By Jeff Rallet, Managing Director of Operations, EMEA, eRecyclingCorps
The latest smartphones are creating limitless appetite for mobile data. On the one hand, this is great news for mobile operators that now count mobile data packages as one of their greatest revenue drivers.
However, the continuing cost of subsidies that operators must pay to offer these smartphones at compelling price points and unlock these revenues remains a growing concern, giving rise to alternative options including prepaid and leasing programmes.
Until recently, consumers in Europe were shielded from device price inflation thanks to the operator device subsidy model. But with fierce market competition, the cost of these subsidies is becoming increasingly unsustainable.
Despite the costs, device subsidies do serve a constructive purpose for mobile operators, especially when it comes to retaining subscribers on long-term contracts. After all, there is enormous value in operators continuing to collaborate with OEMs to give their customers the most compelling offers possible.
Indeed, research from Delta Partners estimates that device subsidies can account for as much as 18 percent of an operator’s total revenue.
Operators just need to find ways of delivering the same benefits that subsidies offer without paying so dearly for them. This has led to the global emergence of phone leasing programmes which operators or retailers can offer direct to consumers. The viability of these programmes is built on the fact that operators providing the lease can recapture old devices and re-sell them back into the market.
But however successful these leasing agreements become, they are unlikely to spell the end of subsidies entirely. Well not in the short to medium term at least because in order to qualify, consumers must meet certain account and credit criteria.
Still, the foundations on which they are built: the ability to collect an old device, clear the data, recondition it and resell it back to the market is nothing new. It reflects an established model that operators are directly embracing with enormous success today.
What is new and gaining traction is incentivised mobile device trade-in programmes. Like their US counterparts, European operators are increasingly implementing these programmes through their existing network of retail stores.
They are providing an instant credit to customers when collecting idle devices at either the end of their contract, or at the point of upgrade and reconditioning them (meeting strict standards for functionality and data clearance).
Critically, these devices help operators boost revenue by regaining a portion of the money they spend subsidising new devices. Operators can achieve this by unlocking the value in a used device (up to a third of the original price – an average of €60 per unit), in return for instant credits in-store.
Customers can put these credits towards a new device and the operator is able to position itself as the enabler of the upgrade transaction thereby enhancing both customer retention and acquisition.
It can also lead to dramatically reduced costs associated with insurance claims and device repair for the operators by providing a reliable inventory source at one-third the cost of new.
Traded devices can either be re-sold to customers in developed markets looking for a cost effective replacement device, or to people in emerging markets unable to bear the cost of a new device; offering them access to advanced mobile technology at a lower, more accessible price point and helping bridge the digital divide.
Providing such an alternative has a positive impact on improving customer satisfaction and reducing environmental waste tied to old device disposal.
However, to realise the full benefit of a trade-in programme, operators must promote the programme and incorporate it into the sales process.
The international market for idle, no longer used devices is growing aggressively. Bernstein Research estimates global demand for used devices is expected to increase from 53 million units transacted to 275 million in the next five years.
European operators now understand the significant amount of hidden revenue (potentially hundreds of billions of dollars) that is tied up in discarded used devices. The ability to unlock this value, offset increasing handset subsidies, improve customer satisfaction and bridge the digital divide will ensure the process of trading in a mobile phone becomes as commonplace as trading in a used car.
The benefits associated with mobile device trade in and reuse are just too vast for operators in Europe to ignore.
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