USA consumers may be surprised by the price of the first wave of 5G-enabled phones

USA consumers may be surprised by the price of the first wave of 5G-enabled phones
Published: 20 August 2019 - 8:37 a.m.

With the first wave of 5G smartphones hitting the market, nearly everyone expects to pay more money for them. But the cost of the initial wave of smartphones is dramatically exceeding expectations, with the price premium as much as 29x higher than many consumers anticipate. This is according to a new IHS Markit survey examining consumer perceptions regarding the technology.

A total of 91 per cent of responses said the expect to pay more for 5G devices compared to existing 4G LTE smartphones. With the average sales price (ASP) of a smartphone amounting to USD319 in 2019, a 10 per cent hike in pricing would add USD32 to the cost, while a 25 per cent increase would boost it by USD80.

The actual pricing of the first wave of 5G phones is far higher. For instance, Samsung's S10 5G phone is retail priced at USD1,300, a 335 per cent premium compared to the USD388 average for the company's existing 4G smartphone models. In dollar terms, this would represent a USD912 increase in price, an order of magnitude higher than consumers' expectations.

It should be noted that this comparison is of a flagship smartphone price against an industry ASP. Newer technologies almost always come first to premium smartphones which are typical 2-3x as much as the industry ASP. Given the nature of 5G radio design, these early 5G smartphones are configured with larger-than-typical displays and packed with extra features. All of these extras do contribute to a higher-than-expected retail price from a consumer perspective.

This pricing discrpancy could shock potential consumers. While such pricing may not impact early adopters, it could slow sales of 5G devices to the wider, more mainstream consumer market. Joshua Builta, senior principal analyst at IHS Markit said “The 5G market is primed for massive growth, with the transition to the new technology expected to occur at a much faster pace than any previous wireless generation during the first five years of deployment. However, as with each new wireless generation, the first wave of phones carries sky-high costs because of the additional electronics required to support the enhanced features. With smartphone brands passing these additional costs down to consumers, many buyers will be turned off by the high prices and will wait until they come down before purchasing a 5G phone.”

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