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Rethinking handset subsidies

  • December 2015
  • -

This report looks at how operators are grappling with the issue of handset subsidies
After providing a reminder of the main reasons these subsidies exist, we analyse how operators – now facing growing competition and a changing value chain – have redefined the role that handsets play in their strategies.

We will see how a paradigm shift has occurred in a matter of years, and how the status quo might evolve over the long term.

Table Of Contents

Rethinking handset subsidies
1. Executive Summary

2. Methodology

3. Why subsidise?
3.1. The device as consumption facilitator
3.2. Supporting network development
3.3. Subsidies, commitment and retention

4. A changing environment
4.1. The smartphone: an increasingly heavy burden for operators
4.2. The rise of no-contract plans
4.3. Supplier emancipation + the rise of OTT = the end of walled gardens

5. Player strategies in a whole new world: what are the alternatives?
5.1. Changing subsidy strategies
5.1.1. Lengthening contractual periods
5.1.2. Decreasing the size of subsidies
5.1.3. Resetting priorities: churn, retention and super buyers
5.2. Development of financing offers
5.2.1. Different types of loan
5.2.2. Handset leasing: the rise of "Device as a Service"
5.2.3. Offering special rates on plans rather than subsidising the handset
5.2.4. Case study: the United States
5.3. New challenges for handset suppliers
5.3.1. Impacting high-end products
5.3.2. New (local) players emerging
5.3.3. Revamping operator brand phones
5.3.4. What impact will 5G have on subsidies?

Table 1: Regulatory status of SIM card locking in a selection of European countries
Table 2: Bouygues Telecom subsidies, as of December 2015
Table 3: Christmas 2015 specials from operators in France, by order of campaign dates

Figure 1: Comparison of subsidies vs. mobile service revenue for a selection of operators
Figure 2: Evolution of the value chain
Figure 3: Adoption rates for no-contract mobile plans in in France
Figure 4: China Mobile: maturing 4G handsets and a change in subsidies
Figure 5: Sprint: adapting financing to the customer's credit rating
Figure 6: Example of a leasing structure with outsourced leasing contract management
Figure 7: Cost of an iPhone 6s Plus with T-Mobile USA
Figure 8: Cost of an iPhone 6s with T-Mobile's JUMP! On Demand scheme
Figure 9: ATandT Next adoption rate and progress of handset revenue's share of total postpaid ARPU
Figure 10: Comparison of supply costs: ODM vs. OEM
Figure 11: Terminal small cells according to Chinese manufacturer Coolpad

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