Obtaining 'Value for Money' from Mobile Handset Subsidies

SUMMARY

As a handset subsidy represents the single largest cost item for most operators, and as margins are being squeezed, it is critical for operators to get value for money from subsidising handsets. This means an operator must ensure there is payback within the contract, or in the case of prepaid, in the estimated lifetime of a customer. In this paper we discuss the reasons why operators utilise handset subsidies and the impact they have on payback. This is supported by specific examples of handset subsidies used by operators across a variety of handset models and a comparison of subsidies and how they vary according to tariff plan and contract length. In addition we set out the strategies operators may adopt to maximise the impact of handset subsidises and identify more effective ways to re-deploy the amount allocated to incentivise customers. Specifically, the paper answers the following questions:

• Why must operators subsidise handsets?
• How is subscriber payback defined?
• What handset subsidy levels exist and how do these differ by handset type by operator and country?
• How do handset subsidies differ between direct operator led sales and indirect sales?
• How can operators optimise handset subsidy spend?
• What innovative subsidy models can operators implement?

TABLE OF CONTENTS

1 Introduction

• 1.1Overview
• 1.2Objectives

2 Defining the Role of Handset Subsidies

• 2.1What is the role of handset subsidies?
  • 2.1.1Mix of SAC
  • 2.1.2The role of handset subsidies in subscriber payback
• 2.2Importance of handset and cost in the purchasing decision

3 The Size of Handset Subsidies

• 3.1Size of handset subsidies, in-country comparison one operator
• 3.2Size of handset subsidies, in-country comparison between operators
• 3.3Size of handset subsidies and impact of contract length on subsidy levels
• 3.4Structure and Size of Commissions in Dealer Channels

4 The Role of Handset Subsidies Optimising Payback

• 4.1Difficulties with reducing handset subsidies
  • 4.1.1T-Mobile Germany Case Illustration
  • 4.1.2KPN Mobile Netherlands Case Illustration

5 Optimising Handset Subsidy Spend

• 5.1SIM-only strategy
  • 5.1.1Operator sales via resellers or MVNOs
• 5.2Focus on segments
• 5.3Differentiated/unique handsets
• 5.4Zero per cent finance on phones
• 5.5Introduce longer contracts
• 5.6Optimise customer service
• 5.7Introduce new tariffs
• 5.8Converged services
• 5.9Volume discount from suppliers
• 5.10Loyalty based subsidies
• 5.11New upgrade structures
• 5.12Improve quality of dealers, introduce streaming
• 5.13Rebate deals
• 5.14Cross sell strategy
  • 5.14.1Insurance
  • 5.14.2Accessories
• 5.15Online sales strategy
• 5.16A bespoke approach versus upgrades only
• 5.17Shop led sales
• 5.18Advertisements
• 6Conclusion