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Tuesday, August 07, 2007

Reverse subsidy model

I'm starting to see a polarisation among wireless devices:

- ordinary mobile handsets, which in many countries are subsidised heavily, especially for contract users. The monthly subscription essentially pays for the phone.
- alternative consumer devices (especially WiFi based), in which the consumer pays for the device, but this one-off payment includes a subsidised subscription, often for a year.

In the latter category are things like a year's T-Mobile US WiFi with a Sony Mylo, access at The Cloud's hotspots with a Nintendo DS, and this rather useless GPRS web terminal

The device-purchase-subsidises-the-service model is nothing new - the GPS-based Tracker in my car takes the same approach, for example. The interesting thing is that certain products consumers expect to pay for, while others (eg mobile phones, set-top boxes) they expect to get for free/little. From the service provider's perspective it's a double-edged sword - on one hand, they get the cash upfront, cheaper billing systems and don't have to worry about credit checks. On the other, they get no easy route to upsell extra services, nor any regular means of marketing or even contacting the customer. It also makes it complicated to offer so-called 'premium' services like roaming without a payment mechanism being available.

On the other hand.... customers often don't want to be marketed at continually, or be locked-in to a regular subscription with open-ended possible premium payments.

I reckon the reverse-subsidy model has a long way to go. I'm wondering how long it is before a mobile operator offers a completely pre-paid phone. A low-end handset plus 1000 locked 'lifetime' minutes, or 200 minutes per month for a year, could be sold for say £100 all-in. A laptop could come with an extra option of a year's WiFi for £100, or a year's on-net HSDPA for £200 (with fair-use restrictions, obviously).

Next thing to watch out for here? The pricing model for BT's upcoming Sony PSP....

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