The Other Face of the Data Explosion: New Ways to Combat Rising Smartphone Subsidies and Improve Telco Profitability

SINGAPORE, October 23, 2012 /PRNewswire/ --

The smartphone sector has become something of a bonanza of late, but it has also turned into a source of major headaches for CEOs in the telecommunications industry.

Consumers are increasingly eager to upgrade to smartphones and start accessing the Internet, using apps and sharing content. Indeed, markets such as Indonesia already have 19 percent of mobile customers on smartphones, while Singapore has 72 percent, according to Nielsen.

But smartphones are expensive - the new iPhone 5 retails from US$650 if bought standalone, so a key driver for smartphone growth is handset subsidies. Subsidies run at several hundred dollars per device allowing telcos to offer smartphones to consumers for free or at a heavily reduced price. The hope is that resulting data revenues will make the economics work, but it has risen now to become one of the largest operational cost items at 18 percent of revenue for many operators.

Delta Partners, the leading advisory and investment firm specialising in telecommunications, media and technology (TMT), today released its latest article, entitled The Smartphone Subsidy Conundrum, outlining how carriers can bring a number of new and trialed measures to rein in such subsidies.

"This is a hot topic for telecoms executives worried about the costs associated with rising smartphone penetration," says Delta Partners Principal Mar Pages. "Telcos that address this issue now can gain several points of EBITDA margin without impacting competitiveness."

Some of the potential initiatives this article explores through examples from leading operators such as Telstra, AT&T and Bharti Airtel include:

• Prolonging handset lifecycles. A Bring-Your-Own approach adopted by Telstra that offers monthly discounts to consumers who switch provider and keep their previous device.
• Lengthening the customer renewal process. AT&T has lifted fees charged to customers who wish to upgrade their handsets before the end of their contract.
• Discount optimisation. Offering "reverse subsidies" where customers receive a monthly fee reduction instead of a free handset, implemented by Bharti Airtel and China Mobile.
• Managing data economics. Using deep analytics to optimise the relationship between smartphone and data pricing.

"Which option is best depends on an operator's market position, environment and cost pressures," notes Delta Partners Senior Associate Anna Arlorio. "This article evaluates how to rethink smartphone subsidies and drive profitability."

To download the full article, please visit: http://www.deltapartnersgroup.com/our_insights/articles

Karen Cordeiro, Marketing Coordinator, Delta Partners, Tel: +971-56-681-5864, Email: kc@deltapartnersgroup.com