Two Trends Promising to Wake Up the Telecom Market

After record sales during the pandemic, the telecom market is struggling with stagnation, according to GfK analysis. A new, long-term upturn in consumer demand is not to be expected without major innovations. Ahead of the industry's leading event, the Mobile World Congress in Barcelona, GfK experts have identified two trends that could awaken the smartphone and gaming markets from their slumber: GenAI and AR/VR.

“In 2023, the global Telecom market declined slightly by 0.6% in terms of revenue, and we forecast only modest growth of around 2% for 2024. Real innovation is needed to drive the market in the long term. We see two major opportunities that could boost demand if they manage to reach the mass market: Generative AI for smartphones and augmented and virtual reality,” says Jan Lorbach, GfK’s insights expert for the telecom industry. “Retailers and manufacturers are advised to establish themselves as early adopters to benefit from the expected surge in demand.”

Smartphone performance continues to improve, but consumers also need practical ways to use this power. While smartphones are currently used mainly for messaging apps like WhatsApp and WeChat (72% of smartphone users globally) or photography (64%), the next big step is yet to come with the widespread implementation of generative AI. When generative AI finds its way into the everyday lives of smartphone users, it will create a major push on demand. GfK's long-term sales and consumer behavior tracking already proves that consumers are willing to pay more for advanced features. However, if the innovation leap is not enough in their eyes, they prefer to wait for something truly new before buying their next device.

This is already evident in the fact that smartphone replacement cycles are getting longer. According to gfknewron Consumer, in 2023, for the first time, the largest share (35%) of new buyers had smartphones that were two to three years old. In 2022, buyers with devices that were one to two years old were still in the lead. The public hype surrounding the metaverse has subsided somewhat. However, the industry continues to evolve, with a diversification of interested and uninterested consumers. While total unit sales of metaverse-related devices decreased by 2% in 2023, the revenue generated from them increased by 15%.

Reflecting the trend toward premiumization is the fact that interested consumers invested in more advanced AR, MR, or VR products. Accordingly, the revenue share of AR and MR glasses grew 30% to reach $225 million in 2023, compared to just 4% in 2022. While the majority of MR glasses were purchased in Western Europe (83% of global revenue), the vast majority of AR glasses were bought in China (98%). At the same time, demand for traditional VR glasses has plummeted in China, with sales down 55% year-on-year. In the rest of the world, however, VR is still experiencing slight revenue growth of 3%. A major boost to the telecom market can be expected if AR, MR or VR glasses become suitable for everyday use by the masses, rather than just remaining a niche product for specialized applications such as gaming.

For the full year 2023, the global smartphone market was fairly stable, with a slight increase in revenue of 0.1% compared to 2022. By the end of the year, in particular, the market began to recover, with revenues in the second half of the year up 4.2% year-on-year. But it's not just the half-year comparisons that show significant differences. On a regional level, the smartphone market in 2023 also saw a highly divergent development.

Globally, the average price paid by consumers for a new smartphone once again increased slightly in 2023 by $34 to $389. This is the result of the continued consumer demand for device premiumization and better functionality. While 5G models already accounted for 75% of revenue in 2022, this figure rose to 81% in 2023. The share of smartphones with more than 512 GB of storage (+9 pp) and wireless fast charging (+5 pp) also increased.