The battle for the mobile OS is entering a new phase as vendors look to differentiate from Android and iOS to support new initiatives.

That's according to the latest Telsyte Australian Smartphone Market Study which has tracked the use of mobile handsets and smart phones in Australia for the past seven years.

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Telsyte expects Android to hold at least half the market until 2018 with no immediate threat to its dominance in the mid-market.

However, outside the main two operating systems (iOS and Android), Telsyte expects challenger platforms to increase their share from 8 per cent in to 2013 to 16 per cent by 2018.

Microsoft is expected to be the biggest challenger, but a range of others including Tizen, Sailfish and Firefox are expected to battle it out for third spot. Telsyte senior mobility analyst, Alvin Lee, said despite the dominance of iOS and Android, the battle for the mobile OS is entering a new phase as vendors looked to differentiate from Android and begin supporting new OS initiatives. "It's possible that Google will experiment with Chrome-based smartphones as an alternative to Android at some point," Lee said.

The report also found less than half of all smartphones in Australia were bought under contract in 2013.

The report indicates outright purchase of smartphones by consumers has been growing in popularity as the price of devices and carrier subsidies have both been falling. Telsyte research found that only 43 per cent of Australians 16 years and older had acquired their smartphone via mobile service contract compared to 57 per cent in 2012.

Around 30 per cent of those that bought a smartphone chose to buy it outright in 2013, with the remainder receiving their smartphone as a gift, as a company phone or as a "hand-me-down". "The unbundling of handset and mobile service contracts has been growing in popularity as consumers seek new handsets more frequently than the typical 24 month contract," Telsyte managing director Foad Fadaghi said. Telsyte research indicates despite reductions in carrier handset subsidies, free handsets on mobile contracts continue to appeal to consumers and have helped Android improve its market share.

It found that of those originally on a mobile services contract, 56 per cent acquired their handset free of charge or without additional monthly payments. Telsyte estimates that there were 15 million Australian smartphone users at the end of 2013, an increase of 2.6 million over 2012.

Android remained the leading platform with a just more than 50 per cent of the installed based, followed by Apple (42 per cent), and "Others" which includes Microsoft, Blackberry, Symbian, with 8 percent. Repeat purchase intentions are increasing as users seek familiarity of platform or model.

73 per cent of iPhone users (up from 71 per cent in 2012) who intend to purchase a smartphone are looking to buy another iPhone.

Android repeat purchase intentions are at 56 per cent (up from 52 per cent in 2012). The purchase of new handsets has created a glut of second-hand "hand me down" handsets.

The gifting, "hand me down" and "second-hand "user segment nearly doubled in the 12 months ending 2013. The younger generation continues to lead the smartphone charge with nearly half (46 per cent) of people under 34 planning to purchase a new smartphone within the next two years.

More than half of this age group rate the camera quality of the smartphone as "important or critical".