Sales drop, but subsidies are unlikely to reappear

Mobile phone dealers report handset sales have plummeted as much as 50 per cent since direct subsidies were eliminated.

The subsidies meant phones worth around $500 were heavily discounted or even given away. Telecom dumped subsidies across the board in January, following a move by Vodafone late last year.

One dealer said it was necessary only to sit in a retail shop to see how few people came in.

"The amount of walk-in traffic I get has dropped considerably. At least 50 per cent."

He predicted Telecom would subsidise handsets for its high-speed "CDMA 1x" mobile network in order to populate it when it came on streamthis year.

To take advantage of the faster speeds, existing CDMA network users will have to upgrade their phones.

"They'll want to pump that out to the market so they will drop the hardware again," he said.

Hart Candy general manager David Wall confirmed that sales had slowed.

"Customers now are buying a phone because they need a phone and not because it is a fashion accessory."

In Australia the impact on dealers has been so hard that leading telco Telstra is considering backtracking, but telcos in New Zealand deny they will follow suit.

"I haven't heard any suggestion of us doing it here," said Telecom New Zealand spokeswoman Linda Sanders.

Vodafone's Hamish Wilkie said Vodafone would not reconsider subsidies.

"The market has moved ... Entry level prices have still remained accessible for most customers."

And according to Rocom Wireless director Richard Guy, saturation and commoditisation of the mobile phone market mean subsidies are gone forever.

He said the average revenue per unit was shrinking and there was likely to be a margin war on air time, as was happening in the United States.

The result was that there were no airtime profits with which to subsidise anything.

The exception was in data networks such as CDMA, which delivered on a packet basis but charged for voice in minutes. The margin was still high in this area, Guy said.

Hart Candy's Wall said Telecom was resisting using subsidies, but he expected there would be some subsidy action in targeted areas such as business users and users with greater-than-average airtime.

But he said consumers at the low end would have to wait for the handsets themselves to get cheaper.