In the Canadian smartphone market, 2013 may well be remembered as the year when the consumer love affair with high-end smartphones finally began to cool.
On Tuesday, BlackBerry Ltd. announced that its brand-new mid-tier phone, the Q5, is coming to Canada on Aug. 13. Previously, the lower-priced version of BlackBerry’s Q10 was only available in certain overseas markets. By bringing the Q5 to Canada, BlackBerry is among the companies hoping to capitalize on two market trends that are likely to make Canadian consumers much more likely to buy mid-tier phones in the coming years – the commoditization of smartphones and the end of three-year contracts.
For years, Canadian consumers have been able to buy high-end smartphones at highly subsidized prices. Carriers have been happy to slash hundreds of dollars off the price of a new iPhone from Apple Inc. or Galaxy from Samsung Electronics Co. Ltd., as long as the customer agreed to a long-term contract, which allowed the carrier to make more than the amount of the subsidy in fees. If a customer wants out of the contract, a hefty penalty is charged.
But in June, the Canadian Radio-television Telecommunications Commission issued a ruling that lets customers opt out of their contracts after two years without any penalty. The new rules go into effect in December.
As a result, carriers have less incentive to offer high-end phones at significant discounts – and evidence suggests many Canadians are not willing to pay anything close to the full price for such phones, which can often cost more than $700.
“We see it in other markets too, but in Canada we’re much more price sensitive,” Kaan Yigit, head of Solutions Research Group, said. “People are upgrading or getting second or family units. But people don’t necessarily want to pay significant upfront costs.”
Virtually all the major carriers have indicated the CRTC ruling will have an impact on phone subsidies. In some cases, carriers may choose to hike the up-front cost of buying a high-end phone. Others have chosen to keep the up-front subsidies, but increase the monthly costs.
“We have been offering customers mid-tier devices on two-year contracts for quite some time,” said Patricia Trott of Rogers. “As the industry moves to two-year contracts across all device categories, we expect to see a larger volume of customers migrating to mid-tier devices.”
Telus Corp. announced details of its new “SharePlus” pricing scheme for smartphones on Tuesday. Instead of raising the up-front price of its phones, the carrier is still offering subsidies of up to $500 on some high-end devices. However the cost of paying back those subsidies is now amortized over two years, rather than three, making for higher monthly fees. Customers will pay $55 a month on a two-year contract for unlimited talk and text for a subsidized high-end phone, $45 a month for a low-end phone and $35 a month if they bring their own device.
“Overall, we take our cues from the market and what our customers are demanding when it comes to our device selection,” Telus spokeswoman Donna Ramirez said. “We are committed to offering our customers a wide range of smartphones and tablets to choose from both at the high end, mid and low-end of the spectrum based on their different needs and that’s something that we’ll continue to do despite changes in the industry.”
The rise of mid-tier smartphones in Canada was perhaps inevitable, given the shrinking functionality gap between high-end and low-end devices. During quarterly earnings announcements earlier this month, the smartphone industry’s two biggest players, Samsung and Apple, both indicated that average selling prices are starting to slip, even as both companies continue to sell a healthy number of units. That decline is at least partially due to the fact that lower-priced offerings from both companies are starting to make up a larger portion of overall sales.
“The sex appeal of top-end smartphones isn’t what it used to be,” says Mr. Yigit.