Smartphone subsidies may spell trouble for telcos

Posted on by Brad Reed, Network World

If you think paying $200 for an iPhone, Instinct, G1 or BlackBerry Storm sounds too good to be true, that's probably because it is, according to the Yankee Group.

During a presentation today of the Yankee Group's predictions for 2009, the Boston-based research firm made two predictions that are certain to give smartphone vendors and wireless carriers pause. First, the firm predicted that the global economic downturn would drive down demand for smartphones, such as the Apple iPhone and Nokia's N Series, that come with pricey voice and data plans. 

In their place, low-cost mobile providers such as Skype, Spanish carrier Yoigo and the free, advertising-supported UK service Blyk will scoop up customers with their comparably less-expensive voice and data plans, the firm predicted. Yoigo increased its customer base by 13 percent in the third quarter of 2008 alone, compared with the 1 percent industry average in Spain, said Declan Lonergan, the vice president of the Yankee Group's Anywhere Consumer research division.

The other big prediction was that carriers will see their revenue take significant hits because of their generous smartphone subsidies. After AT&T announced earlier this year that it would sell the iPhone 3G for $200, such carriers as Verizon and T-Mobile followed suit by offering their BlackBerry Storm and G1 devices, respectively, for comparable prices. Needless to say, this model simply will not stand in the long term, because it mostly will benefit device makers, such as Apple, Nokia and Research In Motion, at the expense of the major telecom companies, the Yankee Group said.

"This current model is not to the carriers' advantage," said Asvin Vellody, the Yankee Group's senior vice president of research. "The whole industry needs to come together to figure out a business model that works for the entire ecosystem."

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