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Handset Subsidy Reduction: Strategies & Consequences

A recent financial benchmarking report prepared by Mobile Market Development demonstrated that mobile operators such as Sonera and TIM, with Industry leading EBITDA profit margins of approximately 50%, benefit from particularly low costs of customer acquisition. Both benefit significantly from the absence of subsidies in their respective markets. Meanwhile, mobile operators who are active in markets where handset subsidies apply have found it difficult to move EBITDA margin levels above 35%.

The reduction or elimination of handset subsidies improves the bottom line in two ways. Clearly it impacts profits directly through the reduced cost of customer acquisition/retention. However, at least as important is the fact that lower churn results in markets where low or zero subsidies apply.

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1	Handset Subsidy Reduction: Strategies & Consequences	1

1.1	The Argument for Subsidy Removal	1

1.2	Subsidy Reduction Triggers	3

1.3	Exploiting Legal or Regulatory Arguments for the Removal of Subsidies	3

1.4	Challenges Associated with Subsidy Reduction	4

1.4.1	Overcoming Dealer Anxiety and Retaining Dealers to Retain Customers	4

1.4.2	Improving Supply Chain Management	4

1.4.3	Dealing With Customer Shock	5

1.4.4	Other Preparatory Steps	5

1.5	Need to Pressurise Manufacturers for Better Quality Handsets	6

1.6	Further Findings	6

1.7	Australia	8

1.7.1	Details of Handset Subsidy Reduction/Removal	8

1.7.2	Parallel Churn Prevention Measures	10

1.7.3	Impact on Financial Performance	11

1.7.4	Impact on Connection Levels	11

1.7.5	Channel and Other Impacts	12

1.8	France	13

1.8.1	Channel and Other Impacts	14

1.9	Germany	15

1.10	Greece	15

1.10.1	Background	15

1.10.2	Details of Handset Subsidy Reduction/Removal	16

1.10.3	Impact on Financial Performance	17

1.10.4	Related Initiatives	17

1.10.5	Impact on Handset Replacement Cycle	19

1.11	Ireland	19

1.11.1	Background	19

1.11.2	Details of Handset Subsidy Reduction/Removal	20

1.11.3	Impact of Subsidy Reduction	21

1.12	Portugal	21

1.12.1	Background	21

1.12.2	Details of Handset Subsidy Reduction/Removal	21

1.12.3	Related Initiatives	22

1.13	Impacts	23

1.14	Spain	24

1.14.1	Background	24

1.14.2	Parallel Initiatives	24

1.14.3	Telefonica - Financial Impact of Handset Subsidy Reduction	24

1.14.4	Competitor Reaction	25

1.14.5	Impact on Churn	25

1.14.6	Impact on Handset Lifecycle/Equipment upgrades	26

1.14.7	Impact on Connection Levels	26

1.15	Netherlands	26

1.15.1	Background	26

1.15.2	Details of Handset Subsidy Reduction/Removal	27

1.15.3	Channel and Other Impacts	27

1.16	Denmark - Orange	28

1.16.1	Background	28

1.16.2	Details of Handset Subsidy Reduction/Removal	28

1.16.3	Competitor Reaction	28

1.16.4	Other Impacts	29

1.17	Other Markets	29

1.17.1	South Korea	29

1.17.2	Hong Kong	29

1.17.3	USA	29