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Straight Talk Consumer and Entertainment Services

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5G is set to become the fastest-adopted mobile generation with a forecasted 63 million subscriptions by the end of 2020, despite some concerns over use cases and coverage capabilities. This historic growth is solely down to two factors – more operator launches globally and rapidly falling prices for smartphones and other 5G devices. In early January, Samsung announced that it sold 6.7 million 5G smartphones in 2019, with two-thirds of those coming in the final three months of the year. This is perhaps unsurprising given that Samsung added 5G to the Galaxy A90 making it their cheapest 5G handset by several hundred dollars. Ovum's 5G Devices Tracker: 3Q19 shows that the cost of buying a 5G smartphone decreased by 9.2% from 2Q19 to 3Q19. The tracker follows which 5G devices are on sale across all operators with commercially launched 5G networks and records prices and bundling information.

Figure 1: Average total cost of ownership of tracked 5G smartphone listings by brandAverage total cost of ownership of tracked 5G smartphone listings by brand

Source: Ovum Digital Consumer Insights 2018

Ovum expects this rapid decline in price to continue into 2020 and beyond as there are several independent factors driving this price decline. First, and most importantly, is that there is meaningful competition for the actual 5G modem itself. Nine years ago, Qualcomm had a virtual monopoly on 4G modems, whereas today Samsung and Huawei have their own 5G modem produced by their in-house silicon subsidiaries. Apple will likely be joining them with its own 5G chip following the buyout of Intel's modem business in 2019, while MediaTek is also starting to sell 5G modems and provide choice to other manufacturers. This competition will be the primary reason why 5G prices will plummet over the next few years. Samsung, Apple, and Huawei are of course the three largest smartphone brands so the ability of these companies to go their own way will put huge pressure on Qualcomm to stay ahead on both performance and price or lose valuable flagship device sales.

Second, competition between the smartphone manufacturers themselves is already eliminating any pretense of a "5G premium." Brands that have focused primarily on open market countries are using 5G (and Huawei's troubles with the US government) as an opportunity to build partnerships with operators and enter new markets. Xiaomi, OPPO, and OnePlus have each gained footholds in operators' early 5G offerings as the more price-friendly alternative to Samsung and LG and these brands will be looking to build on this position by aggressively pushing down prices further as Samsung lowers its own prices.

Last, a shake-up in how Qualcomm charges for its patent licensing and chipsets could be on the cards due to legal action in the US. Qualcomm lost an anti-trust case in 2019 over its requirement for its chipset customers to take on expensive patent licenses. The case is under appeal but if upheld, it could drastically lower the patent burden of all mobile technologies including 5G.

This rapid drop in prices should also have an interesting effect on non-handset 5G devices such as tablets, headsets, and smart watches, which will become much more attractive both to manufacturers and to consumers as the cost of the additional connectivity drops. Ovum expects 5G to provide a small boost to smartphone sales, but the smartphone market is close to saturation and both manufacturers and operators will need to look at non-smartphone devices if they want to grow. Making the premium of extra connectivity easier to swallow will be a big factor in convincing consumers.

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