Smartphones versus feature phones

Safaricom’s recently announced that it would stop selling feature phones in its retail outlets in Kenya to encourage smartphone take-up. This was based on the fact that there is now a significant convergence in terms of price and features between bottom-end smartphones and top-end feature phones. Russell Southwood looks at what this might mean for the transition to and the price leap that still needs to be made.

Twelve months ago the handset pyramid in most African countries looked as follows: between 1-3% smartphones (5% upwards in the larger markets); 10-20% feature phones; and the balance were basic phones (voice, SMS).

At that point, based on price, it looked like the feature phone segment of the market would expand most rapidly. Those migrating to smartphones would pass on their handsets to family members or the hired help and the attractions of low cost mobile Internet would lure more people to feature phones. Interfaces like biNu would also make it much easier to present a desktop like phone screen so users could not feel left out of the smartphone revolution.

Our best guess a year ago was that smartphones would take 10% of the market over a three year period and that feature phones would expand to 30-35% of the market. Safaricom’s recent announcement is about want to get the top end of feature users on to more data-centric smartphones. Corporate Affairs Director Nzioka Waita said: “Safaricom is soon going to stop selling the cheap feature phones in all our retail outlets, as we try to skew the Kenyan market towards smartphones.”

One of the issues here is that outside of telcos and handset retailers, nobody really knows what a feature phone is. Try asking a friend outside the industry and you will discover that feature phone is largely an unknown term. This has been made more complicated by the fact that the capabilities of low-end smartphones and high-end feature phones have begun to converge. Hence Safaricom’s announcement.

However, this shift may add a significant number of percentage points on to the smartphone market share but is unlikely to shift things so much in the feature phone segment. The key price point where the current battle is being fought out is around US$100.

In terms of low-end smartphones, Huawei’s Ideos is now retailing in Kenya for between US$80-100. Intel’s Yolo will go on sale for US$125. And the Chinese handset vendor who’s making all the running at the moment, Tecno, has its N3 pitched at US$92. Nokia’s low-end challenger is the Lumia 610 which is currently selling for US$231 in Kenya. Blackberry….No sign at this price? Apple…Maybe it will soon but it’s never been know to price anything at below premium prices so US$100 seems unlikely.

The current price for an enabled basic handset in Kenya is US$40-50. So the really market-changing price point for a low-end smartphone would need to be in the US$60-70 range. This would mean taking some hard decisions about what was in the handset or a significant subsidy level from the operators.  But with this price point in the market, low-end smartphones would begin to make real inroads into the feature phone share of the market.

I’ve made this argument using the Kenyan market, which is one of Africa’s most data savvy and tech-adopting markets. But if you look at the other markets, the shape of the argument doesn’t change, only the speed with which the changes in the handset pyramid happen.

The key changer will be the impact of access to video on users. By the end of 2012 there will be around a dozen implementations of LTE on the continent. Once users have access to video, it will begin to be a large part of their lives. How well will the low end smartphones and the high-end feature phones able to access respond to that challenge in price terms?

Finally, Airtel Nigeria is offering its customers What’s App for the equivalent of US63 cents a month. In other words, they are willing to discover what will happen with What’s App take-up. Will they begin to trade what might be larger but more variable revenues SMS revenues for a lower but more predictable monthly sum?

Recently a PR company approached us about talking to one of their clients about a strategy for operators banding together to resist Over-The-Top (OTT) services. It seemed so 2012 that I had to respond as follows:” A coalition of mobile operators to fight off OTT players is whistling in the dark to keep your spirits up. Get on with the future”.

Source: Balancingact-Africa

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