Mobile operators need to give up their habit of subsidizing mobile devices, according to a new study from ABI Research.
The report claims that operators are not reaping any return on the investments they are making to lure customers on to more expensive smartphone tariffs.
Indeed, according to ABI, the over-the-top providers are the ones that are benefiting from operators’ largesse as they take revenue share.
Meanwhile, operators’ revenue growth is failing to keep pace with the increase subscriptions or connections, as well as the cost of subsidizing expensive smartphones.
Between 2008 and 2013, for instance, the number of connections globally increased at a compound annual growth rate (CAGR) of 10.9%, while service revenues grew at a CAGR of 4.2%.
ABI also notes that device subsidies represent the single largest cost to carriers over the lifetime of a subscriber’s contract, at 68% of the revenue derived from a typical 24-month contract.
According to the company, a number of factors are set to increase the pressure on device subsidies in the next two years, including over-the-top revenue loss, competitive price pressure, regulation and multiple device ownership.
“Carriers 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, a senior practice director with ABI.
“Carriers need to consider a more transparent and varied way for consumers to purchase their mobile devices,” added Spencer.
ABI advises operators to be more transparent in their dealings with customers and also look to outsourcing as an alternative.
It reckons gradual and strategic use of transparency and outsourcing could educate customers about the costs of the device and reduce the risk and burden for operators.