Mobile carriers are subsidizing handsets, but not reaping the return on investment (ROI) as Over the Top (OTT) service providers take revenue share. The pressure on subsidy ROI is caused by lagging worldwide carrier revenue growth which is not keeping up with subscription or connection growth, or the cost of subsidizing expensive smartphones. Connection growth is 10.9% CAGR from 2008 to 2013 and 4.2% for service revenue over the same period.
Device subsidy is the single largest cost for a carrier over the lifetime of a subscriber’s contract—68% of the revenue derived from a typical 24 month contract. A number of factors will increase pressure on device subsidy in the next two years, including:
“Carrier’s cannot continue to subsidize all these devices, yet they must maintain their place in the value chain, their relationships and touch points with subscribers, where device subsidy plays an important role. Carrier’s need to consider a more transparent and varied way for consumers to purchase their mobile devices,” comments Nick Spencer, senior practice director.
“Innovation in the mobile device market is so rapid that consumers do not want to be tied to an aging device for two years, but carriers cannot afford shorter contracts, so more flexible options are required for the customer and to reduce the subsidy burden for the carrier. Transparent and outsourced subsidy is one such option,” adds Spencer.
Gradual and strategic use of transparency and outsourcing will educate the consumer about the costs of the device and reduce the burden and risk for carriers according to ABI Research, enabling carriers to wean themselves off the habit.
These findings are part of ABI Research’s Mobile Handset Go-to-market Strategies Research Service .
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