The research group NPD Connected Intelligence, which tracks the unlocked mobile phone market, found about 50.1 million active unlocked smartphones are running on U.S. mobile networks, an increase of 8% from Q1 2019 to Q1 2020. An unlocked phone is not locked to a specific carrier’s network, and the user can insert a SIM card for the carrier of his or her choice.
Brad Akyuz, executive director and industry analyst with NPD Connected Intelligence, said a lot of consumers end up with a locked phone because they buy their phones at a carrier’s retail store. In that situation, the consumer often accepts financing, paying for their new phone over time as part of their wireless bill. In exchange for that benefit, the carrier locks the phone to its own network. The phone comes with a SIM card for the network that the consumer first selects. If the consumer wants to switch providers, he or she has to pay off the phone and request an unlock-code in order to use the phone on a new network.
Unlocked smartphone users, who generally tend to be more tech-savvy than average smartphone users, often buy their phones from online outlets such as Samsung, Apple or Amazon. Best Buy is also a big purveyor of unlocked smartphones.
“In our research, we’ve seen a big driver of unlocked is BestBuy,” said Akyuz. “Mobile is always in the front and center of their stores. About 60%-70% of their selection would be unlocked smartphones.”
Awareness is also now being driven by the carriers themselves.
“Bolstered by aggressive promotions from carriers, the Bring-Your-Own-Device (BYOD) trend continues to rise, as we saw over 20% of customers switching to a new service provider bring their own unlocked smartphones with them,” said Akyuz, citing NPD research from February 2020.
“We estimate that the awareness rate for unlocked iPhones is over 80%,” said Akyuz. Carriers are promoting BYOD because they can more easily lure new subscribers from their competitors’ networks. Of course, the downside is that those subscribers are also more free to switch carriers again and again without having to get unlock codes.
Akyuz said of consumers buying new locked smartphones, 75% are keeping their carrier and 25% are switching their carrier. This compares to consumers buying new unlocked smartphones of which 68% stay with their existing carrier and 32% switch.
Most unlocked smartphones still use a physical SIM card. This is different than a phone with built-in eSIM. The eSIM technology would allow customers to switch their service from one wireless network provider to another without having to physically replace a SIM card inside their phone. Instead, they could switch their service remotely, over the air.
Smartphones from carriers' retail
The mobile retail market has undergone dramatic changes during the Covid pandemic. The number of postpaid stores for Verizon, AT&T, T-Mobile and Sprint that closed permanently between November and June is estimated at nearly 1,500, while the number of prepaid stores that closed during the same time frame is estimated at more than 1,100, according to Wave7 Research.
Consumers who buy new smartphones at a carrier’s retail store get assistance with activating their phones and porting their data. And the carrier gets the benefit of retail touch where it can up-sell plans and sell additional accessories and devices. But retail stores are costly to maintain.
“During this Covid period, March through May, we’ve seen the online share of device volumes double and sometimes more than double,” said Akyuz. “I think we’re going to see carriers re-engineer their channel strategies and place more emphasis on online and curb-side pickup.”