Steep Price Premium for 5G Could Limit Mainstream Phone Sales, Says IHS
The premium for 5G in smartphones is “dramatically exceeding expectations,” with a price premium as much as 29 times higher than consumers expect, said IHS Markit Monday. Nine of 10 survey respondents said they expect to pay more for 5G than 4G LTE phones, but three-quarters said they expect to pay a 10-25 percent upcharge for 5G, a range of $32-$80 based on the average selling price of a smartphone, blogged analyst Joshua Builta.
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At $1,300, though, Samsung’s S10 5G phone costs more than triple the $388 ASP for a Samsung smartphone: “In dollar terms, this would represent a $912 increase in price, an order of magnitude higher than consumers’ expectations,” Builta said.
The researcher noted flagship phones typically price out at two to three times the industry ASP -- with extras taking prices above consumer expectations -- at a premium early adopters are typically willing to take on: but steep 5G pricing “could slow sales of 5G devices to the wider, more mainstream consumer market.”
Global 5G handset shipments are expected to reach 424.5 million units in 2023, from 9.5 million units this year, growing to 73.7 million next year, said Builta. That’s a slower uptake than for 4G LTE phones when they first deployed a decade ago, but the long-term outlook for 5G subscriber growth “is more optimistic than for 4G,” he said.
Contributing to the high cost of early 5G smartphones analyzed by IHS Markit is a “highly complex” RF subsystem designed to support millimeter wave capability for high-speed data transfer, said Builta. In the U.S., the Moto Z3 with 5G Mod and a version of the Samsung Galaxy S10 5G both integrate multiple separate millimeter wave antenna modules “strategically placed throughout the device to allow clear signal reception,” he said. Redundant design “drives up costs significantly,” he said.
5G phone pricing is expected to decline quickly, Builta said, as OEMs use more efficient designs employing multimode modems. In a few years, prices will fall to a more mainstream-friendly $700-$800, he said. Markets such as China will deploy a stand-alone 5G network, further simplifying RF front-end design requirements, allowing lower price points, said the analyst.
Meantime, brands may be able to overcome consumer pushback about 5G smartphone pricing by promoting attributes beyond speed, said Builta, citing virtual reality and 5G’s ability to deliver the ultra-low latency that VR requires.