March 11th, 2022, Russell Feldman
It is widely acknowledged that the smartphone market is stagnant. A lack of perceived innovation keeping consumers from upgrading means consumers hold on to their handsets for longer. This is borne out in YouGov’s tracking data. Last year, 30% of smartphone owners had owned their handset for 24 months or longer – five years earlier, this figure was just 20%.
This retention rate has had a notable impact on the market. The proportion of consumers with low-end and mid-range handsets has grown, impacting sales and revenue for manufacturers, retailers and operators. However, in the face of this, the high-end handset market has remained relatively buoyant. Our deep dive research into the dynamics of the high-end the UK handset market highlights several emerging themes for the industry. One of the most notable is the small but emerging trend towards consumers purchasing their top of the range devices from original equipment manufacturers (OEM).
Learn more about high-end handset owners' purchase journeys, handset satisfaction, future handset consideration and perceptions toward 5G in YouGov's new report here
Currently, 18% of the population own a high-end smartphone, by which we mean flagship handsets from a brand that have been available for 2 years or less (such as iPhone 12). Of this group, 7% get their new phones straight from the manufacturer this way compared to 54% who do it as part of a traditional contract and 37% who pay the full amount in one go. To put it another way, of the around 8.7 million people in the UK with high-end handsets, around 600,000 got their devices directly from an OEM, paying an amount each month.
While these figures are not yet earth-shattering, given this route to market has clear benefits for handset brands and distinct drawbacks for retailers and operators, its long-term significance could be notable. It is likely that this trend will grow as those that currently have a handset from the OEM do so again in the future, and others try this way of buying their handset.
And our data shows that one manufacturer has already stolen a march when it comes to customers getting their high-end devices straight from them.
OEM: Apple handsets and SIMO deals dominate
A deeper look at the data reveals Apple currently dominates in those purchasing their handsets from the brand directly. Currently, four in five (79%) high-end phone owners going down the OEM route buy phones from Apple. As with the introduction of smartphones, it may be that the California tech giant is again pointing the way to the future of the market, only this time they are not only taking on their rivals but also the retailers and operators.
While there is a clear trend in favour of Apple when it comes to manufacturers benefiting from OEM purchases, there is also a clear trend within Apple’s data that shows that a large part of the market is for newer handsets. Our data finds that of those iPhone owners that got their device from Apple, 21% were from XS, XS Max, and XR customers, 36% amongst those with an iPhone 11 and 43% of those owning an iPhone 12.
As one would expect, those getting their device from an OEM are significantly more likely to be on a SIM-only deal, which in turn impacts their overall spend. While 35% of high-end phone customers have SIMO deals, among OEM buyers this figure rises to 64%. One in five (22%) who got their device from an OEM switched network when they got their handset, most likely because they wanted to get a better SIMO deal.
All of this is having a significant effect on monthly spend with networks. On average, high-end owners spend £32 a month with their network compared to £20 a month for those who got their handsets directly from an OEM. This means that the average high-end handset user equates to over £278 million each month to the network. Those that got their handset directly from an OEM spend significantly lower at about £12 million a month.
Clearly the OEM approach is still very much in its nascent stage – currently it represents only a small proportion of the high-end phone market (and would likely represent a smaller proportion still of the overall handset landscape). However, many manufacturers are making it easier for consumers to purchase handsets directly from them and the approach is already gaining a foothold in the valuable high-end market. The benefits to the likes of Apple are clear. But the impact it could have on networks (both MNOs and MVNOs) and retailers is equally stark. It is something which everyone in the industry will be keeping a close eye on.
Download YouGov's new "Understanding the premium handset market" report here
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