Smartphone customers in the U.S. may be growing allergic to two-year contracts, a new survey suggests.
Prepaid smartphone unit volume increased by 91 percent in the second quarter compared with the same period last year, contributing to a 9 percent increase in the overall smartphone market in the U.S., says market research firm NPD Group.
By comparison, unit volume of post-paid smartphone sales (those sold with a two-year contract) stayed the same year-over-year.
Not Just for Cheap Phones
Prepaid plans, in which consumers pay a select amount each month and cover any differences with overage payments, have proven an effective way to drive smartphone adoption, said NPD Group's vice president of industry analysis, Stephen Baker.
"Prepaid smartphones are no longer just cheap, also-ran options, focused on older and less-capable phones," Baker said in a statement. "As the smartphone market matures, and as growth slows, carriers have been smart to aggressively market some of their best current smartphones on a prepaid basis to a new set of customers, in order to keep sales humming along."
The numbers based on NPD's monthly Mobile Phone Track service show that lower-income buyers increasingly are jumping on the smartphone bandwagon. One-third of smartphone buyers earned less than $35,000 per year in the most recent quarter, up from 24 percent in the same quarter last year. Among prepaid customers, 71 percent fell into that lower-income category, 12 percent more than last year.
"We are dealing with a large number of people who were on prepaid plans anyway with feature phones who want to get a smartphone, and a lot of them are converting from older devices to Android ," said industry analyst Gerry Purdy of MobileTrax. "They find that you pay more for the device with prepaid but you pay less per month for the service."
He said the market is ripe since more than half of cell phone users in the U.S. still do not have smartphones, which are phones that can download apps and run on an advanced operating system like Google's Android, Research In Motion's BlackBerry, Microsoft 's Windows Phone or Apple's iOS.
With new devices constantly dazzling consumers and vying for their attention, prepaid plans offer a chance to try out a phone without a commitment; the customer can always sell it and get a new one – and even switch carriers -- without fear of an early termination fee.
Battle of Two Titans
The NPD survey also found, unsurprisingly, that the smartphone market here is controlled by two major players: Apple and Samsung, with Apple commanding 31 percent -- impressive for a company with only one phone.
Samsung's mostly Android-based devices make up 24 percent of the U.S. market (it leads in the global market). Combined, the two perennially warring giants rose 42 percent in share year over year as unit sales from rivals dropped.
Taiwan's HTC and South Korean's LG had a 15 percent and 6 percent share, while U.S.-based Motorola Mobility had a 12 percent share, NPD said.