As a result, the biggest smartphone makers have invested considerably more effort as of late into building their relationships with carriers – something companies such as Apple saw little reason to do when the iPhone was the fastest-selling and most profitable phone in the world. Apple did not respond to a request for comment.
“It’s about what can we deliver and how we can package network services,” says Ken Price, director of marketing for Samsung Canada. “The way the North American market works is very tied to how carriers charge.”
In some ways, Samsung is well positioned among the major smartphone players to benefit from – or at least survive – the impending commoditization of mobile devices. Unlike Apple, Samsung has vast connections through local manufacturing plants and carrier partners across much of the developing world. Because the massive phone-price subsidies that carriers provide in countries such as Canada are relatively rare in many other parts of the world, Samsung tries to entice consumers with other perks. For example, the company has been known to offer free two-year warranties with many of its devices.
But Apple’s comparatively minimal presence in much of the developing world doesn’t necessarily mean the company is doomed. The high-price, high-margin smartphone segment is still experiencing strong growth in Canada and other markets. Even RIM, which has focused much more on the developing world than Apple in recent years, has spent most of its marketing budget so far this year on relatively expensive phones.
The market for high-end phones will continue to exist, even if it becomes overshadowed by a mass market of lower-cost devices. “The high-end of the market may not need to move down” immediately, says Mr. Stewart. “Nobody really buys a $50,000 Lamborghini because there isn’t one.”
Still, smartphone companies know they have to offer more features for the same price, or less, to stay competitive. That push is on display in the developing world, a major stage for the global smartphone price war.
Over the past 20 years, millions of consumers in the developing world bought cheap, reliable Nokia cellphones. But with the rise of smartphones and tablets, the era of talk-and-text “dumbphones” is drawing to a close. Middle-class consumers across the developing world are starting to trade up – not to expensive high-end smartphones like the iPhone, or the latest BlackBerry Q10, but to more affordable devices like the Samsung Pocket, which costs as little as $125, or Nokia’s affordable Asha line of devices.
“There’s a very, very thin layer of top-end smartphones – your iPhone 5s, your Galaxy S4s – because, frankly, people just don’t have disposable income here,” says Vodafone Ghana CEO Kyle Whitehill. “The reason mobile broadband is sitting around 10 per cent right now in Africa is affordability.”
So, even as profit margins in the developing world are thinner, the low-cost smartphone market in regions such as Latin America, Africa and East Asia is now growing too quickly to ignore.
After conducting a recent survey of the smartphone market, Forrester analyst Charles Golvin predicted that Apple has little choice but to focus on building cheaper phones.
“The iPhone remains among the most lusted-after consumer products, but in many developing markets, the device is out of reach for the emerging smartphone buyer due to its high cost; those buyers choose Android devices mainly owing to price,” he said.
Now, a slew of lesser-known manufacturers have jumped in to compete purely on price.
Chinese firm Huawei, for example, has built dozens of low-cost smartphones and tablets, leveraging the company’s presence in wireless network equipment and a host of related industries to keep costs down.
Others manufacturers, such as Tecno Telecom, which specifically targets mobile phones in African markets, are more limited, but are growing in numbers and volume.
In turn, lower price points are fundamentally changing the makeup of emerging telecom markets, where regular cellphones with limited functionality still account for the majority of mobile devices in use. As low-cost smartphone makers improve their products in the developing world, they could also set their sights on more established markets.
“It’s going to definitely evolve,” says Ken Campbell, formerly of Wind Mobile Canada and currently CEO of Tunisiana, a wireless carrier in the North African country of Tunisia.
“You’ll see those prices come down… You’ll start to see significantly more [smartphone] volumes coming from emerging markets.”