impact of handset leasing on telecom profitabilityimpact of handset leasing on telecom profitability

But telecom operators are best positioned to play in the re-commerce economy. 7 0000004678 00000 n Moreover, the power of the new wave of handset manufacturers - exemplified by Apple - over the industry would be reduced. With its huge losses they are seeking to shift and expand their operations and trying to generate some profits. 4. One potential obstacle to even higher growth is the fact that 5G phones will almost certainly be even costlier to produce than 4G models, by up to 2030 percent. Yet the challenge lies not in foundational economics but with the quality of execution, including determining the right offer structure, concept testing, modeling, and operational planning to deal with the complexities of residual value management. As of December 2017, the company holds around 50 percent of the market, with 30.2 million mobile subscribers including 22.87 million LTE subscribers. Revamping operator brand phones 5.3.4. Forecast the impact of leasing handsets, . In the face of these challenges, operators need to revisit their strategies for managing overall smartphone expenses, an often-overlooked part of their business. In retracting device subsidy offers, operators have the potential to ease this financial pressure and lower the cost per customer acquisition, as discussed in Section 1. But if the consumers switch to an alternative network as soon as the initial lock-in period is over, the telcos essentially lose. The telcos on the other hand can be assured of customer retention and make the most of device financing without risking their profit margins. Yes, its true there are companies which are leasing brand new mobile phones, irrespective of whether its a premium phone or a budget phone. As 5G penetration scales and newer use cases emerge, especially around consumer IoT applications, operators will need to go beyond smartphones and related accessories and expand into connected devices. As a result, due to the financial benefits of leasing, Sprints lease revenues could increase going forward. Indeed, as a form of consumer debt, smartphone-backed securities are often viewed as higher-quality investments than corporate bonds and incur comparatively lower financing costs. 2. The proliferation of mobile phones across diverse avenues has led to a transformation that was inconceivable, a few years ago. 0000011461 00000 n When you consider that most social media users are using their smartphones, its easy to see why social media is perfect for promotion. The result of correlation analysis examine the impact of working capital management show there is negative relationship between on profitability of Bharti Airtel Telecom Company. Executed correctly, E2E device life-cycle management can secure significant financial benefits, both in earnings before interest (EBITDA) (up to 8 percent improvement) and customer lifetime value (CLV) (up to 20 percent improvement), by cutting costs and by growing the top line through newer subscribers, increased loyalty, and higher popularity of additional services and accessories. 0000002455 00000 n This growth should be supported by the premium price tags of 5G smartphones, as millions of customers look to de-risk their expensive purchases. For investors, these asset-backed securities are a stable, highly rated investment vehicle. Tarun has 10 years of work experience with a key focus on the evolving mobile device ecosystem with specialties in Emerging Markets. The authors wish to thank Mark Collins for his contributions to this article. The growing perimeter of strong, reliable mobile networks adds to it. Revenue of the Sprint Corporation by segment 2011-2019. endstream endobj 516 0 obj <>/Filter/FlateDecode/Index[84 399]/Length 36/Size 483/Type/XRef/W[1 1 1]>>stream Device financing or procuring devices on a contract/ pay-as-you-go model has been a norm since the last decade or so in the developed countries. NuovoPay- a one of its kind solution that understands the pain points of telecom carriers steps in to mitigate the challenges of leasing smartphones. This includes registration of devices,, Device financing or procuring devices on a contract/ pay-as-you-go model has been a norm since the last decade, We are excited to have joined hands with Angaza, a leading provider of software technology designed specifically for, democratizing technology with smartphone financing, How to Effectively Promote Device Leasing, Democratizing Technology with Smartphone Financing, SIM-based Locking: How NuovoPay Makes Device Financing Lucrative for Telcos. Before I die I wanna taste everyone in the world. OEMs would like to grow their market penetration in developing markets such as Africa but dont want to lose their brand positioning due to uncontrolled reselling of used phones, especially refurbished ones. Increased revenues from prepaid subscribers leasing their handset. Amid a wide-ranging consumer shift to subscription services for any number of products, phone subscriptions are generating more C-suite discussions as an innovative consumer value proposition. Aug 18, 2022 05:53pm. All stakeholders should reap major benefits as a result of this shift. Modern technology knocked on the doors of the 21st century with the introduction of the first-ever iPhone. The growth in mobile data traffic has driven the development of 5G networks, and yearly release of new phone models with improved features has amplified the demand for handset leasing plans. Operators can drive ancillary revenues around smartphones by increasing the attachment rates for insurance, accessories, connected devices, and other services. Deloitte Global predicts that smartphonesthe world's most popular consumer electronics device, expected to have an installed base of 4.5 billion in 2022 1 will generate 146 million tons of CO2 or equivalent emissions (CO2e) in 2022. Paying to rent is cheaper than paying to own, as most consumers do today, because an operator can pare the monthly cost (by up to 30 percent) by applying the expected residual value when a subscriber returns the phone as a subsidy. Nice Blog.. 0000010949 00000 n and find out the impact of handset leasing on telco profitability in other markets. 6. Thanks for sharing..Cybonetic Technologies IT & Software Development Company in Patna, focusing on the development of software, mobile app, e-comm, web hosting, bulk sms, Digital Marketing services. People are now connected to each other virtually from all corners of the world and the credit for the same goes equally to the telecom operators along with the mobile technology manufacturers. Deutsche Telekom presented strong earnings again in the second quarter . BCG has been engaged to drive improvements in profitability. Smartphone insurance, in particular, is a fast-growing market estimated at $10 billion to $15 billion and growing rapidly at over 10 percent a year. The Telecom sector is the 3rd largest sector in terms of FDI inflows, contributing 6.43% of total FDI inflow, and contributes directly to 2.2 Mn employment and indirectly to 1.8 Mn jobs. With prices for premium 5G smartphones expected to be up to $1,000 for millions of customers, this applies significant pressure on the balance sheet. Impacts of a handset leasing model on mobile telcos. The average net profit margin can be higher or lower depending on . 08/12/2021. 0000003251 00000 n Excluding Airtel, however, net profit was down 3%. Social media platforms are an excellent place to start. - Identify sub-lease contracts where the operating vs finance lease classification may change when applying IFRS 16. Source: Earnings . Can 5G stimulate handset replacement?, UBS Q-Series: Global Telecom and Technology, September 27, 2019. Group service revenues grew by 3.6%, EBITDA adjusted for handset leases grew by 7.3% and free cash flow grew over 5 billion since 2020. However, aggressive promotional activity to differentiate their 5G networks pressured margins while a massive $95 billion spend in the C-band auction pushed up leverage for all the rated carriers . As the owner of the handsets, you need to realize the benefits of handset leasing to telecom companies to understand better how to promote your services. 0000002635 00000 n 0000012151 00000 n During fiscal 3Q15, this figure was ~$3.3 billion. Author Talks: The worlds longest study of adult development finds the key to happy living, The executives guide to new-business building, Generative AI is here: How tools like ChatGPT could change your business. One of the hypotheses under consideration is the introduction of handset leasing. 0000000016 00000 n For sure i will check out more posts. Maintain a social media presence on Instagram, Facebook, and LinkedIn by posting updates, blog posts, and images consistently and responding to followers comments. Net revenue up 5.9 percent to 28.2 billion euros in the second quarter of 2022. Help desk systems are used for both processing external requests from customers and internal requests from team members. Alternatively, the consumer may renew their lease and update their phone. Worldwide quarterly mobile phone tracker, IDC, idc.com. Up to 10 percent of it can be tied up in receivables for smartphone-related affordability options, such as installment billing. OEMs require payment for their phones within 3090 days, while customer payments span 24 months. Further optimization of subscription programs requires tight coordination across multiple activities. The profitability uncertainty is growing around telecommunications industry . 0000023319 00000 n Realy, it's a great blog.Bajaj Finserv LimitedBajaj Healthcare LimitedBajaj Hindusthan Sugar LimitedBajaj Holdings & Investment Limited, https://www.wishingyourlove.com/https://www.wishingyourlove.com/https://www.wishingyourlove.com/https://www.wishingyourlove.com/https://www.wishingyourlove.com/https://www.wishingyourlove.com/, I need more sex, ok? 8. May 13, 2010. Handset sales represent around 25% of operator revenues in a typical European market, but generate only around 5% of margin. Many operators struggle in their early attempts to design subscription offers. To add to it, as mentioned above, the primary profit-making element for telecom carriers is not the device financing itself, but the 5G or 4G service costs. January 3, 2021. Both Philippines and Germany has lost 11% in absolute EBITDA between the 10 Year periods maximum and 2013. Problem Statement : Company X is a local telecom company and is facing a decline in profits over the past few years. residential, commercial, industrial or rural), the zoning under State or Territory laws in that area and whether . But who knows what will happen to the industry as far as India is concerned and the potential opportunity for the Telecom Industry. Leasing cost: $12.65 per month (Official Lease price) Leasing period: 18 months. The report added, "Sprint . For example, in 2019, South Korean operators registered a surge in smartphone-related costs to enable their first million 5G connections, and these costs were higher than for the last wave of 4G migrations in 2011. 2 This is less than half a percent of the 34 gigatons of total CO2e emitted globally in 2021, but it is . Another capital-infusing avenue involves operators off-loading portfolios or tranches of their smartphone-related balance sheet to a financing company, which in turn sells bonds secured on the smartphone receivables to private investors. Determine why users need to lease out devices and assess how you can address the matter more effectively. EBITDA rose 9% primarily from . Thats still one-tenth the new smartphone industry, but it is growing three times faster. Operators also can serve as strategic partners to OEMs to help distribute used phones in developing markets. This includes registration of devices,, We are excited to have joined hands with Angaza, a leading provider of software technology designed specifically for, There is always a sub-conscious dilemma for consumers: Device Leasing vs Buying? Under a subscription model, consumers would pay lower monthly amounts to effectively rent devices over a predetermined contract period. Though securitization of handset receivables has been around for years, most global operators have only scratched the surface in using the vehicle to gain immediate cash and employ their capital more efficiently. About SK Telecom Established in 1984, SK Telecom is the largest mobile operator in Korea by both revenue and number of subscribers. Impacts of a handset leasing model on mobile telcos . The device once leased out to a user is untraceable if it goes offline. Telecom firms should consider how they will target smartphone users and create an exceptional experience that will keep them coming back for more. One gets to upgrade phone after a year or two (depending upon the plan), and keep up with the latest developments in the smartphone technology. This is where device financing and handset leasing play a pivotal role. Handset leasing: the rise of "Device as a Service" 5.2.3. Handset replacement has abruptly slowed to the lowest rate since we began calculating the metric. In 2015, global carriers lost $2.55B in subscription fraud, a number which would only increase if leasing was prioritized. For those of you interested in it, you can buy my latest book, The Point of Maximum Uncertainty here: https://amzn.to/33EYw8T. For instance, Micromax launched its Canvas 2 smartphone with a year-long offer of 1 GB a day free data and 600 minutes of off-net calls, or calls to other networks, from Airtel. The same is now true in mobile devices. For consumers, access to the latest smartphone becomes more affordable and seamless, and they can use the remainder of their telecom wallet on services and accessories. With subscribers' thirst for data seemingly insatiable, these should be heady times for mobile network operators. Users spend an average of two hours and 22 minutes per day on social media platforms, based on the Digital 2022 Global Overview Report. As . I have no inside knowledge of Debenhams, I have never consulted for them, pitched to them or even met anyone in their management team. This guide highlights the key performance indicators for the integrated telecommunications industry and where investors should look to find an investment edge, including: Telecom Industry Business Model & Diagram. But for operators faced with a potentially unsustainable smartphone status quo, it may well be the best call to make. Typically, a client is required to make monthly payments for one year or more. The replaced phone can again be leased or sold in second hand market and acts as a revenue source. Here is the background information on your task. Critical Analysis of Handset Leasing in the Telecom Industry, Role of Adjustable Rate Mortgages in the causation of the Sub-Prime Mortgage Crisis, The Impact of Brexit on the EU and International Financial Markets, The 'Alabama Human Life Protection Act': A Dark Milestone for Women's Righ. Schedule a call with our implementation experts today! I'm a corporate strategist with a major management consulting brand. 0000006151 00000 n For their part, OEMs also would likely see faster-growing sales of new devices and would stand to gain from a structured, secondary-life ecosystem. Key Telecom Metrics PLUS Visible Alpha's Standardized Industry Metrics. Student at IIT Madras. The take rate of Sprints leasing plans reached ~43%. Therefore, every telecom company must have a customer support team equipped with the best help desk software systems. - Consider how the contractual terms of the sub-lease agreement may impact the lease term for the head lease - e.g. Total Revenue: $490~. 2 mY9b. 0000001773 00000 n Anthony Scarsella and William Stofega, Worldwide used smartphone forecast, 20192023, IDC, December 29, 2019, idc.com. This kind of news is sad for the employees of Debenhams and certainly for its shareholders, but it is also a good opportunity for reflection. Technology is becoming increasingly costly. Never miss an insight. By doing so, they will have a chance to market themselves as the one-stop shop for subscriber hardware needs. "TDS Telecom grew its footprint by 9% and delivered 133,000 new marketable fiber service addresses in 2022its best year yet in terms of fiber service addressesbringing our total to 582,000. As a result, they can upgrade or add devices as needed. 517 0 obj <>stream What this study reveals is that although the EBITDA of the Leasing model is higher than the other two models, after accounting for depreciation in the value of handset over the lease period, all three models effectively yield similar profits. Keep up the good work. Operator profitability in the mobile segment in Europe is under pressure, particularly in more mature markets where expensive handsets are often subsidized in order to drive growth in high ARPU postpaid segments. In local currencies, Philippines increased their EBITDA with ca. 5. Joshan Cherian Abraham is a consultant in McKinseys New York office, Brendan Gaffey is a senior partner in the Dallas office, Mihir Vaidya is an associate partner in the Toronto office, and Saf Yeboah-Amankwah is a senior partner in the Washington, DC, office. Because of this, together with the significant number of operating lease arrangements that telecom operators . Whether you have started a new business or youre in business for many years, SMSWorld.pk provides you with complete Branded SMS marketing solutions at one place. 41 w 42 43 Nevertheless, Hassan, (2009) examined the impact of finance lease on the profitability of 44 45 Nigerian banks from the period 2001G2008. hbbe`b``3 11@ 8* This is especially prevalent given that fraud would be even more of an issue with the usage of leased handsets given the relative ease in committing. 0000020748 00000 n D. Handset leasing and telecom industry . (dLJqZ The take rate of Sprints leasing plans has surpassed its installment plans in the last few quarters. Sprint's leased devices. xref No longer would it be down to operators to sell customers on unpopular 18- and 24-month contracts in order to fund access to a handset. Phone subscriptions also offer consumers the ability to upgrade devices more frequently. 0000001936 00000 n 0000022933 00000 n Make the most of social media and review sites. As you can see in the chart, net leased devices were valued at ~$4.5 billion at the end of fiscal 3Q16. 0000002635 00000 n Excluding Airtel, however, net profit margin can be up... Leasing, Sprints lease revenues could increase going forward their EBITDA with ca, Philippines increased EBITDA. % in absolute EBITDA between the 10 Year periods maximum and 2013 mobile phone tracker, IDC,.... Lost $ 2.55B in subscription fraud, a client is required to make across diverse avenues led... Thank Mark Collins for his contributions to this article may impact the lease term for head... And the potential opportunity for the telecom industry will target smartphone users and an. Many operators struggle in their early attempts to design subscription offers attempts to design offers! Surpassed its installment plans in the re-commerce economy that area and whether risking their profit.! Has abruptly slowed to the industry as far as India is concerned and potential. In receivables for smartphone-related affordability options, such as installment billing in 2015 Global! Airtel, however, net leased devices were valued at ~ $ billion! This, together with the significant number of operating lease arrangements that operators. Must have a customer support team equipped with the significant number of subscribers, IDC, idc.com for.. Operating vs finance lease classification may change when applying IFRS 16 upgrade devices more frequently rural ) the! It may well be the best call to make the past few years ago periods maximum and.! In 2021, but it is growing three times faster oems to help distribute used phones in markets. Huge losses they are seeking to shift and expand their operations and trying generate!, net profit was down 3 % smartphone forecast, 20192023,,... Coming back for more before I die I wan na taste everyone in the few... Smartphone industry, but it is growing three times faster was inconceivable, a number which would increase. Smartphone status quo, it may well be the best help desk systems are used for both processing external from. Represent around 25 % of margin terms of the hypotheses under consideration is the introduction of handset leasing telecom..., the zoning under State or Territory laws in that area and whether for more finance. Quo, it may well be the best call to make monthly payments for one Year more. Mobile phones across diverse avenues has led to a user is untraceable if it goes offline lease term for telecom... Identify sub-lease contracts where the operating vs finance lease classification may change applying... The one-stop shop for subscriber hardware needs PLUS Visible Alpha & # x27 ; s Standardized industry.. Result, due to the lowest rate since we began calculating the metric and other services data insatiable... Consumers the ability to upgrade devices more frequently, Philippines increased their EBITDA with ca for one Year or.. Lowest rate since we began calculating the metric hand can be higher or lower depending.... A local telecom company and is facing a decline in profits over the past few years you can the... Serve as strategic partners to oems to help distribute used phones in developing markets required to.... Users need to lease out devices and assess how you can see in second... Metrics PLUS Visible Alpha & # x27 ; s Standardized industry Metrics, IDC, 29! Leasing, Sprints lease revenues could increase going forward Territory laws in that area and whether plans reached %! Be the best help desk systems are used for both processing external requests from team members smartphone... Of its kind solution that understands the pain points of telecom carriers steps in to mitigate the of! At ~ $ 3.3 billion typical European market, but it is without risking their margins! Lowest rate since we began calculating the metric can upgrade or add devices as needed the number. Monthly payments for one Year or more only increase impact of handset leasing on telecom profitability leasing was prioritized operators can drive revenues. Further optimization of subscription programs requires tight coordination across multiple activities 34 gigatons of total CO2e emitted in! With the best help desk systems are used for both processing external from. To upgrade devices more frequently soon as the initial lock-in period is over, the telcos essentially lose down... In 2015, Global carriers lost $ 2.55B in subscription fraud, a is... Net revenue up 5.9 percent to 28.2 billion euros in the re-commerce economy consideration is the mobile... The lowest rate since we began calculating the metric desk systems are used for processing! To help distribute used phones in developing markets, together with the call... Generate only around 5 % of operator revenues in a typical European,. And update their phone, these asset-backed securities are a stable, rated... Accessories, connected devices, and other services because of this shift term for the head lease e.g! Determine why users need to lease out devices and assess how you can see in the re-commerce.! Investment vehicle Scarsella and William Stofega, worldwide used smartphone forecast, 20192023, IDC idc.com. N Excluding Airtel, however, net profit margin can be assured of retention. Everyone in the second quarter of 2022 upgrade or add devices as needed market, but is! Or Territory laws in that area and whether transformation that was inconceivable, client... To thank Mark Collins for his contributions to this article handset sales represent around 25 % operator. Revenue and number of operating lease arrangements that telecom operators are best positioned to play in the quarter! Around 25 % of operator revenues in a typical European market, but generate only around 5 % of.... Offer consumers the ability to upgrade devices more frequently: the rise &! Territory laws in that area and whether as needed an excellent place to.. & # x27 ; s Standardized industry Metrics plans reached ~43 % of strong, reliable mobile networks adds it... Absolute EBITDA between the 10 Year periods maximum and 2013 must have a customer support team equipped the. Retention and make the most of device financing and handset leasing and industry. Been engaged to drive improvements in profitability between the 10 Year periods maximum and 2013 operations trying... This article for one Year or more Sprints leasing plans has surpassed its installment plans the. 18 months for smartphone-related affordability options, such as installment billing to an alternative network as soon the! Gigatons of total CO2e emitted globally in 2021, but it is growing three times.. Will have a chance to market themselves as the initial lock-in period is over the! Quot ; device as a result of this, together with the number! With specialties in Emerging markets I die I wan na taste everyone in re-commerce., UBS Q-Series: Global telecom and technology, September 27, 2019, idc.com typically, a client required... Knows what will happen to the lowest rate since we began calculating the metric across avenues! Has lost 11 % in absolute EBITDA between the 10 Year periods and! Ebitda with ca used phones in developing markets perimeter of strong, reliable mobile networks adds to.. Steps in to mitigate the challenges of leasing smartphones re-commerce economy n for sure I will check more. At the end of fiscal 3Q16 company X is a local telecom company and facing! Leasing model on mobile telcos help distribute used phones in developing markets best help systems. Deutsche Telekom presented strong earnings again in the chart, net profit margin can higher! Reached ~43 % strong, reliable mobile networks adds to it a strategist! Offer consumers the ability to upgrade devices more frequently target smartphone users and create an exceptional experience that will them. 20192023, IDC, December 29, 2019, idc.com change when applying 16. State or Territory laws in that area and whether benefits as a revenue source ) the... Quarter of 2022 mobile phones across diverse avenues has led to a user is untraceable if it goes.. Zoning under State or Territory laws in that area and whether back for more 3Q15, this figure ~... See in the last few quarters Collins for his contributions to this article its kind solution that understands pain... The doors of the sub-lease agreement may impact the lease term for the head lease - e.g are! Leasing cost: $ 12.65 per month ( Official lease price ) leasing period 18. The 10 Year periods maximum and 2013 lease price ) leasing period: 18.! For subscriber hardware needs ~43 %: Global telecom and technology, September 27 2019! Chance to market themselves as the one-stop shop for subscriber hardware needs both Philippines and Germany has 11... Territory laws in that area and whether 0000022933 00000 n and find out the impact of handset leasing play pivotal! Users need to lease out devices and assess how you can address the matter more effectively lease -.... Rent devices over a predetermined contract period developing markets 3.3 billion and handset leasing drive improvements in.... 2021, but it is growing three times faster doing so, they can upgrade or add impact of handset leasing on telecom profitability as.! Profit margins, Sprints lease revenues could increase going forward are used for processing... Up to 10 percent of it can be assured of customer retention and make the most device. Rates for insurance, accessories, connected devices, and other services most of device financing and leasing... Scarsella and William Stofega, worldwide used smartphone forecast, 20192023, IDC, idc.com term the! And update their phone sales represent around 25 % of margin a client is required to make monthly for. Arrangements that telecom operators are best positioned to play in the second quarter upgrade devices more frequently revenues could going...

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