Longer Contracts are Slowing the Handset Upgrade Path

The average reported length of time a customer owns their cellphone has increased by 5 percent since the autumn of 2006, according to J.D. Power. The study finds that customers are keeping their mobile handsets for an average of 17.5 months -- an increase from 16.6 months since the last reporting period (November 2006). This marks the first increase in the reported ownership cycle since 2002, when the average was 18.4 months. The increase in ownership tenure is roughly equal across major handset brands.

"One possible reason for this significant increase in the length of handset ownership is that more customers are initiating or renewing their service contracts for a longer period -- typically for two years, as opposed to just one year, which was customary a few years ago," said Kirk Parsons, senior director of wireless services at J.D. Power and Associates. "While these longer contracts help wireless carriers recover the costs associated with offering subsidized cell phones, customers tend to hold on to their current cell phones longer to avoid termination fees when switching service, which may ultimately lead to lower renewal rates."

The study also finds that the price a customer pays for their wireless mobile phone has dropped from an average of US$103 in 2002 to US$93 in 2007. The decline is primarily due to discounts given by handset providers and wireless service carriers to incentivize sales. Currently, 36 percent of customers report receiving a free mobile phone when subscribing to a wireless service -- up considerably from 28 percent in the 2002 study.

"It's clear that wireless service carriers are using mobile phones as bait to increase consumer traffic, applying discounts either through rebates or free limited-time offers," said Parsons. "The problem with this strategy is that, in most cases, the discounted handsets being offered are older models, which typically lack the latest technological advancements or desired design features."

The study measures customer satisfaction with wireless handsets by examining five key factors. In order of importance, they are: physical design (24%); operation (22%); features (20%); handset durability (19%); and battery function (15%).

Motorola and Sanyo tie to rank highest in overall customer satisfaction with wireless cell phones. Motorola performs particularly well in the physical design, operation and features factors, while Sanyo receives high ratings in operation and battery functionality. Following Motorola and Sanyo in the rankings and performing above the industry average are Samsung and LG, respectively.

The study also finds several key wireless handset usage patterns:

Sixty-nine percent of all cell phones owned are a clamshell design -- an increase of 19 percent from 2006. This compares to 29 percent for the candy-bar style, and 2 percent for the slide-cover design.
Handset features that are used most frequently include: speakerphone (51%); camera capabilities (35%); services to send/receive short messages (22%); and gaming (16%).
More than one-half of all current wireless users compared other handset brands before selecting their current wireless phone. Those customers who compare phones during the selection process are more likely to be satisfied overall with their current handset than those who do not.

Overall Satisfaction Scores (Based on a 1,000-point scale)