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Feb 6, 2018

The Smartphone Wall

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Huawei is a giant among most smartphone players with an impressive presence in most parts of the world. In the European market, the handset manufacturer’s latest phones are well promoted by the carriers, both in store and through advertising; and, as a result, the OEM is enjoying consumer acceptance that other smartphone makers should be quite envious of. At Vodafone NL, for example, there are two Huawei devices (the P10 and P10 Lite) featured on the Top Ten table, which is where most consumers look first - the other devices are all Apple or Samsung. Not bad. So if there was one manufacturer poised the break the duopoly of Samsung and Apple, as most carriers would like, it is Huawei… except, of course, in the U.S.

At CES, Richard Yu, CEO of Huawei’s consumer division spoke his mind after his company was left standing at the metaphorical altar by AT&T, which backed out of selling Huawei’s Mate 10 at the very last minute. And this week the news appears to have gotten worse, with Verizon declaring that it has no plans to add Huawei’s Mate 10 - or any other Huawei device - to its portfolio in the foreseeable future. This is not good news for Huawei, obviously, and it’s not really great news for the carriers either, which are always looking for a third compelling smartphone brand in order to reduce their reliance on the Big Two smartphone companies. And matters will get worse with the advent of 5G networks, as the carriers desperately need 5G capable smartphones to make use of the new network; Huawei looked like a strong early option that is now off the table.

So why has Huawei faced so many challenges in the U.S. market, despite its popularity in Europe and other parts of the world? It appears that the Department of Justice has concerns that Chinese smartphone brands will act as a conduit for the Chinese Government, meaning that these devices could be used to spy on consumers, as well as feeding useful information about the wireless networks back to China.

Call me cynical, but I assume all devices ‘spy’ on me a little and the history of smartphones is chock full of examples… most of which are not from Chinese brands. But let’s not get bogged down in the theory of what could be done, nor why the European market, which in general takes consumer privacy far more seriously than the U.S., doesn’t seem to be concerned. Rather, let’s consider what this means for the U.S. mobile market.

As any smaller OEM will tell you, getting your device into a carrier’s portfolio is not easy, or inexpensive. And if the DoJ is truly pushing back on Chinese brands, then other manufacturers, such as ZTE and TCL (which owns the Alcatel brand), are also at risk of being removed from carrier portfolios. That’s terrible news for them, and great news for other (non-Chinese) manufacturers who may see an opportunity for their smartphones. But it’s not necessarily great news for consumers, as the Huawei smartphones are rather good Android devices, at a reasonable price point.

This brings us to the unlocked market, which accounts for roughly 13 percent of U.S smartphone ownership*. If OEMs such as Huawei are blocked from carrier retail, they need to focus their energies on alternative retailers, which will be good news for consumer electronics retailers looking for a unique device proposition that the carriers cannot offer. By throwing even more cash into marketing, and partnering with these retailers, Huawei could be exactly the catalyst that the unlocked market needs to break the carrier control of the smartphone market in the U.S. That is hardly good news for the carriers, and not what the DoJ is apparently hoping for, but it could be the best news yet for consumers looking for a broader range of smartphone choice. As the DoJ may discover, it’s hard to keep a strong product down.

 

*NPD Connected Intelligence, Unlocked Phone Demand Report 2.0


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