Handset-financing programs: Transparency, simplicity, flexibility are keys to success
Published: March 2013
Operators need to overcome customers’ expectations of receiving a heavily subsidized handset “free” in markets where this perception is still the norm. An important factor in making financing programs work is offering a simple, transparent and flexible proposition, with a wide range of handsets available.
Francesco Radicati, Senior Analyst, Informa Telecoms & Media
Informa Telecoms & Media examines the rise of handset-financing schemes, and the factors driving operators, as well as retailers and device manufacturers, to adopt the model.
Since 2008, nearly 30 European operators have introduced handset-financing programs, as an alternative to the subsidy-led model of selling handsets bundled with service contracts. Although some operators have found success in promoting cheaper, frequently own-branded smartphones – typically in the sub-US$100 range – consumers’ appetite for premium smartphones has not diminished, as evidenced by the popularity of high-end devices, such as Apple’s iPhone and Samsung’s Galaxy SIII. The other factor driving growth in operators’ subsidy costs is that they are actively promoting smartphones, on the grounds that users are more likely to buy them on postpaid contracts and with attached data bundles. This means that as more customers take up smartphones, the operators are paying even more in subsidies.
However, with handset and operating costs still rising, and with new accounting standards on the horizon for 2015, more and more operators have begun to experiment with handset financing, whether under their core brand or under a sub-brand aimed at the discount market. Regulatory factors, such as six-month contract-lock-in periods in Denmark, are also likely to play an increasing role in the shift away from subsidies to financing. The challenge for operators, therefore, is to change end-users’ perceptions about how much they pay for their devices; this report examines best-practice cases, particularly in Western Europe, where the trend toward financing is being spearheaded by telcos.
O2 UK’s new O2 Refresh tariff, launched April 12, 2013, is the latest addition to the growing stable of handset instalment plans available in Western Europe, as surveyed in our recent report, “Handset-financing programs: Transparency, simplicity, flexibility are keys to success”. Similar to financing programs in Germany (O2 My Handy) or in Denmark (TDC Rate), customers can now choose between three service plans and pay for their handsets over the course of 24 months at 0% APR. O2 Refresh meets the three key criteria for successful financing plans by stating clearly how much the customer pays for the handset and airtime (transparency), by offering a limited number of service plans (simplicity) and allowing customers to upgrade their plans without paying early termination fees (flexibility).
How will this research help you:
Understand the factors driving operators, retailers and OEMs to introduce financing
Recognize best practice among operators that have already introduced the model
Assess the potential for the introduction of handset financing in new markets
Western Europe (analysis)
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