Handset subsidy & replacement analysis case in telecom

Subsidies and handset replacement strategies are a widespread practice to allow consumers to get their mobile handsets at deep discount, or even for free. Recently, with 3G/3.5G and subsequent requirements on sophisticated and costly handsets, subsidies are being reconsidered both in subsidized and non-subsidized markets.

As written before in our two previous post related to subsidy (part i and ii) and in our handset replacement analysis through the current downturn, we have developed a well-proven methodology in mobile telecom operators to analyse the requirements for subsidies with respect to economic efficiency. Using a simplified analytical model with linear demand and supply we are able to illustrate the relationship of subsidies with market factors such as penetration rate, churn rate, handset migration rate, service consumption, handset brand and model, etc and a long list of marketing and business metrics.

We have concluded different projects of this type. These projects have always targeted mature European markets chosen as case markets since they represented different strategies for handsets subsidies. Our main conclusion after finishing similar engagements in different countries is that consumer subsidies can be economically efficient when applied on valuable clients, for faster adoption of a specific technology at the right time window in a temporary manner.

The objective of this post is not to discuss on this conclusion, but to show how do we approach to these projects. I have prepared a brief case to illustrate the different phases of the project, the main issues and solutions provided, some illustrative and sanitized outputs and the main conclusions obtained in one of the assignments.

Whether you are a telecom consultant, an industry expert or a handset manufacturer executive, I think you will find this case interesting.  Enjoy it. Best regards,
CVA