Handset Subsidies - More Complicated Than You Realize

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Korea hit the telecom news recently as a spat over “excessive handset subsidies” between the mobile operators, the regulator, Korea Communications Commission (KCC), and even the handset manufacturers. On the face of it, the regulatory spat almost appeared pantomime (The KCC slapped approximately one month “No New Subscriber Sign-up” prohibitions on all three mobile operators) but there are some deep economic and societal issues at stake:

1.       In Korea, and in a number of countries, the state regulator has an objective of making telecom services more transparent and become more affordable over time (subject to the underlying costs of providing the service). Another concern the regulator may have, is that a “subsidy war” could put severe financial strain on operators. Excessive handset subsidies could well impact network investment and favor the carrier with the deepest financial pockets.

2.       While the regulator may have the above concerns, the mobile phone user may very well be coveting the very latest and greatest of smartphones and the handset subsidy could significantly lower the barrier to purchase.

3.       To further complicate matters, mobile operators are desperate to “lock in” the customer. Often the market-share positions of mobile carriers are entrenched and calcified. The commercial rollout of 4G services and the latest round of smartphone innovations are dramatically shaking up markets and allowing carriers to increase their market-share, “if” they get the smartphone portfolio (and pricing) mix right.

4.       And then there is the fourth dimension. Handset manufacturers have been also been “subsidizing” the handsets… Some mobile operators are concerned that some of their competitors are getting preferential prices on their handsets.

So handset subsidies are complex tools. They have helped to incentivize the handset manufacturing community to produce cheaper and better mobile phones, and allow virtually everyone on the planet to be able to afford a mobile phone. This is compared to the late 1980s when then mobile phone was the preserve of, not even the yuppie, but very senior corporate bigwigs.

Link to full ABI Research Insight for clients: http://www.abiresearch.com/research/product/1015873-handset-subsidy-a-force-for-good-or-bad/