Phones Had a Year of Slump. What Was Everyone Talking About at the Industry's Biggest Show?

MWC was down to three dedicated phone-company booths. Plenty of new technology on display, but nobody yet knows what will bring consumers back.

The phone industry has just been through its bleakest year.

By the end of 2018, the global smartphone market had posted five straight quarters of negative growth. China's market — once the fastest-growing — did worse, shrinking by roughly 10% over the year, with February's decline reaching 38.7%.

MWC (Mobile World Congress), which closed on February 28, was more or less the whole phone supply chain's answer to that slump.

Samsung and Huawei both brought new phones, but their newest and most eye-catching models — foldables — sat sealed inside thick glass cases. The shape of the phone, unchanged for years, is what handset makers are counting on to give you a reason to buy another one.

5G was everywhere too. Carriers want to give you a reason to upgrade as well.

MWC first caught fire in 2000, when phones got a technology that changed the industry: 3G. That year the show was renamed from the GSM conference to 3GSM and settled permanently in Barcelona, Spain — clearly hoping to work out what 3G would make possible. By then it already drew 50,000 people.

Not until 2006 did 3GSM take its current name, MWC, and it has been the mobile industry's largest trade show ever since. In 2018 and 2019, MWC drew more than 100,000 attendees and over 2,400 exhibitors, covering the whole chain from technology suppliers and carriers to phone makers and mobile app services.

Look back at MWC's high points and you cannot leave out the phone brands that were once red hot. 2006 belonged to feature phones: that year the Nokia 8800 and the Motorola Razr V3 took the show's awards for best GSM phone and best 3G phone. In 2010, Android phones broke out — that was the year HTC released the G7, which became, without question, the star of the Android world.

From 2011, Samsung began launching its Galaxy line at MWC, and releasing new products just before MWC became a habit. Then, in 2013 and 2014, Chinese brands such as Lenovo, Huawei and Gionee came into view, and phone technologies — curved screens, fast charging — all showed up at MWC together.

But now that phones have stalled, how exactly is new technology supposed to drive the industry forward and keep people spending? And what did the people inside the industry each notice?

QDaily reported from the show for a week, walked the halls and interviewed 17 ordinary attendees. They came from different places and different backgrounds — a Spanish entrepreneur, a veteran lawyer who had just moved into tech, a computer-science undergraduate, the CEO of an African telecom carrier. What was on their minds?

The Slump Is Plain to See, and People in the Industry Don't Change Phones Often Either

"We're seeing users replace their phones less often. Plenty of people own a high-end phone, and they're keeping it longer," Stephanie Huf, head of marketing at Division X, the frontier-technology unit of the Swedish carrier Telia, told QDaily. Huf is Australian and has worked in telecom for 24 years.

Huf is the sort of consumer phone makers like. She has an 800-euro Samsung she has used for eight months, which is her usual replacement cycle, and an older iPhone 7 that has gone to her son.

"I don't want to be locked into iTunes. Sometimes I don't like Android's privacy problems, but at least it gives me more choice."

Even at a telecom show, though, users like Huf are rare. Most of our 17 interviewees replaced their phone every two years, and even people who work in the industry were in no hurry to buy a new one. More than one said they would wait until the old one broke.

Carriers and telecom equipment companies are the backbone of MWC, the largest mobile communications show in the world, but it has always been the phone makers' consumer-facing booths that draw the eyes.

The most obvious change this year: the dedicated phone booths have nearly all gone.

MWC's main venue had 30 large exhibition zones covering 25,000 square meters. Only three of them were mainly about phones — Samsung's, Huawei's and Xiaomi's — and together they took up 3,200 square meters.

Plenty of phone brands were still present. OPPO and OnePlus were there, but without booths of their own; they showed their phones alongside other brands inside Qualcomm's space. LG, TCL, Nokia, ZTE, Sony and Lenovo all still built stands, but at every one of them phones were the supporting act.

ZTE put its emphasis on 5G solutions, plus a robot playing the folk tune Jasmine Flower on a piano, without pause. TCL's and LG's booths were full of enormous television screens; Lenovo's focus was PCs. HMD, the company that took over the Nokia phone brand, could not squeeze into the main hall and put up a standalone booth outdoors.

Five years ago the scene was entirely different: MWC 2014 still had more than a dozen sizable phone-maker zones.

That year Samsung launched the Galaxy S5, and Nokia — by then bought by Microsoft — abruptly announced an Android-based X series. Huawei, Lenovo, Sony, LG, ZTE and TCL each rented a large stand to push new phones of their own. Small makers turned out in numbers too: Jolla, founded by Nokia defectors; Yota, the Russian dual-screen phone; even Amazon and Firefox were talking up phone plans of their own.

The earnings of phone makers and their manufacturing partners looked worse still. Foxconn, Apple's largest manufacturer, saw revenue fall 8% in December 2018; in the last three months of that year, its Zhengzhou iPhone assembly plant had already cut about 50,000 contract workers. Nidec, the Japanese company that makes vibration motors for the iPhone, said in mid-January that it was cutting its revenue forecast for the fiscal year ending March 31 by 10%. Its CEO said: "In more than half a century of work, this is the first time I have seen orders drop that far in a single month."

Apple was never generous with its suppliers' margins, and other brands leave their suppliers even less. In the fourth quarter of 2018, shipments in China's smartphone market fell 9.7% from a year earlier, and companies including Lingyi Zhizao, Jinsheng Zhineng, Fenda Technology and GoerTek all reported steep year-on-year drops in 2018 net profit.

Not Every Industry That Depends on Phones Feels the Slump

Miquel Tolosa runs a startup in Barcelona called Monkey Me, which streams music on a model much like Spotify's. Users listen free while the platform takes ad money; pay a monthly fee and the ads go away.

"I don't think it's true that fewer phones are being sold. I mean, shipments are falling, but the number of users phones reach hasn't fallen, right?" Tolosa told QDaily. His team has six people; the business, which he started in his third year of college, has grown slowly and reached 1 million iOS downloads in 2018. Still small, but he says it is about to close its first funding round.

That attitude is common. Smartphones are not selling in ever-larger numbers, but the people who already bought one are using it. Internet companies have not lost users, and the time users spend on their phones each day has only gone up.

A report from App Annie shows that in 2018 downloads and revenue in the global mobile app market still grew by double digits. Time spent on phones was 45% longer than in 2016, and half of it went to social networks. In China, the average phone user looks at the screen for more than three and a half hours a day.

That is why the more profitable internet services command such strong capital. Netflix's stock rose 50% over the past year, and Amazon briefly became the most valuable company in the world — just as Apple's market value shrank on the poor sales of its new iPhones. Amazon is still worth more than Apple today.

"We've become slaves to our phones. Everything gets done on the phone, and we depend on it too much," Ma Saez told QDaily. She works for Catalonia's audiovisual production board and had an enormous travel backpack on her shoulders. She held up her right hand to show that she wears no rings and no jewelry of any kind; an expensive phone, she said, is even more useless. Hers is made by BQ, a Spanish brand, and cost 75 euros, about 570 yuan. She contributes little revenue to phone companies, but her value to internet companies has not fallen because of it.

For carriers the picture is more complicated.

On one hand, carriers are also a sales channel for phones. Take China Mobile, the largest carrier in the world: its most recent half-year report, covering the first half of 2018, showed product sales revenue plunging from 40.9 billion yuan to 35.7 billion. The second half could only be worse.

On the other, carriers earn far more from services than from selling phones. China Mobile's service revenue is ten times its phone sales revenue, so even with phone sales collapsing, its revenue through the third quarter of 2018 still came to 567.7 billion yuan, down just 0.3% year on year. Over the same period China Telecom's and China Unicom's revenues rose 3.6% and 6.5%. Verizon, the largest US carrier, saw full-year 2018 revenue rise 3.8%, and AT&T grew 15.2%.

Carriers' troubles go beyond phones selling badly. Video, social networks, search engines and other services bring internet companies huge revenue, while carriers get only the data fees. Carriers have become pipes that deliver data; competition is fierce, all sorts of unlimited-data and King Card plans have come to market, and data keeps getting cheaper. In 2018 China's Ministry of Industry and Information Technology abolished data "roaming fees," and in the first half of the year the average price of mobile data fell 46.2% from the year before.

Profit in the mobile industry has moved from the carriers that sold phones and services, to the phone makers that control the operating system, and now to internet services.

Africa Is the Newest Emerging Market, and Internet Companies Are Already Taking Carrier Profit There Too

Inoweze Ferreira had one AirPod in his ear, and the iPhone XS Max in his hand would not stop ringing. At a show full of white men, Ferreira, who is of African descent, stood out. So does the place he works.

For the past eight years Ferreira has worked on the African market for Unitel, a Mongolian telecom carrier, and in 2018 he was promoted to CEO of Unitel T+, its separate brand for Africa. This was his eighth MWC in a row.

Unitel has not even rolled out 4G in Africa. "For me and my team, coming here is about preparing for the future, finding the solutions for the future."

In the African markets he serves, fewer than 30% of people have a smartphone; in China the figure is 97%. The African continent has close to 1.3 billion people, roughly as many as China.

Within that small smartphone market, the Chinese company Transsion holds 34.9% of Africa, followed by Samsung and Huawei. But far more people use feature phones: Africa has more than 300 million handsets that can do nothing but calls and texts, and 837 million people with no way to get online at all.

That makes Africa what people call the last great reserve of demographic dividend. A report from France's National Institute for Demographic Studies says Africa's population will reach 2.57 billion by 2050, a quarter of the world's total.

"Africa is the world's future — it has young people, and they're willing to accept change fast," Ferreira said. He has accepted some change himself: besides the iPhone, he carries a Huawei Mate 20, and thinks the company "is going to dominate the whole market from here on."

Is Africa an easier market to enter? Clearly not. "There's poverty and corruption here, and every country understands and reacts to new things differently. I believe two or three companies will end up staying ahead — how do they do business in all these different countries?"

Africa has 54 countries, and the differences between markets are not only economic and cultural but political. IDC reports that Africa's three biggest phone markets are Nigeria, South Africa and Kenya. In the third quarter of 2018, Nigeria's phone shipments fell 11.6% from the previous quarter, mainly because of government spending cuts and armed conflict.

For carriers and phone makers, the same loss of profit to internet companies is happening in Africa at the same time.

Ferreira says Unitel's African revenue is falling because of the growth of OTT providers — short for Over the Top, meaning content and services delivered over the internet.

By 2018, revenue from internet film and television in sub-Saharan Africa had reached US$223 million.

Huawei and Xiaomi Are No Longer Unfamiliar Brands, But Apple's Users Are Hard to Take

Not until the show's last day did Tolosa have time to leave his Monkey Me booth and walk around. He reached Huawei's foldable Mate X, ringed by a crowd, glanced at it and moved on.

"I'm not that into phones. I think [the Huawei Mate X] is too expensive, and phones don't need to fold," Tolosa told QDaily. He uses a Xiaomi phone himself, because it is "cheap and it works." It cost 120 euros, a little under 1,000 yuan. Before Xiaomi he used BQ, the Spanish brand made in China.

Huawei is still MWC's most important exhibitor and the show's official sponsor, with three large zones spread across different halls for phones, smart cities and communications technology. Samsung's stand faced Huawei's phone stand, swords drawn, and Xiaomi was not far away. Together the three formed the core of Hall 3 in MWC's main venue.

The phone business is moving toward an oligopoly. IDC data shows that in 2014 the top five smartphone makers by shipments held 57% of the global market between them; by 2018 that share was 68%.

Adrian Rodriguez uses a Huawei phone too. He is 19, studies programming at the University of Malta, and came because his school paid for the ticket. "I like Huawei because there's so much you can customize yourself," Rodriguez said, opening his phone and deftly swapping the home screen, the theme, the icons. "iPhone just can't do that."

Malta, a Mediterranean island nation smaller than Beijing's Haidian district, is one of 44 European countries with 44 different economies and cultures. Carriers are still the main sales channel for phones in Europe, so it does not matter who you are — Huawei, Xiaomi or OPPO — you have to close a deal with the leading carrier in each of them.

In 2018 Huawei signed a "smart city" agreement with the Maltese government, saying it would build a 5G network there.

The competition is still hard, though. Apple's sales are falling, but not many of its users have moved to Android. Over the past two years, even with sales flat, the installed base of iPhone users grew by 200 million.

Of the 17 MWC attendees QDaily interviewed at random on site, seven used an iPhone.

Their reasons were firm; they had come to like Apple's complete experience. Ankita Neotia, an MBA student at Spain's IESE Business School, calls herself an Apple fan and has bought a new iPhone almost every year since the iPhone 3GS. "I have an Android phone, I don't even remember the brand. Samsung? Something. It's from work anyway, but I never use it. I only use my own iPhone."

Neotia did not buy the latest XS Max, though, because of the price.

Pierre Gobin is another user like her. He shoots short films at a studio in Barcelona, bought an iPhone 5 four years ago, and two years later replaced it with another, identical iPhone 5. A new phone? "I think it's too expensive and too big."

iPhone owners are keeping their phones longer. Asymco estimates that the replacement cycle for Apple devices has stretched from one year, when the iPhone first launched, to four years and three months.

But Apple's market in Europe holds firm. The number of iOS users in Britain did not fall but rose 4.69%, to 56.59% of all mobile users in the country.

In Europe, at least, what Chinese phone makers have taken is Android share outside Samsung; the iPhone's user base is still hard to shake. That is not quite the situation in China.

On competition and the slump, Osama Ali, OPPO's global digital marketing manager, who was at MWC, thinks it will end up like the PC business. "[The phone industry is] like PC competition — first there's a decline, then a few companies are left, and then those companies see a recovery."

But the PC recovery did not save the PC makers. Of the former top three, Dell went private and came back public talking about enterprise services, HP split itself up to do enterprise services, and Lenovo at one point sold real estate to stay above break-even. The industry is still there; the companies inside it never got their old standing back.

Is 5G the Lifeline? Reactions on the Floor Varied

If you ask what phone news ran hottest in the media and on WeChat Moments this past week, it was the foldable phone.

But it is not something that will spread soon. Samsung and Huawei both brought new phones, and their newest and most eye-catching foldables sat sealed inside thick glass cases. At the prices the two companies announced, the Mate X and the Galaxy Fold, both due this year, will cost 17,000 yuan and 13,000 yuan. That is too expensive, and Samsung has already said supply will be limited, while Huawei, which does not control folding-screen production itself, will most likely be short too.

5G was the new technology every maker and every carrier showed in every zone.

Ericsson, the world's second-largest 5G equipment supplier after Huawei, mounted white base-station boxes high on the walls of its enormous booth to keep the 5G demonstrations running. The booth was split into five areas, with dozens of specific scenarios to tell visitors what becomes possible once you are on a 5G network.

Remote autonomous driving. Inside the hall, a visitor could sit in a chair holding a steering wheel, like a driving game at an arcade, and actually control a real driverless car outside the venue. The 5G network carried the signal fast and without lag, so commands arrived quickly.

Nearby, a remotely operated autonomous ship, a joint project of China Mobile and Ericsson, worked on the same principle.

There was also a giant spider robot, still a lab project at Ericsson. What 5G does for it: each of the spider's legs moves on its own, and making them move together to finish a complex task needs 5G's zero-lag transmission.

We also tried cloud gaming on a Vive headset. No need to connect to a PC at all: the images you see in the goggles come down over 5G and are rendered in real time. Only, how many people use VR?

The Japanese carrier Docomo showed a remote operating theater, where a doctor a thousand miles away could work a robotic arm through precision surgery almost in sync.

These are all industrial uses, though, and industry is not where carriers make their money. What pushes carriers to sink hundreds of billions into infrastructure is still the world's nearly 5 billion phone users.

The demonstrations on phones were far duller, and users could barely tell the difference. OnePlus and OPPO showed 5G cloud gaming and 5G livestreaming. But the 5G phone itself? OnePlus sealed its phone inside a glass case, where visitors could see only a screen. Today 4G or Wi-Fi is already enough to carry video as sharp as a phone screen can display.

For consumers, the best pitch exhibitors could come up with was still faster downloads. That is no longer something users worry about.

"I see a lot of 5G here, but I still haven't worked out what it's actually saying," said Saez, of Catalonia's audiovisual production board, who had been at MWC one day and already felt lost.

"5G means faster connections and lower latency. Whether it's gaming or IoT, everything gets more powerful and more reliable, and there are more opportunities." Ali's summary may represent the industry's understanding of 5G well enough: a faster, more efficient network that helps devices other than phones.

Huf, who works for a carrier herself, was less optimistic about 5G's pull. She said 5G would in the short term give ordinary users a better experience, gaming for instance, "but it's still some way from being a must-have."

2G brought text messages and a simple internet; 3G gave rise to mobile internet services; 4G made online video ordinary. Nowhere on the show floor did anyone offer a picture of a comparable benefit from 5G, something to make people buy more services or more phones.

At a mobile conference that has been built for years around new phones, the biggest hit this year was Microsoft's HoloLens 2. You had to queue for more than an hour to put on the headset for a six-minute demonstration — $3,500, aimed at enterprise customers, and barely related to phones or the mobile industry at all.

The two trade-show workers we met were gloomier. One, a curator who designs booths for Huawei and TCL, said, laying it on a little, "I walked the whole floor today and thought, god, our industry is finished, there's no innovation left."

Her job is to turn technologies that sound hard to follow — voice solutions, say — into stands people can see and understand.

Elsewhere, the producer Ana Jacoste directed camera operators through four days of shooting. The footage will be cut into MWC's own promotional video.

A regular at big trade shows, Jacoste was not much excited after four days. "Nothing made an impression… big trade shows, they're all about the same. 3D, smart glasses, robots, foldable phones and tablets… that's it."