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In the past decade, so much has changed: the way we use mobile devices, the type of devices we use,
and the amount we spend on now indispensable smartphones. Yet the traditional subsidy model
the predominant financing model in most markets has persisted and remained largely unchanged.
A number of forces are now pushing mobile operators to consider alternative financing models.
These same forces are also creating new opportunities for non-operators, including device OEMs,
retailers, and new entrants, to participate more extensively in mobile device financing.
November 2012
* Data do not take into account reuse through sales of refurbished phones, or hand me downs, etc.
Source: eMarketer, Oppenheimer, Cartesian
Copyright 2014 The Management Network Group, Inc. d/b/a Cartesian. All rights reserved.
AT&T raised early upgrade fees from $75 to $200 in 2010 and to $250
for smartphones in 2011.
Though these policies may improve operator economics, they fail to address shifting customer needs and
ultimately risk damaging customer relationships over the longer term. MNOs need to evaluate their
approach to device financing holistically in order to address this growing disconnect.
These alternative models differ based on whether a contract is required (and what type), who pays for the
device (and when), and what happens to the device at the end of the contract. As a result, they fulfill
different operator/customer needs and address particular customer segments:
Copyright 2014 The Management Network Group, Inc. d/b/a Cartesian. All rights reserved.
Device Leasing: For subscribers who want a new device for free upfront, and dont mind being
required to return it at the end of the period. Best for budget-conscious customers and shorterterm subscribers.
Technology Assurance: For subscribers willing to pay a little extra for the perk of upgrading every
year. Best for device lovers and higher income segments.
Explicit Monthly Repayment: For customers who want to understand their bills better. May also
be instituted by an MNO to increase understanding of the subsidy model.
Bring Your Own Device (BYOD): For customers who dont want to be tied to a contract, want a
lower service plan cost, or have a hand-me-down device.
Device Buyback: For any customer who wants to reduce the cost of a new device and doesnt have a
use for their old one.
Note that in actual implementations, these models are more fluid than the categorization may imply. For
example, an operator may create an offer with an explicit monthly payment for the device that provides
technology assurance and uses device buyback at the time of upgrade to offset some of the costs to the
consumer.
These alternative models have gained traction, particularly in Europe and other areas where the traditional
subsidy model is not as deeply ingrained in all segments and where consumers have shown greater
willingness to pay for handsets upfront. As a result, both operators and subscribers have become more
receptive to changes. Given the pressures on the traditional subsidy model, we expect proliferation of these
alternative models in additional markets. Below, we lay out some of the current offers that are similar to
the alternative models we have discussed:
Existing Alternative Models in International Markets
* Phones4U is a retailer,
but is included here due
to its JUMP plans
similarity to Technology
Assurance
Source: Current
Analysis, ZDNet,
GigaOM, Cellhire,
Cartesian
Copyright 2014 The Management Network Group, Inc. d/b/a Cartesian. All rights reserved.
For operators, the question is shifting from whether to pursue these alternative models to how to pursue
them:
How to effectively target and support such alternative models that will have low penetration (5% to
10% of customers)?
Whether to partner with device OEMs or new entrants?
How to design these models so they can co-exist alongside traditional subsidy models?
How device financing can be used to reduce the subsidy burden?
How to ensure alignment between these new models and long-term (3-5 year) device strategies?
Copyright 2014 The Management Network Group, Inc. d/b/a Cartesian. All rights reserved.
For OEMs, the central questions are about customer ownership and where the OEM plays in the subsidy
value chain:
Whether to pursue standalone OEM models or partner with MNOs or others?
What alternate subsidy models will best drive device sales?
How best to deepen the customer relationship and promote loyalty using device buyback and/or
financing?
Can new models be tied to other services in order to drive uptake and revenue?
New entrants and retailers should consider how alternate subsidy models can increase their device sales or
present new revenue opportunities:
What MNO and/or device refurbishment partnerships will provide the best returns?
Can device buyback be incorporated easily and profitably into existing business plans?
Under the current subsidy structure, are there other opportunities?
How best to respond to evolving MNO alternative models?
Copyright 2014 The Management Network Group, Inc. d/b/a Cartesian. All rights reserved.
Cartesian is a specialist consulting firm of industry experts, focused exclusively on the communications,
technology and digital media sector. For over 20 years, Cartesian has advised clients in strategy
development and assisted them in execution against their goals. Our unique portfolio of professional
services and managed solutions are tailored to the specific challenges faced by executives in these fastmoving industries. Combining strategic thinking and practical experience, we deliver superior results.
www.cartesian.com