A few years ago, I tried to estimate the total annual market value of handset subsidies by mobile operators. I seem to recall that I came out with a figure of perhaps $20-30bn a year.
Roughly speaking, that's perhaps 400m of the world's phones sold annually that are subsidised / bundled, at perhaps an average $60 each. The exact numbers are unimportant for this discussion.
Most of these are 'locked in' to contracts of typically 12-24 months. So in other words there's probably >$30bn of subsidised handsets in users' hands at any point in time.
This begs a couple of questions:
1) If you look at the relative price of similar subsidised / unsubsidised contracts+phone combinations (for example looking at markets like Italy or Finland for which subsidy is unusual or illegal), what's the implicit cost to the consumer of financing their handset purchase? What's the APR (annual percentage rate) on that loan? And if it's higher than normal retail financing (say in comparison with an electronics retailer) is there a market opportunity for 3rd-party "phone loans" at cheaper rates?
2) Should mobile operators be forced by regulators (telecom and/or banking) to either unbundle phone+finance+subscription, or at least quote an implicit APR on the financing?
3) Do mobile operators really want to be in the consumer credit business at the moment? And how do they quantify their exposure to credit risk?
Dean Bubley's Disruptive Wireless: Thought-leading wireless industry analysis
More importantly, if it does constitute financing, why isn't it governed by the Consumer Credit Act and regulated by the FSA?
ReplyDeleteVery good point!
ReplyDeleteAs a followup… I've asked the FSA what their official position on this is. I'm not expecting much of a helpful response, in all honesty, but I have a few MPs and MSPs I could ask.
ReplyDeleteOn balance, I think if they are loans in all but name, consumers are very likely being shafted, and given the various debt crises that have been erupting over the past couple of years, it seems to be something that the Powers That Be would be keen to avoid.
I wonder how the subsidies are report on the operators balance sheet? If they are not funding it out of cashflow are they using the money market or similar mechanism to fund the subsidy. If they are then it is possible that the current credit crunch could make the subsidisation of mobile phones too costly.
ReplyDeleteWhich could lead either to reduction in the amount of subsidisation provided by the operators or even the complete removal of subsidisation.
Do any of you actually work in the mobile industry?
ReplyDeleteWonderful display of ignorance above.
Ah, judging from the syntax, this will be the same Mr Anonymous who seems quite happy that mobile operators mislead their investors with regard to subscriber numbers.
ReplyDeleteI'm sure your sense of financial ethics extends to adequate disclosure of other relevant metrics.
You'll notice that the whole post is positioned as a question, and not a rhetorical one - you're quite right, I don't know how this works, which is why I asked.
You don't get the whole 2-way nature thing about blogs, do you? (Yes, that one was rhetorical).
Any future content-free comments of this type will be deleted. Happy Xmas.
As a very very belated follow-up to this, I've finally got around to asking the OFT (I originally asked the FSA, who told me it wasn't their bag).
ReplyDeleteThe OFT were very helpful, and sent back a detailed e-mail explaining under which circumstances mobile phone contracts were (at least in part) and weren't caught by the Consumer Credit Act.
I've sent back a couple of further queries, one requesting permission to reproduce the content of the e-mail, the other to ask if mobile phone resellers and operators should, in line with other forms of consumer credit regulated by the Act, be obliged to detail what proportion of the monthly charges constitute a loan repayment, and how much effective interest is paid on it (as well as, potentially, allow the subsidy to be paid up-front, thus avoid any form of credit).
I'll post a link when I get some deeper answers that I can put up somewhere.