The increasing popularity of smartphones is threatening mobile operator profitability, according to new research from WDSGlobal. The company cites research from Yankee Group that notes that a combination of expensive subsidies, fixed data tariffs, complex service set-up, and high support costs mean it can now take up to 16 months just for carriers to break-even on a subscriber.

WDSGlobals own research found that consumers are increasingly looking to connect their Smartphones to their Internet, email and social networking accounts out-of-the-box. However, problems in setting up these more complex data services on Smartphones means that, on average, Smartphone support transactions take 30% longer to resolve than feature phone transactions (source: Nielsen).

The WDSGlobal survey of 1,000 UK consumers, carried out in March, found that almost one third experienced set-up problems with email; 21% experienced problems setting up the Internet on their device; 18% had problems with MMS. Almost 10% of those who ran into problems did not try to find a resolution, choosing instead to abandon, while 27% of respondents did not find any of the support options available to them to be effective.

“It’s something of a perfect storm,” says WDSGlobal Vice President of Marketing, Tim Deluca-Smith. “The cost of selling and supporting Smartphones is significantly higher than it is for the traditional feature phone segment. Operators are therefore keen to ensure their subscribers maximise the advanced revenue-generating features of Smartphones. Unfortunately, a large percentage of consumers are struggling with the advanced functionality of the Smartphone, and are defaulting back to more familiar voice and SMS services. Combine these conditions, and it’s clear to see how operators’ margins are quickly being eroded.”

Smartphones already represent a third of all handsets sold, and are expected to overtake feature phones by the end of 2011, according to Nielsen. This consumer demand is driven by the desire to access a wide range of advanced content and services. However, this shift into the mass-consumer market creates problems for carriers – around half of people questioned make a purchasing decision based on price, which in turn has led carriers to heavily subsidise Smartphones.

“Consumers are being sold on the idea that smartphones can deliver complete connectivity, keep you entertained and offer exciting apps. Get it right and operators can build highly-loyal and highly-profitable subscriber bases. Unfortunately, the out-of-box experience can be very different,” adds Deluca-Smith.