Remarketing Obsolete Products -- the Case of Telephone Handsets Profiting from Obsolescence

Finding New Markets for Handset Telephones

Analysis of the American Telephone Handset Market

Telephone handsets, once a symbol of upward mobility and continued affluence in the United States have been replaced by the cell phone and smart phone where today they are more seen with nostalgia. The cannibalization of the handset market has gained momentum as the adoption of cell phones and smart phones have accelerated in the most affluent customer segments first followed by broader, larger and more middle-income market segments (U.S. Census Bureau, 2009). What continues to be the catalyst of growth for cell phone and smartphone growth is the ability to complete multiple functions on a mobile device including texting, web browsing and taking and sending pictures (U.S. Census Bureau, 2009). The multifunctional nature of the cell phones and smartphones has led to the quick demise of the telephone handset, faster than even the U.S. Census had predicted.

There are patterns in the U.S. Census data that indicate young, affluent homeowners who were 35 years of age or below quickly jumped to 55% smartphone adoption from 1989 to 2005, with women in the group jumping from 23% to 74% (U.S. Census Bureau, 2009). These two market segments were the most aggressive in cutting their landline services, trimming them back from 95% to 69% in the same period, across all market segments (U.S. Census Bureau, 2009). Interestingly the most loyal to landlines are those senior citizens who don't see the need for texting, taking and sending pictures or creating content online (U.S. Census Bureau, 2009). Underlying this shift is the fact that cell phones and smart phones are now defining an entirely new lifestyle that seeks to compliment mobility and rapid consumption and creation of content (Apple Investor Relations, 2013). This shift in lifestyles has created an entirely new class of mobile phone user, one that values the ubiquity of access over previous-generation influences of convention including landline phones (Link, Battaglia, Frankel, Osborn, Mokdad, 2007).

Analyzing The Telephone Handset Decline In United States

The pervasive build-out of infrastructure to support cell phones and smart phones, including the integration of the TCP/IP protocol into these networks ensured cell phones and smart phones would rapidly proliferate. Telecommunications providers were also quickly building out infrastructure that would quickly monetize the new devices and also make them significantly more profitable than the previous landline-based systems as well (Link, Battaglia, Frankel, Osborn, Mokdad, 2007). Apple has consistently tracked the cannibalization of landlines by smartphones and has seeing their iPhone product family literally overtake entire metropolitan areas within eighteen months or less when a new iPhone introduction was combined with a services plan bundle (Apple Investor Relations, 2013). Apple is particularly interested in how the adoption rate or ramp for smartphones compared to other devices, and also invests in analytics and trending to understand the nature of Internet to landline user consumer adoption. The results of this analysis are shown in Figure 1, Analysis of Internet and Smartphone Users in the U.S.

Figure 1: Analysis of Internet and Smartphone Users in the U.S.

Sources: (Apple Investor Relations, 2013) (U.S. Census Bureau, 2013)

The demographic, competitive technology-based factors, socio-economic and legal factors are all working to also drive up cell phone and smartphone adoption, while hastening the obsolescence of the handset telephone as well. The following is a demographic analysis of the American Smartphone market as of 2011 (Apple Investor Relations, 2013) . This analysis shows how quickly the American market has adopted cell phones and smartphones in the 18- to 45-year-old market segment.

This age group (18- to 45-year-olds) also represent the most financially prosperous years of a person's life where incomes are typically the highest and net worth tends to accelerate over time (U.S. Census Bureau, 2009). These are also the core group of consumers who will rapidly adopt new technologies to gain time and cost efficiencies in their lives (Link, Battaglia, Frankel, Osborn, Mokdad, 2007). For these consumers the cell phone and smartphone has become a means for continually staying connected with their friends and family, in addition to being a valued device for consuming and creating content (Link, Battaglia, Frankel, Osborn, Mokdad, 2007). Add to all of these factors the point that Apple has discovered in their consumer research, which is the duality and multiplicity of roles many people have in this age group have leads them to pay for convenience and speed in devices (Apple Investor Relations, 2013) and the demographic...

Americans in all of these demographic segments are more time-challenged than ever before, and the 18- to 45-year-old segment that have lives that include multiple and at times conflicting roles, are willing to pay a premium for a device that promises to give them more time.
In additional aspect of cell phone and smartphone adoption is the critical need they represent in careers and continual advancement. The use of cell phones and smartphones is ubiquity in many professions including sales, customer service and healthcare for example (Apple Investor Relations, 2013). knowing how to get work done on a smartphone is essential to a sales person being able to earn a higher income by closing more deals and being productive while traveling for example. This aspect of the smartphone is a political factor as well, as the recent U.S. elections showed how closely the two candidates paid attention to their online media and mobility-based campaigns with both relying on the iPhone application development platform for support (Apple Investor Relations, 2012). The political ramifications of the smartphone can be readily seen from how President Obama successfully used an iPhone application to stay connected with voters and supporters as well (Apple Investor Relations, 2013). While the smartphone proved its value from the standpoint of streamlining democracy, the Arab Spring events in 2011 also showed how powerful a smartphone can be in capturing content and immediately sharing it with the world. The crackdown on Egyptians by their own government galvanized the rest of the world to take action and support them. All of these events started with actual footage captured on an iPhone (Apple Investor Relations, 2013).

How U.S. Handset Manufacturers Can Find A New Market For Their Obsolete Products

Of the many nations that severely restrict to use of cell phones and smartphones after witnessing what happened in Egypt, there are those governments that look to eliminate the adoption of cell phones and smartphones as much as possible. One of these emerging markets is Cuba. Their government has issued a crackdown in any person using a cell phone or smartphone that not is expressly given permission from the government (BBC Monitoring Americas, 2009). This political pressure and power over the citizens in Cuba is paradoxically very good for American telephone handset manufacturers. A repressive political climate that forbids the use of cell phones is ideal for any handset manufacturer looking to resurrect an obsolete product. The first recommendation is to define a marketing plan to sell handsets into Cuba.

In addition to launching their handset into the Cuban market with the government's assistance there, handset manufacturers also need to thoroughly understand the market dynamics of the smartphone market. The second recommendation is to use the Porter Five Forces Model as the foundation of defining a low-end smartphone that can be manufacturer by Flextronics, a leading production outsourcer. This gives the handset manufacturer an entry in the market and also allows them to retain their brand as well.

Figure 3: Smartphone Five Forces Analysis

Sources: (Apple Investor Relations, 2013) (Bernoff, Li, 2008) (Franke, Schreier, 2010) (Gill, Lei, 2009)

(Lee, 2011) (Lee, Kwak, Kim, Kim, 2009) Based on the Five Forces Model by Dr. Michael Porter (Porter, 2008)

The third recommendation is to build a smartphone specifically designed for the enterprise (Fortune, 1000) market using Flextronics as the manufacturer, and trim back all non-essential features to compete on Microsoft Outlook Server integration. Outlook Server is the standard in the Fortune 1,000 market and is considered the global market share leader in this area, which is why having a smartphone tailored to the specific needs of this market could be so successful.

Assessing the Landline Opportunity in Cuba for Handset Manufacturers

The socio-economic, political and legal conditions In Cuba make it ideal for selling handset telephones today. The barriers the Cuban Communist government places on cell phones and smartphones is leading to the country being one of the most valuable in terms of telecommunication products and services. The Cuban government shows signs of actually increasing the monitoring and banning of cell and smartphones in their country given the poor social and economic conditions there and the increasing focus on overthrowing the existing communist government (BBC Monitoring Americas, 2011). All of these factors combined have led to Cuba being rank 72nd globaklly in terms of their landline use, with 1.1 million installed as of 2011 (CIA Factbook, 2013). In an age of handset cannibalization, sales in Cuba continue to grow as cell and smartphones shrink or stay the…