Galaxy Note 9 sets new bar for Android phone price

This year a lot of people will pay NZ$2000 or more for a phone.

Apple set the tone at the end of last year with an NZ$2100 iPhone X. Now Samsung has joined the party with an NZ$2000 Galaxy Note 9.

You can pay less. A basic iPhone X with 64GB of storage costs NZ$1800. The more expensive model has 256GB.

Samsung has an NZ$1700 Galaxy Note 9 with 128GB of storage. The NZ$2000 model comes with 512GB.

Whether you need that much storage when cloud storage is plentiful and mobile data is cheaper is beside the point.

Inflationary

These are two examples of how New Zealand’s Consumer Price Index or CPI is the nearest thing to an official measure of inflation. In the most recent year, it was 1.5 percent.

That means consumers paid 1.5 percent more for a typical basket of goods and services in the year to June 2018 than a year earlier.

Expensive

At NZ$1700, the Samsung Galaxy Note 9 is $100 more than last year’s Note 8. That’s 6.25 percent higher: more than four times the CPI increase.

Apple’s iPhone X doesn’t have a year earlier model to compare.

Instead, we’ll look at the iPhone 7 and iPhone 8. When it launched the iPhone 7 was NZ$1200. A year later the iPhone 8 went on sale at $1250.

That’s a four percent increase. Apple’s markup is smaller than Samsung’s, but still well ahead of the CPI.

Everyone is at it

It’s not only Samsung and Apple. The prices of Huawei phone models climbed over the years.

Even Oppo, where the phone’s low price is the most important feature, has increased prices.

If anything, Huawei and Oppo’s price increases have been steeper than Samsung and Apple’s because they come off a lower base price.

But don’t phones get better

You might argue that the newer phones are better so phone makers can expect to sell them for more money. There’s something in this, see below.

Phone prices were stable during for years while annual upgrades meant huge leaps in functionality. Today’s upgrades are incremental while prices leap.

Apple shows the way

Apple has always lead the way on phone prices. It’s no accident it is the world’s biggest company and enjoys large profit margins. That trillion dollar valuation didn’t come by chance.

When it launched the iPhone X last year, Apple showed it could push phone prices above the NZ$2000 mark without denting sales. That opened the door for its rivals to charge more. They won’t admit it in public, but the iPhone acts as their benchmark.

Apple sells fewer phones than Samsung or Huawei.

The iPhone makes up around 20 percent of the handset market worldwide. It accounts for around 80 percent of profits from phone sales. Almost all the remaining profit from phone sales goes to Samsung.

Profits

It’s not clear how profitable the other main phone brands are. It’s not even clear if they are profitable. The companies don’t break out figures in the way that Apple and Samsung do. Yet it’s clear they are not making big margins.

Until a couple of years ago the Android phone market taken as a whole ran at a loss.

Things have changed. In part that’s because phone makers have pushed up handset prices ahead of inflation. It helps that some of the big names have either gone to the wall or wound down their operations.

Price rises have two sides

Inside the phone business, people talk about the average selling price or ASP.

According to IDC’s Worldwide Quarterly Mobile Phone Tracker:

…”climbing ASPs continue to dampen the growth of the overall market”

…”Consumers remain willing to pay more for premium offerings in numerous markets and they now expect their device to outlast and outperform previous generations of that device which cost considerably less a few years ago.

IDC says worldwide phone ASPs are up 10 percent in the last year.

Sharper prices lower down the market

Phone makers love to tell investors they have managed to increase the average selling price of their phones.

In some cases, they have done this by bumping up prices on their flagship models while fighting tooth and nail further down the market.

You can still get bargains. Spend NZ$500 to NZ$600 and you can end up with something great. It won’t have the latest camera or tonnes of storage, but not everyone needs those features.

High prices could be here to stay

New flagship phones are expensive to make, but the cost of building a phone is a fraction of the selling price.

Putting more lenses and more camera sensors may cost a phone maker a dozen or so dollars. OLED displays, curved glass add to costs. Perhaps the biggest extra cost is the memory chips needed to boost a phone’s storage, there is a trend towards higher storage in phones.

Higher phone prices are unlikely to go away soon. The glory days of fast-rise phone sales are over.

People are now holding on to phones for longer, squeezing more value from the money they have already spent. So it becomes important for each sold phone to contribute a little more profit.

Galaxy Note 9 is now Samsung’s most important phone. It matters because lacklustre Galaxy S9 sales mean falling revenues. A successful Note launch could help reverse that.

Two days before the launch I wrote that the Galaxy Note 9 had better be good.

How did Samsung do?

The Galaxy Note 9 is impressive by any standard. It is, for now, the best Android phone money can buy.

That’s the first problem: You need a lot of money to buy it.

Samsung faces intense competition

Rival Android phone makers challenge Samsung. The best deliver almost all the functionality of a Samsung phone for a fraction of the price.

Sure the Note 9 takes buyers to places less expensive Androids won’t. Its stylus puts it into a different class to other phones. There is no direct equivalent at any price.

That difference means the Note has notorious loyal fans. Many potential Note 9 buyers will be existing owners looking to upgrade.

You only have to look at the Galaxy Note 9 to understand why that might be a hard sell.

The new phone looks like last year’s Galaxy Note 8. Never mind its new innards. Over the years phone makers have trained buyers to be wowed by showy, cosmetic changes more than a new processor.

Is the Galaxy Note 9 good enough?

On Friday’s showing, the Note 9 may be good enough for Samsung to keep the phone market pole position until tenth-anniversary models arrive next year.

If the S10 and Note 10 ranges can deliver signature phones in the same way Apple managed with the iPhone X, then all will be well.

From what was on show in Auckland it still looks like a great phone. If the two models were a few hundred dollars cheaper they would be world beaters. If Samsung decides to sharpen its pencil and drop prices later, it could have a winner this Christmas.

On the other hand, phone innovation has slowed to the point where customers are holding on to old models for longer. So all bets are off.

It’s not clear to me what those notoriously loyal Note users will do. They may upgrade or they may sit this one out and wait for the 10.

There’s little to tempt a Note 8 owner to upgrade. The Note 7 was the disastrous exploding phone so there will be few upgrades from that model. If there’s a large backlog of Note 6 owners waiting to move then Samsung could strike gold.

About the phone

Samsung uses glass for the front and back. There are smooth, comfortable feeling curved edges and pressing the bottom right of the phone still ejects the slide-out S Pen. This is all just like the Note 8.

It’s fractionally bigger and a tad heavier than the Note 8. That’s to accommodate a slightly larger than last year’s 6.4-inch Amoled screen and a hefty 4,000 mAh battery. Samsung says that’s enough to keep even heavy phone users going all day.

Bigger seems to be a theme throughout. There are two versions of the phone: a NZ$1700 model with 128 GB of built-in storage and a NZ$2000 version with 512 GB.

Octo-Core

Samsung uses different processors to power the Galaxy Note 9 in different markets. It didn’t say which chip New Zealanders get but it will be an eight core processor.

Phones with 512 GB of storage get 8 GB of Ram, the other phones get 6 GB. To my knowledge the Note 9 is the first phone to get water cooling to stop the processor from over heating.

It will also be the first phone to get the Fortnite game. I suspect the target market for Fortnite is not going to drop a couple of grand on a handset.

At the launch Samsung made a big deal of the improved S Pen stylus. After all it is what sets the Note aside from every other phone.

The stylus now connects via Bluetooth and can be used as a remote to click the camera shutter or do one or two other remote tasks. The model I saw was a bright yellow that contrasted with the navy blue phone. This looks much better than it sounds.

Samsung has gone for much the same camera arrangement as the Galaxy S9.  That’s two 12-megapixel cameras with a variable aperture lens and a 2x optical zoom camera on the back.

Like everyone else’s camera, the Note 9’s is sprinkled with AI fairy dust so the camera automatically detects what’s being shot and adjusts to compensate.

Samsung Galaxy Note 9 with Dex and projector

One nice touch is that the Note 9 can work as a desktop computer in much the same way as an S8 and Dex Pad. The difference is that the Note 9 can plug directly into a monitor without the docking station.

Verdict

Samsung says the phone will come with Android 8.1, not the more recent Android 9. It is due to go on sale later this month. In normal times this would give Samsung up to six weeks of sales before the next Apple iPhone appears.

The slightly bigger screen is a plus. For me, squeezing 4,000 mAh of battery capacity into a hand-sized device is more of an achievement. The update S-pen will entrance Galaxy Note fans.

More storage seems like a good thing. You can bump it up to a Terabyte if you use the microSD slot. Though why you would want to pay extra to do that in an era of low-cost cloud storage is beyond me unless you want to travel with a movie library.

While it doesn’t look like a sure-fire hit, it is possible the Galaxy Note 9 will strike a chord with Note loyalists and give Samsung a much-needed 2018 winner. It could just as easily have S9-like disappointing sales. Your guess is as good as mine. But, so long as no rival makes a breakthrough, it is good enough to keep Samsung out in front until next year’s releases.

cellular tower

Network makers promise next-generation mobile phones will download data faster than fibre.

The original goal for 5G cellular was 10 Gbps downloads. Now engineers say 20 Gbps.

Without getting deep into electromagnetic physics and radio engineering, this was an ambitious goal. Ambitious, but as the evidence so far shows, realistic.

Yet there are challenges.

Carriers can’t push wireless data through the air at 20 Gbps using the existing mobile radio spectrum.

More spectrum please

Which means carriers need to find new spectrum to deliver the promised 5G performance.

Or, to be more accurate, governments need to reorganise spectrum allocations. They get to decide who can use which parts of the spectrum.

Spectrum is an important resource. It isn’t only used by mobile phone companies. So governments must weigh up the needs of mobile phone companies against other spectrum users.

In part it does this is by putting a price on spectrum. Chunks of ratio frequencies are sold to the highest bidder. Usually, but not always, this involves an auction.

New Zealand’s Radio Spectrum Management, part of the Ministry of Business, Innovation and Employment, is already working on plans to put frequencies aside for 5G cellular.

Meanwhile, the Commerce Commission is working on regulatory aspects of the move to 5G.

Telecommunications Commissioner Dr Stephen Gale says:

“We believe the power to regulate remains an important competition safeguard, especially with 5G networks and potential new entrants on the horizon”.

Money go round

In the past government spectrum auctions work by dividing available frequencies into blocks. Bigger blocks give carriers more bandwidth to play with. In simple terms more bandwidth can mean faster data speeds.

Spectrum auctions can make a lot of money for governments. Past auctions have poured gold into the public sector. The recent UK 5G spectrum raised £1.3 billion, around NZ$2.5 billion.

It may look like a windfall. Governments often treat the money that way. But it is more about moving money from one place to another. When telcos pay a lot for spectrum the cost is passed onto customers.

Risks

If they overpay, they may spend money that would otherwise be used to build towers and extend the network’s reach. Overpaying often means a network roll-out is slower.

Given the value of cellular communications to the wider economy, squeezing out the maximum amount of cash in a spectrum auction can be counterproductive in the long term.

New Zealand’s last spectrum auction took a more sensible approach.

The government realised the economy could be better served in the long term by a good mobile network than by a windfall. So carriers were offered a fixed price well below what it might have made in a competitive auction.

Not everything sold so one remaining block of spectrum was then auctioned off.

In the past different cellular services have run in different frequency bands.

This can still happen. Yet one of the features of 5G is that carriers are able to mash together greater amounts of bandwidth from different bands. Or to use an engineer’s language: they can aggregate spectrum.

While this already happens a little with 4G, Spectrum aggregation is central to 5G. How that works in practice will be interesting. It will be a challenge for phone makers.

Higher frequency

Most people in the telecoms business expect 5G to use higher frequencies than today’s mobile phones. Depending on who you talk to, the options go all the way up to 95GHz.

This brings us to another challenge carriers face. Radio waves have different properties in different bands.

Low frequencies are useful for communicating with submarines or in mines. Shortwave radio is good for broadcasting over long distances. And so on.

Dealing with this is an engineering problem. There are also political challenges. In some cases existing spectrum users may have to give up their rights or move services to different frequencies. It can be disruptive.

Compared with some other countries, New Zealand is well placed to deal with these challenges.

UHF – ultra-high frequency

Almost all of today’s mobile telephone traffic takes place in what is known as the ultra high-frequency band or UHF. This is the spectrum from 300 MHz to 3GHz.

Some of the spectrum that will be used for 5G is in the next band up: super high frequency or SHF. That runs from 3 to 30 GHz.

UHF and SHF frequencies are microwaves. Which means the band is used by microwave ovens. It’s also used by Wi-Fi and other home wireless devices, satellite communications, radar and radio astronomy.

As you move into higher spectrum bands radio signals run into a different set of physical problems. At 5GHz and above signals get absorbed by solid objects.

The signals don’t propagate so well. So antennae cover shorter distances. In other words, you need to build more towers to give carpet coverage.

Bluetooth

Bluetooth devices operate in part of this frequency band.

The devices have low signal power levels compared with cellular phones. They are only designed to work over a short distance.

Even so, you a taste of what to expect from a 5G cell site operating at this frequency by thinking about Bluetooth’s limitations around your house. The signals may pass through wooden walls, masonry can block them. So can metal frames.

When outdoors, microwave signals don’t tend to pass through mountains or hills. In effect, they only work in line-of-sight. A cell site operating at higher microwave frequencies that works for a customer in winter might struggle in summer when there are leaves on the trees.

Rain fade

Go beyond 30GHz and radio signals are affected by water molecules. That means rain — satellite TV users will already know about rain fade. From about 60GHz oxygen molecules get in the way.

Some engineers overseas want to use frequencies as high as 95 GHz for their 5G networks. There’s a military weapon that works at this frequency.

This tells you something about the risks, although the power used for cellular phones would be many times lower than any weapon.

Payoff

To keep things simple, let’s leave it at this: higher frequency radio waves are harder to use. On the other hand, they offer much more bandwidth and that means higher potential data speeds.

As a rough rule of thumb, higher frequencies mean faster data, but over shorter distances. Typically higher frequency sites will be in densely populated areas and will be only a few dozen metres apart.

When cell sites are a few dozen metres apart, you need a lot of them. They don’t need to be big. You could put them on existing telephone or power poles.

In New Zealand

For now, talk of higher frequencies and the problems using them is largely academic. Most of the planned 5G action here in New Zealand is in or around frequency bands already used by mobile phones.

When Spark managing director Simon Moutter outlined his companies plans he called for more spectrum below 1 GHz.

He says it will be needed to provide 5G services in rural areas. This will almost certainly mean the 600 MHz band, which is already in the government’s sights. Signals in this frequency band can travel over long distances.

Moutter also identified the “two most likely spectrum bands”. Spark wants the mid-frequency C-band and high-frequency mmWave band to be ready as soon as possible so it can put its 5G network in place in time for the 2020-21 America’s Cup in Auckland.

This shouldn’t be difficult in principle.

Is there enough for 5G?

There should be enough usable spectrum in the 600 MHz band and the C-band to give New Zealand’s three big mobile carriers all they need to build viable 5G networks.

Yet they are not the only possible bidders for 5G spectrum. Wisps — wireless internet service providers — do a fine job filling in the gaps in regional broadband coverage.

Wisps could also make good use of more spectrum. And the spectrum of most use to them happens to be the spectrum the carriers are keenest to buy.

Small regional service providers lack the financial clout of the mobile carriers, but they can argue the service they offer is as deserving. Maybe more, after all, wisps service New Zealand’s exporters.

Elsewhere, Callplus founder Malcolm Dick’s Blue Reach project is likely to show interest in 5G spectrum. Blue Reach plans what it calls a 5G wholesale service. Presumably, the wisps would be among Blue Reach’s customers.

Economic logic says a competitive auction is a way of ensuring spectrum goes to the bidder who stands to gain the most. This, the argument goes, means the most economically efficient use is made of each block of spectrum.

In practice, some bidders sit on unused spectrum. The last NZ auction made that unlikely as it included a use-it-or-lose-it clause.

Some less well-heeled organisations find it hard to buy the spectrum they need. How these issues will be addressed will become clearer when the auction terms are formally announced.

The Commerce Commission says retail telecoms service will be one of its priorities for the next year.

While the telecommunications industry gets more than its fair share of political and regulatory scrutiny, there is unfinished business.

The Commerce Commission’s timing makes sense. The first phase of the UFB fibre build finishes over the next 12 months.

Soon after that, the pre-5G mobile jockeying will start in earnest. Spark is already making noises about moving to 5G.

In a media statement, the commission says it has “been working to improve its understanding of the retail telco issues faced by consumers”.

Service quality

This year the commission says it intends to monitor areas of service quality including billing, contract terms, marketing and switching between service providers.

The media statement says:

“We also expect to implement new consumer provisions from amendments to the Telecommunications Act, including industry codes to address issues of retail service quality.”

This is in addition to work the Commerce Commission is already doing on the implications of competition and regulation in mobile and fixed line services.

Are we being served

Service quality is something of a black hole in the telecommunications sector.

Improved service quality was one of the objectives of the 2009 reforms. It was just as big an issue then.

At the time Telecom NZ divided into what is now Spark and Chorus.

The planners thought telcos would compete on service quality after the industry separated into wholesale and retail layers. Instead they raced to the bottom on price.

Few if any telco’s offer a high service quality option today. Consumers are free to choose between various levels of indifferent service. They range from near-hostile to grudging customer support.

Little or no service

This has lead to a curious state of affairs.

Telcos offering less formal customer service rank higher in consumer preference surveys.

Spark’s low-cost Skinny brand often rates as delivering better service.

Skinny doesn’t have a traditional call centre. Instead it handles everything online.

Not offering much customer service, means Skinny customers don’t expect much. Their illusions are never shattered.

Of course Skinny targets a particular demographic: mainly young tech-savvy people looking for a bargain.

It’s a market that prefers not to use call centres. Moreover, younger New Zealanders have no recollection of a time when support seemed better.

Agile to the rescue?

Spark is moving to a new Agile way of working. Liam Dann has a great feature on Spark’s Agile project in The New Zealand Herald.).

Agile was originally a manifesto for software developers. One of Agile’s ideas is a focus on satisfying customers.

In the case of software developers, customer usually means whoever pays the bill. It can be an external client. It can also be another division of the same organisation. Consumers are rarely customers in this sense.

It isn’t clear if Spark version of Agile means satisfying consumers. Some of the rhetoric to leak suggests it is. If so, it’ll be interesting to see how this works. It’ll also be interesting to see if it satisfies the Commerce Commission.

Other service issues

The Commerce Commission is also looking at contract terms, marketing and switching.

Switching between providers is now easy. At least in theory. Number portability makes it simple for mobile customers. For fibre customers, switching involves little more than a click of a mouse button on a dashboard.

However, telcos like to tie customers into long contracts. This makes switching harder. In their language this is called customer churn.

Some telcos, Trustpower is an example, offer televisions or fridges to people signing longer terms.

Others, offer the lure of a low starting price for a few months. The small print says customers then pay more for the remainder of, say, a 24 month term.

These deals can end up more expensive that no-contract subscriptions.

Break clause

While most contracts are legal, they’re heavily weighted in favour of the telco. Some have expensive break clauses.

It can be hard to find a service from a name brand that doesn’t come with contract strings attached. This often means angst when customer circumstances change.

Many of the problems with marketing are linked to contracts. It’s rare for many months to pass without another telco pushing the boundaries of responsible marketing.

Both contracts and dodgy marketing remain regular issues for Telecommunications Dispute Resolution. There’s a clear need to beef up protections in these areas. The Commerce Commission is right to worry about them.

Christchurch skylineSpark says it is on track to begin rolling out a 5G mobile network in 2020.

The company says services will go live later that year.

This confirms the date the company has already said it would begin its next generation network build. It depends on the spectrum becoming available, then an auction or other form of allocation taking place in the next 18 months or so.

The confirmation comes after the company conducted trials earlier this year. Spark says the Wellington outdoor trial was a success with customers getting download speeds of up to 9 Gbps. An indoor trial in Auckland saw speeds as high as 18.2 Gbps.

While some telcos overseas are building new networks from scratch, Spark says it will start by adding 5G services to its existing 4G and 4.5G networks.

Spark says it will extend this when there is enough demand.

With existing cell sites there’s a smooth upgrade path. At least there is if a carrier sticks with the same equipment supplier. 

Spark managing director Simon Moutter says the company is working on mapping expected cell site densities to learn where there is a need for new cell sites.

He says: “We have already begun a build program to increase the number of cell sites in our existing mobile network – which will enable us to meet near-term capacity demand as well as lay the groundwork for network densification required for 5G.”

No extra CapEx

The company says it is expects to fund its network through its existing capital expenditure programme. This does not include buying any extra spectrum needed for 5G.

Spark spends around 11 to 12 percent of its revenue on capital expenditure. Spark’s 5G briefing paper says:

As Spark responds to demand we will be investing just ahead of it. Cost efficiency that will deliver ever-greater output with the same investment inputs is the primary driver of early 5G deployment.

By 2020, we expect our wireless-network specific capex to be between 25-35 percent of Spark’s overall capex envelope. This implies intended annual wireless network investment of approximately $100m to $140m, compared with an average of just over $100m for the past five years.

This excludes spectrum purchases and any material move towards widespread rollout of new cell sites using mmWave band spectrum. During this period, we expect our total capex (excluding spectrum) will remain in line with our desired range of 11 to 12 percent of revenues.

This is something of a surprise.

5G network equipment tends to be less expensive than 4G hardware. But to deliver the next generation network’s full promise, a carrier needs more spectrum and at higher frequencies it will need more small towers.

Many of these towers will be smaller than existing 4G towers – in some cases they can fit on lamp posts or telegraph poles, but even so, Spark’s comment about capital expenditure suggests one of two possibilities.

It won’t happen overnight

The first possibility is that Spark’s network roll out will be incremental and relatively slow. This follows the pattern of the company’s roll-out of 4.5G.

It is two years since Spark first installed a 4.5G tower in the centre of Christchurch. There are more today, but coverage is far from nationwide.

It looks likely the 5G roll out will begin before Spark has upgraded every worthwhile cell site to 4.5G. Presumably many sites will go straight from 4G to 5G.

The second possibility is that Spark isn’t aiming for the same high density network being planned for large urban centres elsewhere in the world. At least not at first.

Neither of these are important in the short-term.

Indeed, today’s mobile phone users can’t tell the difference between using a 4.5G tower and a 4G tower. There’s no pressing need to upgrade the network on their behalf.

And places like Eden Park in a test match aside, New Zealand doesn’t have the density of people you might find in Hong Kong or New York.

Spark may want to push forward on plans to offer 5G-driven fixed wireless broadband as an alternative to fibre. It already does this with 4G. This is a strategic business decision. If there’s enough demand for more fixed wireless then the internal business case for increased capital expenditure is easy to make.

5G innovation lab

Spark plans to open a 5G Innovation Lab later this year in Auckland’s Wynyard Quarter. This will let companies test their applications on a private 5G network before the full roll-out.

The company says: 

“Providing early access to a pre-commercial 5G network through our global relationships with leading equipment vendors like Huawei, Cisco and Nokia will give our local partners a competitive boost, fast-tracking these businesses’ 5G developments.”

Significantly Spark has not named the network equipment provider it will work with on the programme.

The company used Huawei to build the 4G network and has previously worked on 4.5G and its test site  with the Chinese equipment maker. Huawei has to be in consideration for the contract despite the political problems the company faces getting business in the US and Australia.

Yet Spark deliberately named Nokia and, surprisingly, Cisco. The latter is not known as a technology provider for cellular networks. This could be a way of putting pressure on Huawei in order to get a better deal. 

Spectrum is a potential concern.

In a briefing paper Spark called on the government to make more spectrum available. All the carriers are pushing hard. They have a case.

This is already in motion, but the company wants this done in time for the new network to be running ready for the 2021 America’s Cup in Auckland. Hence the earlier comment about the need to get this wrapped up in the next 18 months or so. 

Spark says it needs large blocks off spectrum in the C-Band, that’s 3400 to 4200 MHz. It says it needs at least 80 MHz blocks and preferably 100 MHz blocks to build networks with 5G performance. It also calls for even larger blocks at higher frequencies.