Cell Phone Price Cuts Drive Sales but Lower Profits

Despite the fact that cell phones continue to evolve as consumers pursue more technologically advanced features, the average purchase price of handsets has dropped over the past year, according to the NPD Group’s Mobile Phone Track study.

The report shows that the average price of all cell phones sold in the U.S. market amounted to US$85 for the third quarter of 2009, down from US$88 in the year-ago period. Due to the fierce price competition, carriers and retailers are using buy-one-get-one-free promotions and other smartphone discount offers to boost sales, which has led to this 3.4 percent price decrease.

"Carriers have been heavily promoting the latest advanced handsets, which has spurred recent growth in the smartphone market and an increase in the number of smartphone brands available to consumers," Ross Rubin from the NPD Group commented on the rapid adoption of smartphones. Their market share remained steady at 28 percent against feature phones in last quarter.

The most popular smartphones over the quarter were RIM’s BlackBerry Curve and Apple’s iPhone 3G and 3G S, which took the top three spots in terms of sales. As for features phones (those without an operating system), LG dominated the sales during the period with the LG EnV3 and EnV Touch.

In the meantime, Google’s Android devices represent one of the fastest growing categories in the smartphone unit. In the fourth quarter of 2008, only one Android phone, T-Mobile G1, was available on the U.S. market. One year later, there are already eight devices released by three major carriers, including the latest Motorola Droid and HTC Droid Eris.

Smartphone price cuts are apparently great news for consumers. In the short term, they are also effective in boosting sales for manufacturers and attracting subscribers for carriers. But in the long run, these approaches undermine the price potential of future handsets and lower their profit margins.

"We will soon reach the point where the handset is a minor expense consideration and the required monthly data fees become the limiting factor in smartphone adoption," Rubin concluded. If this is really the case, the pricing strategies adopted by handset manufacturers and wireless carriers will change completely in the near future.

Tags: iPhone Accessories, BlackBerry Accessories, LG Accessories, HTC Accessories, Motorola Accessories, T-Mobile Accessories