Report: Operators cut handset subsidies to safeguard data revenue gains

Signs that data revenues in Europe are starting to offset falling voice revenues is causing operators to quietly cut the high levels of subsidies they currently offer to new and upgrading smartphone customers, according to research firm Wireless Intelligence.

In a new study, the firm says that Vodafone Spain has announced that it will be halting the longstanding practice of subsidising smartphones for new customers. This follows a similar move by Telefónica's Movistar earlier in the month in a country where customer churn is second only to the UK in Western Europe.

The decision to rein in customer costs (Vodafone Spain reported £2.1 billion in the year to third-quarter 2011--equivalent to 50 per cent of its revenue) has led Vodafone Spain to instead offer free finance programmes for those who want to buy new handsets. Additionally, the operator launched a plan to repurchase old phones from upgrading customers.

Staying with Vodafone, Wireless Intelligence said that data revenues at its UK operation rose 20.3 per cent during 2011, from £715 million to £860 million. This compensated a £128 million decline on the voice side. According to the research firm, total Vodafone UK service revenue during the year was up 2.6 per cent to £4.9 billion, with data now accounting for 17.2 per cent of the total, up from 14.7per cent in 2010.

Importantly, data revenues across Vodafone's European operations now make up 15 per cent of service revenue, up from 12.2 per cent in 2010. However, expensive smartphones subsidy costs are dragging down profits, with smartphone penetration in Europe at 24 per cent, and nearly 40 per cent in the UK.

This growing issue is seen with Vodafone's latest available operating expense figures (for the year to third-quarter 2011) that point to expenses falling with the exception of ‘"acquisition and retention costs" which were up 12.4 per cent on the same period in 2010.

Vodafone is not alone in this challenge, with subscriber acquisition costs at Orange France and Orange Spain rising by 2.5 per cent and 11.7 per cent, respectively, during 2011, while retention costs increased by 5.6 per cent in France and 1.5 per cent in Spain.

For more:
- see this Wireless Intelligence article

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