Mobile ops in fix: either offer subsidies or see customers defect
Today’s iPhone 5 launch could push European carriers into a profit-bruising war by forcing them to offer customer discounts on Apple’s latest smartphone, analysts believe.
With the new iPhone expected to sell 10 million units this month alone, the mobile industry is geared for a mass pre-Christmas rush. But individual operators are also faced with the dilemma of whether to subsidise the new handsets or watch as rivals, who are willing, steal business from them.
According to data compiled by Bloomberg, subsidies cost European carriers 12 to 14 per cent of their wireless revenue – a cost they could well do without.
Five years ago, when the first iPhone was ushered in, Britain’s Vodafone and Spain’s Telefonica were among those who refused to play ball when it came to subsidies but then did a u-turn when it became clear they were vital to smartphone adoption.
More recently the pair have been backing away again from offering discounts but, with the latest iPhone likely to be crucial to sales, may be forced to think again.
Since the iPhone was introduced in 2007 European wireless carriers have spent billions of euros in encouraging consumer adoption if only to persuade them to use more data through web browsing, sending emails and watching videos on their devices.
According to JP Morgan a fifth of all smartphones sold in Europe are iPhones and, with today’s much anticipated launch, it’s though the floodgates will open as Apple fans rush to buy the latest handset.
In Spain earlier this year both Telefonica and Vodafone began asking asking the full price for the iPhone 4, having previously given them away free to customers in return for fixed contracts.
But the decision to end discounts proved something of a bloodbath. Data from local telecommunications regulator CMT reveal that, as a consequence, Telefonica lost more than 200,000 mobile-phone customers in June, many of them going over to Orange who won about 30,260 contracts.
Telefonica’s share of Spain’s mobile market is now said to stand at around 38 per cent, compared with Vodafone’s 28 percent and Orange’s 21 percent.
Meanwhile Francisco Roman, chairman of Vodafone Spain, has conceded that once the new iPhone does start selling the company may be forced to make some “adjustments” to its pricing strategy and devise new tactics, though he insists that dispensing with subisidies is still a key objective.
For mobile operators the next few months will prove to be a testing time, according to Peter Braendle who helps manage around $55 billion in investment funds at Zurich-based Swisscanto Asset Management.
And he warns: “Operators who don’t subsidisee smartphones are poised to keep losing market share.”