Mobile operators need to break their mobile device subsidy habits in the face of competition for revenue share from OTT providers, ABI Research warns.
Operators are not reaping the return on investment from their subsidy spending, because revenue growth worldwide is falling behind connection growth.
The research firm estimates that the CAGR of mobile connections between 2008 and 2013 has been 10.9%, compared to a mere 4.2% CAGR for service revenue.
Besides the OTT threat, regulations, the trend towards multiple device ownership and competitive price pressures are all expected to put pressure on cellcos' device subsidy habits over the next two years, research from the firm shows.
“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,” ABI Research senior practice director Nick Spencer said.
He said device subsidy accounts for 68% of the revenue derived from a typical 24-month contract.
In the face of the pressures on subsidies, and the ever-shortening lifecycle of smartphones, operators should consider introducing more flexible options for consumers to purchase devices. “Transparent and outsourced subsidy is one such option,” Spencer said.