Equipment Installment Plans (EIPs) are creating a bifurcated market that will have short and long-term consequences for operators and consumers alike. 

According to new research from Recon Analytics, roughly 143 million mobile phones were sold in the United States in 2014, approximately 90 percent of them smartphones. That marks a decline of 25 million phones from 2013 when approximately 168 million phones were sold and only half of them were smartphones. 

Recon concludes that the decline in phone sales is mostly due to the rise of EIPs, compounded by slower new subscriber additions. That said, the market is changing, with some consumers upgrading more frequently, while others sit on their older phones to take advantage of lower monthly service prices carriers offer to consumers who wait to upgrade phones at the end of their two-year contracts. 

Even though device sales declined by 15 percent annually, device revenues increased by about 5 percent. In the short term, Recon found that this flight to higher priced devices increases revenues and profitability for mobile carriers, but longer-term the trend is negative, as it takes longer for new devices to permeate the network.

Recon forecasts device sales to fall by 5 percent to 136 million in 2015 and to fall again by 4 percent to 131 million in 2016. 

The report suggests that the split in consumers with older devices and those with newer, state-of-the-art devices, will have consequences for everything from the app economy to the adoption of cutting-edge services like VoLTE. 

“Application capabilities may be artificially restrained, as developers deal with an average consumer who is less able to take advantage of new technologies that improve the utility of the device and service,” the report claims, adding that, “the monumental transition to VoLTE–and therefore to a more efficient use of spectrum, with significantly better voice quality–will be slowed by an embedded base of older devices.”