Singapore telcos, these four strategies will lower your smartphone subsidies

Delta Partners runs down the tried-and-tested tactics for reining in subsidy costs.

• Prolonging handset lifecycles. A Bring-Your-Own approach adopted by Telstra that offers monthly discounts to consumers who switch provider and keep their previous device.
• Lengthening the customer renewal process. AT&T has lifted fees charged to customers who wish to upgrade their handsets before the end of their contract.
• Discount optimisation. Offering "reverse subsidies" where customers receive a monthly fee reduction instead of a free handset, implemented by Bharti Airtel and China Mobile.
• Managing data economics. Using deep analytics to optimise the relationship between smartphone and data pricing.

"Which option is best depends on an operator's market position, environment and cost pressures," notes Delta Partners Senior Associate Anna The strategies were gleaned from looking at leading operators such as Telstra, AT&T and Bharti Airtel.

As telcos focus on capture the fast-growing smartphone user market, which in Singapore has reached 72% according to latest Nielsen numbers, telcos have also taken on an enormous chunk of subsidies. 

"Subsidies now run at several hundred dollars per device allowing telcos to offer smartphones to consumers for free or at a heavily reduced price. The hope is that resulting data revenues will make the economics work, but it has risen now to become one of the largest operational cost items at 18 percent of revenue for many operators," said Delta Partners.

"This is a hot topic for telecoms executives worried about the costs associated with rising smartphone penetration," says Delta Partners Principal Mar Pages. "Telcos that address this issue now can gain several points of EBITDA margin without impacting competitiveness."