Smartphones: The Death of Subsidies?

Transcription

Smartphones: The Death of Subsidies?
A cross-regional view of carrier moves surrounding device subsidies
Date June 12/13, 2012
Presented by:
Wes Henderek & Emma Mohr-McClune
Consumer Services US/ Europe
© Current Analysis Inc. All rights reserved.
Proprietary and Confidential
Washington, DC / London / Paris
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Agenda
US
• High level historical view of U.S. postpaid subsidy trends
• Postpaid & Prepaid subsidy models
• Key takeaways and trends
EUROPE
•
•
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A year of change
Device financing: Three Models
Pros/ Cons
Emerging trends
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U.S. Subsidy Trends According to Current Analysis Retail Data
Over Time View of Full Retail vs. Subsidized Handset Costs
$500
$450
$400
Full Retail Price
$350
$300
$250
Average Postpaid Savings
$200
$150
Subsidized Postpaid Price
$100
May-12
Apr-12
Mar-12
Feb-12
Jan-12
Dec-11
Nov-11
Oct-11
Sep-11
Aug-11
Jul-11
Jun-11
May-11
Apr-11
Mar-11
Feb-11
Jan-11
Dec-10
Nov-10
Oct-10
Sep-10
Aug-10
Jul-10
Jun-10
$-
May-10
$50
Average U.S. Postpaid Handset Savings
Compared to Full Retail Price is up $90 in
the Last Two Years!
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U.S. Postpaid and Prepaid Device Market Today
Subsidies still dominant, device financing rare
All major national postpaid carriers engage in aggressive postpaid
subsidies – Subsidies can vary by carrier
• T-Mobile USA is least aggressive on subsidies by far
Subsidies becoming increasingly commonplace and aggressive in the
prepaid market due to the strong emergence of Smartphones and
aggressive competition
• Regional Unlimited Providers, National Carriers, Carrier sub-brands,
and MVNO’s
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Current U.S. Postpaid Models – Subsidy, Finance, & Rewards
1. Postpaid – Standard Subsidy Model
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Major Tier 1 and Tier 2 Postpaid carriers
Handset includes full device subsidy which can vary by carrier and device
Select carriers actively using higher subsidy/plan promotions to push LTE upgrades
LTE handsets seeing increased marketing & advertising
The hidden subsidy war – The carrier exclusivity push and pressure on OEMs
Subsidies stabilizing in last several months
SIM activation not actively promoted by GSM based carriers (except T-Mobile USA)
2. Postpaid – Device Finance & SIM Model
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T-Mobile USA Value Plans
Proposition is a bundle of Plan + Device monthly payments
Payments positioned as SEPARATE LINE ITEMS, on the same monthly invoice
Device repayment values linked to device type, not plan value
Can include other bundled VAS (inclusive handset insurance)
SIM activation with unlocked handset is also actively promoted
3. Postpaid - Rewards
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US Cellular Belief Project – Still includes standard device subsidy component
Redeem loyalty rewards for faster device upgrades, accessories, downloads, etc.
Rewards escalate depending on spend and loyalty
Two-year contract is eliminated after first 24 months – devices still fully subsidized
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Example: Verizon Wireless Double Data Promotion Pushes LTE Smartphone Sales
This postpaid promotion was in place for more than six months
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Example: T-Mobile Value Plans is only Major U.S. Postpaid Device Financing
SIM only Value plans are actively
promoted
Value plan postpaid handsets are purchased on a 20 month agreement
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Example: US Cellular Belief Project – Subsidy Model with Rewards
Rewards customers only have to sign
one two-year contract
Earn rewards based on total spend and loyalty with full device subsidy
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Current U.S. Prepaid Models – Subsidy (Monthly Prepaid), No Subsidy & SIM
1. Prepaid (Monthly) – Subsidy Model (Increasing)
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National Carriers, Carrier sub-brands, Regional Carriers
Subsidies on monthly prepaid plans have been increasing over the last two years
Smartphones and competition are the big driver behind increased subsidies
Providers looking to migrate feature phone customers to Smartphones (Leap Stats)
Prepaid Android Smartphones have dropped as low as $50 to $60
High-end Smartphones increasingly common – iPhone 4 and 4S at Leap and Virgin
2. Prepaid – Full Price Devices (Mostly)
• MVNOs and providers offering PAYGO products
• MVNOs looking to keep cost structure down and innovate on business model
• Examples of Republic Wireless and Ting
3. Prepaid – SIM only
• MVNO aligned with GSM technology – Simple Mobile & H20
• Relatively aggressive monthly pricing due to low costs
• Link to third party vendor for devices with plans – Simple Mobile with Expansys
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Example: Wide Range of Subsidized Smartphones
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Example: Limited Subsidy MVNO with innovative model
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Example: SIM Model
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Key Takeaways & Trends in the U.S. Postpaid & Prepaid Device Markets
Device Financing Options Limited & Subsidies “Still” the Rule
Postpaid providers still heavily entrenched in subsidies
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Subsidy and Promotional variation happening around LTE devices
Subsidies have increased for Smartphones but stabilizing
Rewards programs appearing but limited
SIM/unlocked device model not actively promoted
Postpaid Device Financing Option Limited to T-Mobile USA
• Device financing lets T-Mobile advertise lower rate plan prices
• 20 month financing plan is still very complex
• T-Mobile providing interest free loans
Prepaid providers see increased subsidies with move to Smartphones
• Leap now has 50% of subscriber base on Smart devices
• MVNOs looking to new business models (not subsidies) to innovate
• Prepaid providers could look to implement device financing on higher end
devices
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Europe: ONE YEAR AGO …
Subsidies dominant, device financing rare
Nordic players, plus Vodafone CZ and O2 DE
Early 2011: European MNOs in the grip of smartphone user acquisition
drive, using subsidies to migrate feature-phone users to smartphones,
higher ARPU plans
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Roll clock forward to June 2012
Device Financing Spreads Across Europe
Today Available In Most Markets (in one form or another…)
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And Not Just Core MNO Brands
But Also Secondary Brands, Flanker Brands, MVNOs…
Moving Mainstream
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Three Models for Device Financing
1. UNBUNDLED
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Standalone device financing option
Set monthly installment payments for device, totally independent of plan value
Direct debit, or payment to third party, frequently no invoice
SIM activation frequently (but not always) a qualifier
2. INTEGRATED
Proposition is a bundle of Plan + Device monthly payments
• Payments positioned as SEPARATE LINE ITEMS, on the same monthly invoice
• Device repayment values occasionally (but not always) linked to plan value
• Can include other bundled VAS (inclusive handset insurance)
•
•
NORDIC MODEL: Includes a further subsidy/ discount element
3. SUBSCRIPTION
• Device financing and plan is a SINGLE AGGREGATED COST item on monthly bill
• Allows user to exercise rights to upgrade frequently, at no extra cost
• Old device trade-in, implicit
• Complex
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The Unbundled Model: The Most Common Model
1. UNBUNDLED
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STANDALONE device financing option
Set monthly payments, totally independent of plan value
Direct debit, or payment to third party, frequently no invoice
SIM activation frequently (but not always) a qualifier
O2 My Handy (DE)
SOSH (FR)
Free Mobile Devices (FR)
Yoigo Devices (ES)
Vodafone (ES)
Movistar (ES)
Vodafone (IT)
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Example: O2 My Handy (Telefonica Germany)
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The Integrated Model (Simple)
2. INTEGRATED
• Proposition is a bundle of Plan + Device monthly payments
• Payments positioned as SEPARATE LINE ITEMS, on the same MNO monthly invoice
• Frequently includes other bundled VAS (inclusive handset insurance)
BASE (DE)
Ay Yildiz (DE)
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Example: BASE Germany
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The Integrated Model (NORDIC MODEL)
2. INTEGRATED
• Proposition is a bundle of Plan + Device monthly payments
• Payments positioned as SEPARATE LINE ITEMS, on the same MNO monthly invoice
• Frequently includes other bundled VAS (inclusive handset insurance)
• NORDIC MODEL: Includes a further subsidy/ discount element
‘TDC Rate’
‘Telenor Smart Agreement’
‘Telia Devices’
All integrated models which also include a monthly discount element, linked to plan
value
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Example: TDC Rate
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But if I choose a higher-value plan
My ‘TDC Rate’ (monthly device loan payments) is reduced
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Third Model: Subscription
Highest Level of Integration, handset financing payments and plan
3. SUBSCRIPTION
• Device financing and contract plan is a SINGLE AGGREGATED COST item on monthly bill
• Allows user to exercise rights to upgrade frequently, at no extra cost
• Old device trade in, implicit
• Complex
JUMP in UK
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Pros & Cons – Unbundled Versus Integrated Models
UNBUNDLED
INTEGRATED
Pros
Pros
• Pricing Transparency
• Easy to grasp
• Applicable to post and prepaid
Cons
• No clear upgrade lever
• Little differentiation opportunity
• Proposition creativity
• Focuses on bottom-line cost
• Incentivizes postpaid/ nocontractual relationship
• Upgrade lever opty (BASE)
Cons
• Complex, and not as transparent as
unbundled model
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Six Emerging Trends In Device Financing, Europe
Filling the ‘Loyalty’ Vacuum…
Self-service portals
• Online self-service portal for loan status, early repayments (O2 DE)
Promotions/ launches with distinct Apple products
• Guarantees attention, could include trade-in element (O2 UK, TDC)
Align with Smartphone Recycle/ Trade-In
• O2 Lease, BASE Germany credit note
And Second Hand Device Online Store
• O2 Outlet (Germany), Movistar Spain, B&You
Aligned with Loyalty Points, Upgrade Bonus
• BASE, and Movistar Spain
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Example, Movistar Spain…
Bringing Multiple Elements Together
Loyalty points bonus for
upgrade
Device trade-in for
credit note
Choice of repayment
periods
Discount for Movistar
ADSL customers
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Lastly… it’s not only MNOs
Apple Offers Its Own Device Financing Options
Apple Store UK, ‘AFS’ (Apple Financing Service’, together with Barclays
Bank) offered at checkout
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Conclusions
US
Device financing still limited in U.S. market
Subsidies still “rule” in postpaid and increasing in prepaid
New business model experimentation will happen first in MVNO space
EUROPE
Nordic model cancels out cost savings implicit, could spread to the
rest of Europe
Important to align loyalty programs with device financing options
Expect carriers to experiment with the various options, including
returning to subsidies for distinct promotions
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Thank You
Questions?
Emma Mohr-McClune
Research Director, Consumer Services Europe
Email: emcclune@currentanalysis.com
Direct: +49 (0) 76 15 03 59 29
Mobile: +49 (0) 172 307 3208
Twitter: @EmmaMM8
Weston Henderek
Principal Analyst, Consumer Services U.S.
Email: whenderek@currentanalysis.com
Direct: +1 703-788-3606
Mobile: +1 858-925-3764
Current Analysis helps clients differentiate themselves in the marketplace and win more business by providing
continuous, in-depth competitive intelligence. We enable sales teams, marketing professionals, product
managers, and executives to anticipate market opportunities and quickly respond to competitor threats.
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Smartphones: The Death of Subsidies?

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