Skip to main content

Growing Negative Impact from Smartphone Subsidies

Mobile network service providers have a major business model impediment -- they're still subsidizing handsets, but not reaping the return on investment (ROI). The current global market outlook is troubling to analysts.

Moreover, savvy Over-the-Top (OTT) service providers and software application developers continue to take revenue share in the evolving marketplace -- often at the expense of the network service providers.

The pressure on mobile device 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 percent CAGR from 2008 to 2013 and 4.2 percent for service revenue over the same period, according to the findings from the latest market study by ABI Research.

Device subsidy is the single largest cost for a mobile network service provider over the lifetime of a subscriber’s contract -- 68 percent 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:

  • Over the Top revenue loss.
  • Competitive price pressure.
  • Regulation (example, EU roaming regulations).
  • Multiple device ownership – smartphones, tablets, smart glasses, and other wearables.

"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," said Nick Spencer, senior practice director at ABI Research.

ABI believes that these mobile network service providers need to consider a more transparent and varied way for consumers to purchase their mobile devices.

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, according to ABI's assessment. 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, enabling them to wean themselves off the habit.

Popular posts from this blog

Artificial Intelligence Growth at an Inflection Point

Business technology investment no longer follows a predictable path to growth. The global venture capital (VC) investment in artificial intelligence (AI) was close to its peak in 2021 reaching $22.3 billion, according to the latest worldwide market study by ABI Research. This is just $400 million shy of the historical high of $22.7 billion recorded in 2019. Compared to the $15 billion recorded in 2020, the market made a remarkable recovery, with a 48.5 percent year-on-year growth. Will the future AI marketplace return to stable growth, or will it remain volatile? Artificial Intelligence Market Development "COVID-19 greatly accelerated the speed of digital transformation within the enterprise. Businesses are looking for solutions to work processes automation, customer care, due diligence, transcription and translation, and sales and marketing enablement tools," said Lian Jye Su, research director at ABI Research . At the same time, COVID-19 led to the Great Resignation of 2021

How a Digital-First CEO Leads Transformation

Some leaders reject the notion that "wait and see" is the best response to disruptive change. Savvy senior executives are already driving digital business transformation throughout their organization in an effort to gain a bold strategic advantage. According to the latest market study by International Data Corp (IDC), Digital-First CEOs plan to drive at least half of their income from digital business products, services, and experiences by 2027 -- that's ahead of the market average of 39 percent. Driven by their response to the COVID-19 pandemic, these business leaders have changed how they think about the relationship between business and technology, and how they approach the next digital transformation era -- from scaling digital technology to guiding a viable digital business. Digital Business Market Development IDC defines digital business as value creation based on technology, which entails: 1) Automated customer-facing processes and internal operations; 2) Provision

Digital Solutions for Industrial & Manufacturing Firms

Executive leaders of fast-moving consumer goods (FMCG) are seeking guidance on how to apply new business technology in their manufacturing operations. CIOs and CTOs are tasked with gaining insight into the best solutions for digital transformation. ABI Research evaluated the impact politics, regulation, the economy, supply chain, ESG, and technology are having on FMCG, pharma, producers of steel, chemicals, pulp and paper -- as well as the mining and oil & gas sectors. Digital Transformation Market Development "Our assessment found that the FMCG sector is under pressure from all sides," says Michael Larner, industrial & manufacturing research director at ABI Research . Securing raw materials is challenging considering lockdowns in China and limited grain supplies from Ukraine. Supply shocks are raising input costs, and operating costs are rising with higher energy costs coupled with the pressure to pay higher wages and work sustainably. "We all hoped that with th