Telecom dumps subsidy on mobile phones

By RICHARD WOOD

Telecom has followed Vodafone's lead and dumped subsidies on mobile phones.

The move, tipped last October, was implemented in Telecom's new year mobile price list. But though the old rules are gone, the new rules for Telecom's dealer channel - and the entire mobile phone industry - are still being worked out.

Coupled with a slowdown in new connections, a new approach to selling mobiles will be required, involving services, mobile data solutions and changes to dealer commissions.

Subsidies were most obvious to the buyer at the prepaid end of the market, but also applied to the complex plans.

To get a very low cost handset from Telecom now involved financing arrangements or commitments to a contract period, national media spokeswoman Linda Sanders said. That meant the cost of the handset was simply being spread over the term of the contract.

"We're looking to ensure that we're getting the return on investment we're making in customers.

"If a customer paid $100 for a mobile but then spent only $20 a month then the mobile company is not going to get a return on that investment," she said

The words differ slightly, but echo Vodafone's position.

"Subsidising to build customer numbers is over," said Vodafone's general manager, consumer market, Hamish Wilkie.

He said some subsidy remained in the system, "as a high-value acquisition tool".

Vodafone managing director Tim Myles said Vodafone's general approach was now to take the benefit that would have been provided in a subsidy and return it to the customer in lower-cost services.

Profits would increasingly arise from providing additional services - such as sports commentaries, more ways to communicate such as in a group using voice or text, access to email and personal computer applications, sales force access to data, and real estate valuations.

For the mobile retailer or reseller it might mean some pain as they "adapt to a new business model".

Mr Wilkie said there was initially a lot of nervousness in Vodafone's 1000-plus channel when it dropped subsidies last year. Dealers were having to move from a one-size-fits-all approach to delivering services suitable to each customer, and they needed to develop the right skills.

"Selling sports results is different to mobilising your database," he said.

"Part of our renewed focus requires us to understand our customers better. We will help our outlets to attract customer segments that it makes sense for them to target."

Telecom has more than 1000 dealers selling handsets, and Telecom's head of sales and distribution for mobiles, Calum Haslop, said over time there would be a separation between the retail-style handset business, and the selling of value-added services that surrounded a customer relationship with the network. He said sales commission rates would ultimately have to be modified.

"The dealer commission rates at this point are remaining the same because it's based on connections that are brought to the table. But we do see opportunity to adjust commissions to create better alignment to ... value-added services.

"The driver of revenue has been connection, but the driver of revenue going forward is going to increasingly become the sale of value-added and content services. And we need to reflect that in the remuneration."

Commissions would also need to reflect the fact that new connections would generally be of a lower value than existing customers.