For more discussion on everything mobile, be sure to visit us here: http://communities.cisco.com/community/solutions/sp/mobility

1. Handset Subsidies - Don't Shoot the Messenger
Posted by davidpringle on May 2, 2012 10:57:36 AM
Are handset subsidies wrecking the mobile telecoms industry?
In the battle to attract affluent customers, many European and North American mobile operators have
long been lavishing hefty subsidies on the most sought-after smartphones. Some commentators believe
this is highly damaging to operators' business.
The case against handset subsidies is basically this: They encourage consumers to buy a $400-$500
handset every two years, rather than, say, purchasing a $200-$300 handset every three years. That
means a disproportionate share of the consumer’s spending on mobile communications is being
siphoned off by handset manufacturers. If consumers were spending less on handsets, they might spend
more on services, enabling mobile operators to invest more in their networks and relieve congestion.
In parts of Europe, the need for more investment in mobile networks is becoming painfully apparent. In
central London, for example, the 3G signal on your smartphone can fade in and out even when you are
sitting still, as nearby handsets compete for network resources. Moreover, call quality, particularly
indoors, is sometimes poor.
But handset subsidies shouldn’t be blamed for the state of the mobile networks. Handset subsidies just
reflect market reality: The simple truth is that, right now, most Europeans place a higher value on the
look, feel and capabilities of their handset than they do on network quality. Even if handset subsidies
were made illegal, people would just take out a loan to buy whichever smartphone model they desire.
They would then search for the best value mobile tariff they could find.
The fundamental problem for mobile operators is that handsets are highly visible and highly tangible,
whereas wireless networks are not. But over time the value pendulum will likely swing back towards the
networks. Consumers and, particularly, business people will get increasingly frustrated with patchy or
sluggish Internet access, particularly if they are attempting to use cloud services. They will then seek out
mobile networks that can offer them better connectivity and they will be prepared to pay a premium for
it.
When network quality becomes a competitive differentiator again, investment will surely rise, just as it
has in the U.S. market with the race to 4G. Moreover, consumers’ current fixation with having the very
latest smartphones may pass as other devices get smarter and electronic screens proliferate. In time,
handsets may even become anonymous black boxes that stay in people’s pockets providing connectivity
and authentication for whichever device their owner happens to be using at the time, whether that be a
tablet, a headset or a pair of sunglasses with built-in displays.
In the meantime, don’t shoot the messenger - handset subsidies aren’t the problem. The problem is
perceived value. Right now, most people will pay a premium for smartphones, but not for smart
networks.
For more discussion on everything mobile, be sure to visit us here:
http://communities.cisco.com/community/solutions/sp/mobility