Device or No Device
By: Wedge Greene, Trevor Hayes
Device or No Device. That is the question. It is time for mobile communications service providers to rethink the whole business of selling phones. Mobile phone operators correctly are starting to question whether they need to be in the device business, and some have already taken little steps to decouple phone sales from the network business. This includes becoming more relaxed about once feared ideas such as bring-your-own-device and associated month-by-month contracts. Competition is increasing. Major device manufacturers are already fielding much sexier retail outlets for state-of-the-art high margin devices. Also in consideration: how long will it be before the device market becomes a simple high-volume, low margin business, in which the cost of having fancy retail outlets becomes untenable?
Yesterday is not today
Back when mobile made the transition from a niche product to a mass market product, in many countries the phone companies quickly became the dominant retail channel for mobile phones. This proved an advantage in creating a new market which combined the freedom of a mobile phone with the power and utility of a PDA, aka the smartphone. By creating a lease-to-own environment, this technology could be afforded by the masses that quickly jumped on board. The service provider marketed the phone. But customers are more sophisticated today. Marketing by the manufacturers of phones has attached significance to phone function and brand. Now a customer is making a personal statement by their smartphone choice and that statement has nothing to do with the selection of a network provider.
In some countries, including the USA, consumers mostly buy from the phone company. And when they go to an electronics big box or even a specialty brand vendor, chances are they will be offered a phone company bundle. Until recently, largely thanks to companies like Apple and Google, unlocked purchases are gaining ground. In many countries people buy a phone just like they buy a computer; they shop around, buy the phone of their choice in an electronics store or through an online retailer, and then independently sign on with their current favorite mobile carrier. Service providers in these markets have no problem making money.
There are a number of different factors that may have played a part in determining whether in a particular national market the mobile device market became the property of the phone companies, or whether it evolved into a competitive consumer market. But that is a different story because now convergence is occurring. What is important now is that the technical and business factors which lead some communications service providers (CSPs) to provide and lock the end device in their market is profoundly changing. Strategy must change when markets change.
Once customers were accustomed to view everything to do with telecom as the responsibility of their local phone company. The service provider tended to be first in line to field customer complaints. That being so, CSPs were inclined to pre-approve phone devices to eliminate obvious problems and to limit the range of phones they needed to support, and the easiest way to achieve all that was to sell the phones. Now certifying phones is a routine collaboration, as well-established phone manufactures test to specific networks. But the burden of offering a phone catalog is high. Many more device choices are available and they often have short market lifespans making this another area of churn for the mobile Telco. Also mobile operators are finding direct and indirect costs associated with phone repair, and the customer ire which comes with that are no win scenarios. These repair depots are not significant profit centers. If the device was solely the responsibility of the seller or the manufacturer, those drawbacks could be eliminated. Instead, CSPs could create an information campaign that focuses the issues of the phone on the phone manufacturer. Any good phone becomes great on our network.
In the past CSPs rather liked the idea that if they sold the phone, they could lock it to prevent it being used if the customer decided to change to a competitor’s network service. To avoid that being seen as non-competitive, it helped that the phone never really belonged to the customer. Add to that the facts that large carriers carried enough weight to negotiate special deals for exclusive products and substantial discounts, and the benefits of being in the device business became persuasive. This has changed. Regulators are more likely to frown on restricting a consumer’s market mobility. Regulators are inclined to view locked phones as anti-competitive and have started to take action to reduce or eliminate the practice.
But mostly, consumers now have the opportunity to buy direct. People have started to shop around for their mobile phone. Rapid technological obsolescence, fashion and bragging rights mean that people change their phones often. Once a year is mandatory in some circles. But other people are becoming more price-sensitive, and a fancy phone is much less of a status symbol than it used to be, when everyone has a smartphone. Don’t want to pay for it up front? No problem if you have a credit card, or even just a credit rating. And then you can go and enroll in a month-by-month plan, and move to a new service provider whenever you feel inclined.
