There was much talk at last week's Mobile World Congress in Barcelona about the 'lifetime value' of subscribers and how to get them to pay more for services as ARPU plateaus and, in some cases, even declines. One method discussed was to try to get customers to sign-up to 3-year contracts (i.e. several epochs in terms of the development of mobile technologies). Martyn Warwick reports.
The operators want to attract punters with what, on the surface at least, appear to be cheap deals but are desperate to get away from the "all-you-can-eat" model that they claim is distorting the broadband data market and overloading mobile networks. One answer? Lock 'em in to 36 month contracts hedged around with punitive clauses that will allow subscribers to escape from contracts only by paying a hefty 'buy-out' fee.
When the great subscriber-grab was under way back in the 1990s, the 12 month contract was the norm. Not any more. The two-year tie-in is now de rigeur, with three years looming.
Such a contract would certainly be good for the operators and allow them to plan more effectively but it wouldn't be so beneficial for the manufacturers and would almost certainly be against the best interests of customers.
The fact is that in today's uncertain economic climate with job losses accelerating, consumer confidence on the slide and with most subscribers already signed-up to 18-month or two-year service contracts from which, even at that length of period, they might yet have to abandon as disposable income shrinks, the chances of any network operator convincing consumers willingly to lock themselves in to 3 years of technological and financial bondage are slim and getting slimmer.
Sure popular and feature-packed smartphones are often too expensive for consumers to buy outright and so they spread the cost by agreeing to long service contracts, but this state of affairs is also partly down to history and common practice on the part of the network operators who effectively subsidise handset purchase by disguising device cost in Byzantine contracts and lengthy service deals. Mobile phone operators have to claw back the cost somehow, and that's how it has traditionally been done.
In the UK, figures from the telecom regulator Ofcom show that, back in 2005, 88 per cent of mobile handset sales were effected via a 12-month service contract. In 2010, year-long contracts accounted for just 4 per cent of sales. I rest my case.
Meanwhile, new figures from the price comparison website uSwitch.com show that at the end of 1020 there were just 279 12-month contracts available compared to 676,000 18-month deals, 939 24-month contracts and 3,300 3-year mobile contract deals. I get in my case and close the lid and have a nap.
However, despite what the mobile operators may want, and a lot of big talk at Barcelona, 3-year contracts will end in May this year when new European Union legislation comes into force. What's more, the new regulations will not only put a stop to the 36-month tie-ins, operators will also have to offer all customer the option of a straightforward 12-month deal.
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