|Innovating The Next Big Thing||June 18, 2013|
• Telecom & Commerce
• Smarter Phones, Devices & Apps
• Enterprise Mobility
• Wireless Web
• Arts & Entertainment
• Tablets & Notebooks
• Safety & Security
• Remembering 9/11
Next Innovator Group
Feedjit Live Web Stats
• Ghost City
Ovum: Telstra moves away from mobile subsidies
May 22, 2012 – Nicole McCormick
Telstra is successfully moving away from a business model led by mobile handset subsidies, and its profitability is improving as a result. In 1H 2012 (ending December 2011), “mobile repayment option” (MRO) plans, where a subscriber pays A$5 or A$10 for a smartphone in addition to their monthly plan, grew to 23% of Telstra’s mobile “volume mix”. This was an increase from 11% in 1H 2011, and helped Telstra’s mobile margins to improve from 29% to 34% over the same period. Telstra’s move away from subsidies to MRO plans has not had an impact on its customer growth. The operator reported more net additions in 1H 2012 than it did in 1H 2011, and it continues to expand its subscriber base at the expense of its rivals. However, Telstra’s move away from subsidies will not be easily replicated in other Asian markets due to the fierce competition that exists in many of them. The exception could be Singapore, where Optus’s parent company, SingTel, is the leading mobile operator.
Telstra leverages its superior network
The main reason why Telstra is able to move away from subsidies is the breadth and depth of its mobile network. High-end postpaid customers are not concerned by having to pay a few extra dollars each month for a smartphone in return for better coverage on a faster network. In addition, customers are becoming more familiar with MRO plans, which are also being offered by other carriers, including Optus and some fixed ISPs.
Disgruntled customers looking to renew their contracts are visiting Telstra and finding that the MRO plans are not as expensive as they thought. On Telstra’s A$49 and A$59 postpaid plans, its per minute off-net call rate is only 14–15% higher than Optus and Vodafone’s, both of which have recently raised their postpaid voice tariffs.
Telstra is uniquely positioned to offer MRO plans due to the relatively benign nature of mobile competition in Australia, smartphone penetration of over 50% of the mobile user population, and the fact that the operator is currently increasing its market share lead. This puts Telstra in the comfortable position of being able to steer its high-end customers towards MRO plans courtesy of its extensive network reach, faster network, and competitive postpaid plans. In turn, it can retain subsidies for devices that warrant them, such as so-called “superphones” with multi-core processors, or the iPhone 5.
Vodafone offers aggressive subsidies for low-end users
In developed markets in Asia, postpaid subsidies are a key part of churn management and help to grow smartphone subscribers. In Australia, Telstra has decided to shift its focus from subsidies and customer acquisition to customer retention and increasing its profitability. By moving towards MROs, Telstra is effectively providing a handset credit, recognizing the entire handset payment upfront. While this means that there is a negative revenue contribution over the course of the contract, it is far more appealing to the operator than giving the device away for free.
Optus introduced MRO plans in 4Q11. As a result, its mobile EBITDA and margin both increased by one percentage point in 1Q12 compared to 1Q11. This was largely due to the reduction in subsidies, which has cost Optus up to A$2.5bn per year.
The smallest player in the Australian market, Vodafone, is still the most aggressive operator when it comes to subsidies, especially on its low-end A$29 plans. Its strategy is to attract new customers to its cheaper plans, and then upsell them to plans with more realistic usage limits. However, Optus has recently hit back in this segment, offering a number of new A$30 and A$35 postpaid plans with attractive subsidies.
In the future, subsidies could emerge as a key differentiator for operators, especially as Telstra moves away from subsidies and makes its high-end plans more attractive than its low-end ones.
Not many other candidates for phasing out subsidies
The major question for other operators is: can Telstra’s successful transition from a subsidy-based model be adopted in other parts of Asia?
We don’t believe that this strategy will be viable in the ultra-competitive Hong Kong market. Japanese operators are also unlikely to move away from subsidies given that smartphone penetration in the country is only 14% of mobile customers. Similarly, Taiwan has low smartphone penetration. In South Korea, the current subsidy model (where handset vendors pay operators’ subsidies) is set to change as vendors will be able to sell their devices directly to retail outlets from May 2012.
That leaves Singapore as the only market that could possibly replicate the changing subsidy-based business model in Australia. Approximately 55% of Singaporean mobile customers own a smartphone, which is the highest smartphone penetration rate in Asia-Pacific. Operators in Singapore should be looking at business models that are less reliant on subsidies, especially given that the market is not particularly competitive in terms of pricing. SingTel will be watching the Australian market closely to see how customers react to MRO plans. We believe that the high GDP per capita in Singapore means that MRO plans will be acceptable to a large proportion of customers. With a mobile market share of 46%, SingTel is strongly positioned to move first.
» Send this article to a friend...
» Comments? Tell us what you think...
» More Telecom & Commerce articles...
Commentsblog comments powered by Disqus
Support This Site
• 6/13 Faultline: Vodafone Kabel Deutschland talks confirmed, deal could be dusted in days
• 6/13 Faultline: Comcast sneaks in Homespot revolution as “Neighborhood Hotspots”
• 6/10 Ovum: Analyst view: Google to buy Waze
• 6/10 Ovum: Analyst view: Apple acknowledges the need for user interface refresh and is willing to do something pretty dramatic
• 6/10 Wireless Watch: Small Cell World Summit: industry poised to kickstart volume roll-outs
• 6/10 Wireless Watch: Cisco seeks leading role in wireless via small cells
• 6/6 Ovum: Ovum announces winners of inaugural “BYOX Strategy” awards
• 6/6 Ovum: Analyst view: SFDC acquisition of ExactTarget is expensive, but offers significant product synergies
• 6/6 Faultline: Cloud browsers to gut the set top market – ActiveVideo leading the chase
• 6/6 Faultline: TiVo wins its biggest ever settlement - share price barely nods
• 6/5 Ovum: Ovum warns BYOD is here to stay and urges CIOs to respond with a clear strategy
• 6/4 Ovum: Ovum finds disruptive technologies are driving ITSM vendors to differentiate beyond just ITIL process support
• 5/31 Ovum: Analyst view: Telecom Italia spin off its fixed assets
• 5/30 Ovum: Analyst view: Australia launches national cloud computing strategy
• 5/30 Wireless Watch: Europe loses mobile edge to US, but the debate is already an anachronism
• 5/30 Wireless Watch: Broadcom chooses Wi-Fi and Bluetooth for internet of things
• 5/30 Faultline: Cisco VNI under predicts tablets, WiFi and more or less everything
• 5/30 Faultline: Twitter chases Facebook targeting second screen advertising
• 5/29 Ovum: Ovum reveals South Korea offers emerging IT services outsourcing opportunities
• 5/28 Ovum: ZTE slips by Alcatel-Lucent in global ON market; top two slots now held by Chinese vendors. 100G passes $1bn, but overall market remains sluggish
• 5/23 Ovum: Analyst view: HP’s financial results reminds us that restructuring is not linear
• 5/23 Ovum: Ovum comments: HP’s financial results reminds us that restructuring is not linear
• 5/23 Wireless Watch: New Intel chief puts post-smartphone devices at the heart of his agenda
• 5/23 Wireless Watch: Satellite spectrum under siege from cellular predators
• 5/23 Faultline: TiVo blows away numbers – still ignored by investors
• 5/23 Faultline: Yahoo gambles on social networking to make up for lost time
• 5/22 Ovum: Ovum warns vendor consolidation and cloud services transform HR services but not necessarily complex BPO
• 5/21 Ovum: Analyst View: FTTs bridges wireless and wireline
• 5/21 Ovum: Analyst view: Vodafone’s results are a continuation of the story of the challenges facing Europe’s telcos.
• 5/21 Ovum: Analyst view:NSN and Ericsson make carrier Wi-Fi announcements at CTIA
• 5/20 Ovum: Ovum reveals market leading ITSM solutions in free research webinar
• 5/16 Faultline: Better the devil you know – Vodafone enters broadband tryst with DT
• 5/16 Faultline: ABC goes paid by the back door – uses pay TV authentication for App
• 5/16 Wireless Watch: I/O: no hardware or stunts, as Google reworks its web platforms
• 5/16 Wireless Watch: Roaming and signalling issues threaten VoLTE’s quality
• 5/15 Ovum: Analyst View:The Federal Budget promised to be a Budget like no other and it did not disappoint
• 5/15 Ovum: Ovum announces winners of inaugural “On the Radar” awards
• 5/15 Ovum: Analyst view: Blackberry unveils the Q5
• 5/15 Ovum: Ovum warns command-and-control management is dead at ICT flagship event today – Ovum Industry Congress
• 5/14 Ovum: Ovum breaks new ground in marketing technology and digital marketing analysis with the appointment of Gerry Brown
• 5/10 Ovum: Ovum comments: GB smart meter delay better late than never
• 5/9 Wireless Watch: Microsoft/Nokia alliance at crossroads as both ponder OS futures
• 5/9 Wireless Watch: Apple must rethink far more than the iOS user interface
• 5/9 Faultline: Quantenna gets closer to ST Micro, expect it to get “ascloseasthis”
• 5/9 Faultline: Microsoft volunteers to take Nook, as Barnes and Noble start to breakup
• 5/8 Ovum: Government policy-makers need to create a level playing field for cloud services procurement
• 5/7 Ovum: Analyst View: TPG looks to become Australia’s fourth MNO
• 5/7 Ovum: Analyst view: UK G-Cloud to champion public cloud
Amazon Ads: More Cell Phones