Nothing new under the sun, even in mobile broadband
I'm looking forward to the mobile broadband discussion on the 25th September. I'm sure it'll be a thought-provoking event. I'm looking forward to participating in my first Intellect event.
Just to set the ball rolling, a particular development caught my eye this week. It was the partnership between Vodafone and Dell to launch a laptop embedded with mobile broadband. This builds upon the bundling deals announced between many of the MNOs and an array of laptop manufacturers in the last few months: T-Mobile with Acer, 3 with HP, Orange with Asus.
This set me thinking. What they're doing is replicating the customer acquisition models used in traditional mobile contracts, i.e. device bundling and device-led offers. Following this model to its logical conclusion we will eventually see rapidly rising acquisition costs and subscribers churning every 2 years to get hold of a new laptop.
So far there hasn't really been any subsidy: the laptops are being sold at a small profit, albeit with the revenue spread over the 24 months of the typical contract. But that surely can't be maintained for long in an aggressive landgrab market.
MNOs are making a rod for their own back by bundling in devices. They will need to be very careful not to start subsidising. If they subsidise they'll face the double whammy of increasing acquisition costs and increasing churn. If subscribers can get a discounted device every 2 years, they'll demand it or they'll churn. If they have to pay the full price, they'll be a little more parsimonious and probably more loyal.
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1. At 9 Sep 2008 10:50, Stephen Hearnden wrote:
There is no customer loyalty in the mobile business. The market is saturated and customers will churn at any opportunity. Acquisition costs far outweigh retention costs so anything MNOs can do to keep customers is a good thing providing they continue to make profits. Examining the laptop deals for a moment, these deals will lock a customer into a 2 year contract which is a good thing for the MNO and for the laptop manufacturer with declining sales this is an opportunity for them to reach users that they might not otherwise reach. Caution is fine but these deals represent some innovative thinking by the MNOs and IT manufacturers in a very tough market. They should be encouraged.
2. At 9 Sep 2008 13:34, Matt Hatton wrote:
I'm not convinced that there's no loyalty in the industry. 'Inertia' might be a better word for it though. According to an Ofcom survey last year, 60% of people in the UK have never churned. The high churn rates are a result of a small number of people moving a lot. Predominantly to take advantage of excellent handset offers. Compare the UK to markets like Italy where subsidies are negligible and churn is much lower.