The decision to reduce handset subsidies should be approached with caution by operators, as there is a trade-off between the clear benefit of reduced subsidies and the associated risk of losing control over how customers purchase handsets and use data services, according to new research from Analysys.
Analysys Senior Consultant, Marco Cordoni, says operators should consider carefully the extent to which they want to push towards a model characterised by the lack of handset subsidies to avoid becoming ‘dis-intermediated' from the mobile content and advertising value chains, potentially losing lucrative new revenue streams.
"Indeed, the key advantage for operators that have control over handsets is the ability to offer a differentiated end-to-end customer experience and to secure their position within the non-voice value chains," Cordoni says. "The risk associated with SIM-only tariffs is that operators are reduced to big pipes that add no value."
While many Western European markets are characterised by high levels of handset subsidies, Cordoni says there have been signs that operators are trying to move away from this model by introducing SIM-only tariffs in an attempt to reduce the high cost of acquiring and retaining subscribers.
"However, the move towards a reduction in handset subsidisation comes at a cost: an increased risk of higher churn due to the shorter lock-in period" Cordoni says. "More significantly the loss of control over handset distribution causes operators to lose the opportunity to determine the customer experience."
"In markets with high levels of handset subsidy, the selection of both handset and operator happens simultaneously, and the purchasing experience is driven by the operator rather than by a handset re-seller as it happens in markets with lower levels of handset subsidy. With SIM-only tariffs, operators also lose control over the possibility to shape the subscriber's experience with non-voice services. In handset-subsidised markets, by contrast, operators are able to ensure that new handsets are pre-configured to certain settings and applications, including network settings, Internet preferences, home-page and portal-caching options. In this way, operators can direct customers to their portals and benefit from sales of mobile content and mobile advertising, either by providing advertising partners with a place directly on the home page, or by delivering advertising to subscribers on a portion of the screen controlled by the operator."
"Therefore, the decision to reduce handset subsidies is not as clear cut as it may seem at first and operators need to be aware of the potential risks of this approach."