, or transferring money—can be conducted at local mobile retail stores.
The differences between the developed and undeveloped economies, their respective use of phones and what now is deployed will impact how the mobile business evolves. In an email response to me, Grant Potter, the Worldwatch Institute’s development associate and assistant to the president, suggested how things may play out:
Regions that have reached saturation of mobile subscriptions, as is being seen in much of the developed world, will continue to add mobile subscriptions but at a much slower rate and will begin to see increased smart phone penetration. One caveat to this is that the ‘renewal cycle’ for older 2G headset phones (popular in the developing world) is a long time since they are quite durable, especially compared to smart phones, and thus take longer to be replaced. Some reports guess this long renewal cycle will slow down 3G and 4G adoption in the developing world because there is less need to update your phones.
Worldwatch is not alone in seeing increased saturation. For instance, BRW cited the condition in its report on the mobile phone market in Australia and New Zealand:
Australia’s total mobile phone market is showing signs of reaching saturation, with researcher IDC reporting that Australia and New Zealand sales of low-end ‘feature phones’ tanked during Q2, and smartphone sales were also going backwards.
South Korea – which is something of a bellwether in all things electronic – is heading toward saturation as well. Flurry points to comparative growth statistics to make its point:
Worldwide the installed base of connected devices measured by Flurry grew by 81% between August of 2012 and August of 2013, whereas growth for South Korea during the same time period was only 17%.
The Flurry Blog, written by Mary Ellen Gordon, PhD, suggests that it will be interesting to watch what happens when saturation is reached. Mobile payments and interoperability across connected devices are two areas that may benefit from saturation which, after all, means that just about everyone is accessible.
The reality is that the idea that the market is nearing saturation is ingraining itself in the common wisdom. Another example is the assessment by Bloomberg that saturation of the high-end market and the subsequent need to spend more on marketing is a reason that LG Electronics missed earnings estimates in the quarter ending September 30.
One question that remains to be answered is whether undeveloped nations will move from 2G to 3G or skip right to 4G. Potter isn’t sure, but told me that in general, he sees mobile broadband growing:
I have not seen research on whether or not 4G will leapfrog over 3G in the developing world. However if you follow this link [to the AT Kearney report on the Mobile Economy 2013], page 12 and 13 estimates that significant gains will be made by mobile broadband phones (3G and 4G) by 2017 and they will make up 53% of the market share (though 4G is a much smaller share than 3G). Unfortunately this estimate is not separated by region or industrial/developing.
Obviously, the sale of mobile subscriptions has to slow down. It will be interesting to see what happens when it does.