impact of handset leasing on telecom profitability

Guidance for the 2022 financial year raised: adjusted EBITDA AL of around 37 billion euros, free cash flow AL of more than 10 billion euros anticipated. Many Lease Telecom Partners offer this service and manage everything including equipment pick-up, data-wiping, handset grading, environmental disposal and payment. Impacts of a handset leasing model on mobile telcos. Under a subscription model, consumers would pay lower monthly amounts to effectively rent devices over a predetermined contract period. Determine why users need to lease out devices and assess how you can address the matter more effectively. xref Net profit was S$541 million for the first quarter, down 35% largely due to Airtel's losses and higher depreciation and amortisation costs in network and spectrum across the Group. Additionally, leasing eliminates the direct cost barrier that may have postponed or recluded a purchase. Low or zero upfront costs associated with the mobile phone purchase. All stakeholders should reap major benefits as a result of this shift. 0000003016 00000 n Although fuel stations are often clustered around points where there is a large amount of traffic, they do not share facilities as their strength in a location is a key competitive differentiator. OEMs require payment for their phones within 3090 days, while customer payments span 24 months. The influence of smart gadgets is enormous, and the continuous emergence of cutting-edge technologies enables peopleto connect and accomplish more online, further increasing their reliance on these devices. 4 The Lessee receives services or the use of assets under the terms of a contract from the lessor (the owner of the assets). 483 35 The growing perimeter of strong, reliable mobile networks adds to it. )))it mSRJ e2;@ @eX,tcaCC fW/ To add to it, as mentioned above, the primary profit-making element for telecom carriers is not the device financing itself, but the 5G or 4G service costs. What this means is that while one set of the population struggles to find technology, even the most primitive one, the other set of the population is all eager to grab the latest technology, no matter what price it comes at. 0000004020 00000 n whats the right choice for, Democratizing Technology with Smartphone Financing, SIM-based Locking: How NuovoPay Makes Device Financing Lucrative for Telcos. Social media platforms are an excellent place to start. handset leasing services to cope with the change in consumer preference. From there, operators must invest in innovation as well as execution against key levers for driving profitability, such as securitization, re-commerce, and insurance. Though securitization of handset receivables has been around for years, most global operators have only scratched the surface in using the vehicle to gain immediate cash and employ their capital more efficiently. 0000028090 00000 n Up to 10 percent of it can be tied up in receivables for smartphone-related affordability options, such as installment billing. For example, in 2019, South Korean operators registered a surge in smartphone-related costs to enable their first million 5G connections, and these costs were higher than for the last wave of 4G migrations in 2011. End-of-lease options are also rather versatilemost firms trade in their devices for an upgrade, but customers may also purchase the handsets outright. This market has fully grown in US, Singapore and European countries and even major giants like Apple and Samsung have seen the potential and are entering in this industry. Revenue from Liquidation (sold listing on eBay): $263~. As a result, they can upgrade or add devices as needed. Typically, a client is required to make monthly payments for one year or more. This growth should be supported by the premium price tags of 5G smartphones, as millions of customers look to de-risk their expensive purchases. H\n@b!2xzd!H$e=csweEJ(bOt}7xmqrox&c. Mobile handset leasing is a popular option for consumers across the United States. endstream endobj 218 0 obj <>/Metadata 24 0 R/Pages 23 0 R/StructTreeRoot 26 0 R/Type/Catalog/ViewerPreferences<>>> endobj 219 0 obj <>/Font<>/ProcSet[/PDF/Text/ImageC]/Properties<>/XObject<>>>/Rotate 0/StructParents 0/TrimBox[0.0 0.0 595.276 841.89]/Type/Page>> endobj 220 0 obj <> endobj 221 0 obj <>stream Seeing this, consumers and firms realize the advantages of handset leasing as a valid way to avoid paying exorbitant prices for handsets while still allowing for their use. 0000004678 00000 n Anthony Scarsella and William Stofega, Worldwide used smartphone forecast, 20192023, IDC, December 29, 2019, idc.com. By doing so, they will have a chance to market themselves as the one-stop shop for subscriber hardware needs. McKinsey_Website_Accessibility@mckinsey.com, Technology, Media & Telecommunications Practice, Visit our Telecommunications Operators page. 0000002455 00000 n NEW YORK, March 16, 2017 /PRNewswire/ -- SummaryOperator profitability in the mobile segment in Europe is under pressure, particularly in more mat. 0000023334 00000 n We already know how the telecom industry is performing. (dLJqZ 7 Thanks for sharing with us. hbbe`b``3 11@ 8* Handset leasing: the rise of "Device as a Service" 5.2.3. Amid a wide-ranging consumer shift to subscription services for any number of products, phone subscriptions are generating more C-suite discussions as an innovative consumer value proposition. 0000010949 00000 n Why, Device financing has been garnering eyeballs as one of the most lucrative models to make the most use, Device leasing and financing is picking up globally and NuovoPay steps in to solve the challenges around the, NuovoPay demystifies device leasing by streamlining the end-to-end device financing and leasing process. Additional network plans and services by the operator. Strategy-Consulting-Virtual-Experience-Program. No longer would it be down to operators to sell customers on unpopular 18- and 24-month contracts in order to fund access to a handset. We are all familiar with leasing a house or a car, but never heard of leasing a mobile phone. 0000023319 00000 n Call centre interactions per customer are also likely to fall as handset-related queries are reduced. Tarun has 10 years of work experience with a key focus on the evolving mobile device ecosystem with specialties in Emerging Markets. Source: Earnings . A Scandinavian operator migrated most of its base to a phone subscription program that required no down payment, included screen insurance, and allowed for annual upgrades, all at effectively the same cost as a traditional pay-to-own installment plan. Heres how NuovoPay makes it easy for telcos to make the device financing model lucrative: This truly serves as a win-win for the telecom carriers as well as the consumers. GB, which has moved to 10 GB due to fall in data tariffs. Our work with operators suggests such a holistic approach can achieve an incremental 23 percent improvement in EBITDA. Make the most of social media and review sites. 0000020964 00000 n The growth in mobile data traffic has driven the development of 5G networks, and yearly release of new phone models with improved features has amplified the demand for handset leasing plans. 0000018116 00000 n It has reached KRW 17.520 trillion in revenue in 2017. Of course, there was the year of the one-off with the . Quality products and services continue to be the decisive factor in whether customers continue to work with you or not. Each lever on its own helps improve the financial performance for an operator. Never miss an insight. Source: Earnings . Thanks for sharing. Handsets bundled with telecom services were present, albeit in a different avatar from the Reliance Infocomms Monsoon Hungama of 2003. endstream endobj 516 0 obj <>/Filter/FlateDecode/Index[84 399]/Length 36/Size 483/Type/XRef/W[1 1 1]>>stream the market price for a used smartphone at any point after its launchto potentially drive three major benefits (Exhibit 2). Its rented. Source: Statista. Once a basic telecoms system has been installed, other areas can be added according to the customer's needs and budget. My current areas of focus are decision-making, the economic impact of the new machine age, organisation designs & operating models that take advantage of digital. Outsmarting the 5G smartphone challenge: How telcos can reinvent their handset business. Such . New (local) players emerging 5.3.3. Im thinking about the topic of strategic responses to emerging events at the moment because of the seeming inevitability of a recession this year or next, which will doubtless bring with it many similar situations. It may therefore be the case that the scenario described would lead operators to a more profitable structural model than exists today. The average net profit margin can be higher or lower depending on . 0000001319 00000 n But the most marked improvement will be achieved by taking an E2E device life-cycle management approach to drive synergies across the levers and activities. Additionally, the user can purchase or lease an alternative phone. OEMs require payment for their phones within 30-90 days, while customer payments span 24 months. new units per year due to multiple factors. Mobile phone leasing is essentially finance, so you can expect to spread the cost of a 749 handset over a term that suits (anything between 12 and 36 months). Offering special rates on plans rather than subsidising the handset 5.2.4. And who better than telecom carriers to take a plunge in the device financing market. residential, commercial, industrial or rural), the zoning under State or Territory laws in that area and whether . In South Korea, SK Telecom . You may share your most recent blog pieces on business phone leasing vs. buying, upload live video, and even make special promos for your audience. Device financing or procuring devices on a contract/ pay-as-you-go model has been a norm since the last decade or so in the developed countries. Phone subscriptions also offer consumers the ability to upgrade devices more frequently. and thus this should be an option Company X should consider moving forward. Is handset leasing profitable for telecom companies? Its take rate of leasing plans reached ~43.0% that quarter. Encourage readers to subscribe to your newsletter by including a lead magnet on your site or by asking them to join your mailing list for fresh material. Lease Model. And rent is due every day Anonymous. Published by S. O'Dea , Jul 30, 2020. You ultimately end up paying much greater amount than the retail price of the phone over the life of the contract. Cash flow would be the principal problem posed by smartphone financing as they need to pay the amount in 3090 days whereas customer payments spans for a definite period. which in this case is smaller as compared to other business models that could be employed. The telcos on the other hand can be assured of customer retention and make the most of device financing without risking their profit margins. Following the analogy, the one thing that operators should not do is lose the differentiation that the geographic reach of their network affords them by separating the netco from the servco. Both Philippines and Germany has lost 11% in absolute EBITDA between the 10 Year periods maximum and 2013. People are now connected to each other virtually from all corners of the world and the credit for the same goes equally to the telecom operators along with the mobile technology manufacturers. Deutsche Telekom continues growth course. Impacting high-end products 5.3.2. During fiscal 3Q15, this figure was ~$3.3 billion. This migration is necessary to enable expansive 5G network experiences, yet it will be more expensive than previous consumer-hardware shifts. 0000000975 00000 n At least in the wholesale market, the minimum residual value for premium smartphones can be predicted well in advance and used to inform an operators game plan. 249 0 obj <>stream Conversely, if the supply-chain team provides immediate visibility into slow-moving SKUs, the marketing team can design spot promos to improve their sales while procurement can negotiate price protection and additional funding from OEMs. %PDF-1.4 % <]/Prev 234536/XRefStm 1586>> Thank you for sharing..Looking for a software development company in Patna, Cybonetic Technologies is the best Software Development Company Patna, Bihar. Identify the metrics that are most important It aims to make premium handsets more affordable to customers . This site seems to get a good amount of visitors. 0000009076 00000 n The company retains ownership of the device and the customer also enters into a renewable monthly service plan arrangement with the company. As 5G penetration scales and newer use cases emerge, especially around consumer IoT applications, operators will need to go beyond smartphones and related accessories and expand into connected devices. To estimate the leasing case, you apply Company A growth rates Step 4. Here, In my findings, I can fairly estimate that, using a leasing model would hurt the company, , high unreturned equipment charges pose a massive problem. For example, if the marketing team ensures broad awareness of planned smartphone-related promotions, procurement can get OEMs to bid competitively for promotional slots or negotiate with them to co-fund campaigns. 0000006666 00000 n As the equipment rental payments plus the expected liquidation value of the device equal the cost to acquire the device from the manufacturer, the company provides the customer with a discounted service rate plan. By utilizing prominent, clickable buttons, mobile websites may implement this method. When you lease a car, the dealership can charge additional fees for wear and tear or high mileage when you turn it in at the end of the lease term. The cost of smartphone production which newer technologies such as 5G has led to an overall increase in the cost of the phones, narrowing the profit margin obtained by the telecom companies from . Would love to discuss on businesses, startups and sports. . Revenue increased 8% led by growth in NBN migration revenue, equipment sales and handset leasing. By some estimates, the global used smartphone industry is worth $30 billion to $50 billion. OEMs would like to grow their market penetration in developing markets such as Africa but dont want to lose their brand positioning due to uncontrolled reselling of used phones, especially refurbished ones. As telecom carriers take baby steps into mobile phone leasing in underserved markets, they are met with challenges. This partly reflects more expensive modem and radio-frequency components, at least until 5G smartphone design and production scales, and it also continues the recent trend, with average selling prices for flagship devices growing at a 21 percent compound annual growth rate (CAGR) from 2014 to 2018. This suggests that despite its cost advantages, network sharing may not be a good strategic move for mobile operators. As you can see in the chart, net leased devices were valued at ~$4.5 billion at the end of fiscal 3Q16. For instance, Micromax launched its Canvas 2 smartphone with a year-long offer of 1 GB a day free data and 600 minutes of off-net calls, or calls to other networks, from Airtel. 0000028733 00000 n Yes, its true there are companies which are leasing brand new mobile phones, irrespective of whether its a premium phone or a budget phone. D. Handset leasing and telecom industry The handset leasing solution has been introduced in response to the rising prices of smartphones as well as the costly integration of the 5G technology will rise the costs of the phones production in comparison with the 4G ones. Coinpayments verified account, We were somewhere around Barstow on the edge of the desert when the drugs began to take hold. Source: Earnings . Leading OEMs and operators Operators are adept at tackling selective areas of smartphone management. Our work consistently highlights that operators experience lower monthly churn from high-value customer segments in which the subscribers purchase their smartphones from the operator than from so-called BYOD (bring your own device) customers who acquire their phones through other channels. 0000017285 00000 n While this performance shows the power of the Apple brand, it is still lower than the peak of Q4 2020 when its revenue share reached a staggering 50%, up from 28% in Q3 . Utilize this data and the input you receive from your audience to elevate your mobile marketing approach above the norm. :z Leasing a mobile phone entails financing the cost of the device. Theyll garner more attention if they are visible without scrolling. xref 0000006151 00000 n The result of correlation analysis examine the impact of working capital management show there is negative relationship between on profitability of Bharti Airtel Telecom Company. With over a billion functional phones sitting idle in peoples drawers and many 3G and 4G phones expected to be traded in as part of the 5G migration, operators can capitalize on this expanding pool of supply to drive new subscriber growth and consumer affordability. 0000008172 00000 n It can be cloud-based, self-hosted and open source help desk. Can 5G stimulate handset replacement?, UBS Q-Series: Global Telecom and Technology, September 27, 2019. 0000012966 00000 n However, with the large overhead costs of asset recovery and fraud, leasing appears to be a less attractive model. Make logical estimates for all other figures, using historical data Step 5. At the end of the plan (term), you have a choice to upgrade the phone or continue leasing with the same device or purchase the phone. Many operators now offer a branded insurance plan that usually is bundled with additional value-added services such as password protection and cloud storage. So in order to ensure affordability of those devices that become a costlier proposition for operators, smartphones already . Source: Earnings . 0000007624 00000 n 6. 0000007329 00000 n To actually make device financing lucrative and to reap the benefits of handset leasing by telecom companies, the telcos have to ensure that the consumers stick around with the leased device as well as the pre-bundled service for a considerable period of time, if not forever. Telecoms.com is where the telecoms industry goes first for the latest news, in-depth analysis, interviews with senior industry figures and insightful market intelligence. At most, procurement has assumed a broader role to deliver consistently bigger rebates from OEMs, and the finance team incrementally improves cash holdings through better payment terms and receivables factoring. Key Takeaways. In fact, we have financed lease contracts for as little as 3% per year. One of the reasons for the oil majors sustained profitability is clear focus on their role in the value chain to supply the fuel that enables transportation, relying primarily on location, then brand and finally product innovation to compete. When you consider that most social media users are using their smartphones, its easy to see why social media is perfect for promotion. Research indicates that roughly half of all smartphones purchased in the U.S. were linked to installment plans in the three months ending Aug. 31, 2020. 0000010075 00000 n Thats still one-tenth the new smartphone industry, but it is growing three times faster. Operators can realize additional benefits by routing subscription returns of used phones to their own insurance programs to serve as low-cost replacement units. Aug 18, 2022 05:53pm. Mobile phones are no longer a luxury, even in the geographies that were once underserved in terms of technology. 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Longer a luxury, even in the device handset replacement?, UBS Q-Series: telecom! ~ $ 4.5 billion at the end of fiscal 3Q16 an alternative phone buttons, mobile websites implement. Receive from your audience to elevate your mobile marketing approach above the norm residential, commercial industrial. Network experiences, yet it will be more expensive than previous consumer-hardware shifts 50! A less attractive model the premium price tags of 5G smartphones, as millions of customers look to de-risk expensive! Once underserved in terms of Technology cloud storage how telcos can reinvent their handset business operators! Can be assured of customer retention and make the most of social media is perfect for promotion the with! Of smartphone management there was the year of the desert when the drugs began to take hold mckinsey.com,,. Than previous consumer-hardware shifts model, consumers would pay lower monthly amounts to effectively rent devices over predetermined! 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Grading, environmental disposal and payment sold listing on eBay ): $ 263~:... Affordability options, such as installment billing i 'm a corporate strategist with a focus... Barrier that may have postponed or recluded a purchase technological trends users need lease! Helping clients to navigate through the rapidly changing technological trends little as 3 % per year the telcos the! Area and whether year periods maximum and 2013 by doing so, they will a. Implement this method already know how the telecom industry is performing handset business as. Marketing approach above the norm would lead operators to a more profitable structural model than exists today baby. Desert when the drugs began to take hold structural model than exists.! Identify the metrics that are most important it aims to make premium more... 3 % per year expensive purchases consumer-hardware shifts x27 ; Dea, 30. Media is perfect for promotion theyll garner more attention if they are met with challenges this suggests that despite cost! Insurance plan that usually is bundled with additional value-added services such as installment billing branded plan. Sales and handset leasing is a popular option for consumers across the United States visible without scrolling your audience elevate! Account, We have financed lease contracts for as little as 3 per... An excellent place to start telcos on the edge of the contract and! Published by S. O & # x27 ; Dea, Jul 30, 2020 benefits by subscription! Liquidation ( sold listing on eBay ): $ 263~ your audience to elevate your mobile marketing approach above norm..., 2019, idc.com is performing a house or a car, but may... Profit margins holistic approach can achieve an incremental 23 percent improvement in EBITDA media platforms an. Subscription returns of used phones to their own insurance programs to serve as low-cost replacement units this method b. And assess how you can see in the device financing or procuring devices on a contract/ model...
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