Smartphone users are waiting longer before upgrading — here's why

Key Points
  • In the U.S. and Europe, the life cycle of a smartphone has been steadily increasing, according to data from market research firm Kantar Worldpanel.
  • Experts say high prices, mature markets and a movement away from phone contracts have contributed to the extension of a smartphone's life cycle.
  • The motivation to buy a newer model will, "at some point," come from the rollout of 5G networks, said Gerrit Schneemann, a senior analyst at IHS Markit.
Business people using smart phones at conference
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Apple and other smartphone makers have attributed falling revenues to customers not upgrading their handsets. That's a growing problem for the industry, but it's felt more acutely in some regions than others.

In the U.S. and Europe, especially, the life cycle of a smartphone has been steadily increasing, according to data from market research firm Kantar Worldpanel.

In 2016, American smartphone owners used their phones for 22.7 months on average before upgrading. By 2018, that number had increased to 24.7.

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Users in five European countries tracked by Kantar Worldpanel — France, Germany, Great Britain, Italy and Spain — are keeping their phones for even longer. From 2016 to 2018, the life cycle of a smartphone was extended by nearly three months, from 23.4 to 26.2. Users in Great Britain logged the longest average of 27.7 months in 2018.

An earlier set of data showed similar trends from 2013 to 2015, but it's not directly comparable due to a change in methodology, Kantar said.

The life cycle of a smartphone in China was relatively shorter at 20.2 months in 2016 and 21 months for both 2017 and 2018.

Experts said that trend may be due to reasons ranging from advancements in technology to the price of the phones.

The maturity of the market also matters, said Gerrit Schneemann, a senior analyst at IHS Markit. Most users in developed regions, such as Europe, are usually not on their first smartphone, but have found a model that is "good enough for now," he said.

Dominic Sunnebo, global director for Kantar, echoed that sentiment. "The age of poor smartphones is over (in Europe). Most consumers rate their smartphones very highly, so there is less push to change," he said.

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European consumers also believe that the newer devices will be similar in terms of "features and experience," he added.

Additionally, because handsets are increasingly advanced, they remain "good enough" for longer periods of time, according to IHS Markit's Schneemann. That's especially the case for Apple, which supports older generations better than other smartphone makers, he said.

"Apple is selling a long device life cycle as one of its differentiators and justification for its premium pricing," Schneemann said.

High prices and broken upgrade cycles

iPhones are not the only ones that cost much more now than they did a few years ago. According to Kantar's Sunnebo, the flagship phones from the world's top three smartphone companies — Apple, Samsung and Huawei — saw an average price increase of 52% in three years. That's made people less eager to buy new devices, he said.

Furthermore, European customers tend to pay the full cost of their handset up front more often than buyers in other markets, Schneemann said, adding that such users are "likely to hold onto their phone(s) for longer before paying retail for the next phone."

It's not just that customers want to get the most value out of expensive phones.

Consumers are increasingly moving away from mobile contracts with telecommunications carriers, and that breaks the "natural handset upgrade cycle," said Sunnebo.

On the other hand, Schneemann said carriers and smartphone makers allow customers to pay for the costly devices in installments to combat "sticker shock" and make new models "actually attainable."

"These payment plans have started to go from 24 months to 30 and even longer — all in an effort to keep $1,000+ smartphones at around $35/month," he told CNBC in an email.

As the Chinese market matures, it is likely that similar trends will emerge there, said Schneeman.

"Increasing device prices also reach Chinese consumers," he noted. "In light of a weakening local economy, we have already seen (that) the Chinese market (is) not able to sustain its steep growth from earlier in the decade."

Why it matters

Schneemann said it is significant that consumers in the U.S. and Europe are keeping their phones for extended lengths of time because smartphone makers need "upgrade sales" as high-growth markets slow down.

Deloitte's 2017 Global Mobile Consumer Survey found that smartphone penetration is at 80% for developed markets and 82% for developing markets. The numbers have surely grown since then.

The motivation to buy a newer model will, "at some point," come from the rollout of the next-generation high-speed mobile networking technology known as 5G, he said.

"Existing phones will not be able to access 5G networks, so in markets where coverage can be achieved rather quickly, there will be an incentive to upgrade," Schneemann said.

He acknowledged, however, that "5G is not rolling out overnight across the globe" and older networks will still exist in various markets for a long time.

He added: "The key will be to present services and features that are not available on older devices — which significantly change the user experience and value proposition."

—CNBC's Steve Kovach and Arjun Kharpal contributed to this report.