Right from the start, network operators have dabbled in selling their own-branded handsets,
with varying degrees of success. It’s been an area targeted by Vodafone and EE recently, with both networks releasing low-cost 4G handsets aimed at the low end of the market.
The current generation of operator handsets looks to make the most of network differentiators, such as 4G and WiFi calling, that make them really stand out from other products. These low-cost products help to open up new markets for the operators in a way that hasn’t happened before.
The opportunity that exists for networks to use own-branded handsets to affect their customer’s behaviour by introducing them to new products and services has never been greater. 4G users are known to use far higher levels of data than those on 3G, and it therefore makes sense to encourage as many customers onto the services as possible.
Previously, the price of a 4G handset prevented some users from accessing the service, but that has changed and the network branded handsets are just part of a range of affordable products. The existence of such a market, which is encouraged by own-branded handsets, can only be beneficial to the networks. It extends beyond mobile too, with cellular-enabled tablets, such as EE’s 4G Eagle tablet, being used to push the development of this market.
Price is, of course, one of the major selling points of these devices and is often the best way to introduce the brand in this form to the consumer. It’s something that Danny Marshall, head of device portfolio at EE, says has been well received: ‘Consumers are very receptive to own-brand handsets. We believe that there is opportunity to offer the right balance of design, price and features, offering customers viable alternatives to traditional brands, and so far the response to EE devices has been positive.
‘Our ODM devices to date have been about opening up the market at entry level, so as many people as possible can get access to 4G. If we believe we can add value then it’s less about the segment, providing that you have the right balance of price, technology and design. That said, it’s not just handsets, as our own-brand portfolio covers multiple device types such as tablets and 4G WiFi. 4G as a technology is helping to drive new consumer behaviours and we’re helping to provide new and innovative solutions with it.’
Vodafone’s John Garrett, head of custom designed devices portfolio, has also seen the development of this market, in part driven by price: ‘Consumer awareness and interest about our custom designed devices is growing steadily. In part that is because there is significant growth in the number of consumers across the world who want a good-value-for-money, high-quality smartphone to enjoy the benefits of mobile internet services using Vodafone’s fast and reliable 3G and 4G networks.’
EE recently announced the launch of its Harrier range, which will enable WiFi-calling. What is so significant about this feature is that it is one of only a select few handsets on the market to carry it. The other three – the Apple iPhone 6, Samsung Galaxy S6 and Lumia 640 – are all significantly more expensive. This means that the new Harrier products will cut across a huge number of ranges with a clear differentiator at the lowest price point.
Filling the gaps
Considering the large and diverse customer bases that the UK networks possess, it’s little surprise that the own-branded handset is used to fill gaps within product ranges. When you factor in the large retail portfolios that the operators possess, providing the right product for everyone, even if that means producing it yourself, becomes even more important.
It’s something that Susana Santos, senior research analyst, European mobile devices at analyst IDC, can see occurring across the European market: ‘Operators have the control over the device specs, assuring required quality standards and taking advantage of filling portfolio gaps. For example, operators are re-launching own-branded feature phones through ODM partnerships across Europe to meet demand, as Nokia and Samsung are increasingly less focused in this arena. Virgin Mobile in the UK continues to offer a device in this segment of the market. Another example is EE, which is soon launching a new own-branded device that supports VoLTE/EE's WiFi calling app.
‘In addition, operators can influence the market in certain directions. Launching smartphones at attractive price points is a frequent strategy by operators that seek to increase the smartphone penetration on their networks. However, operators can support new entrants on the market to inject more competitiveness in the ecosystem with a cost advantage: supporting the entrance of a new OS or a new processor.’
Competing with your partners
The relationship between operator and manufacturer has been one of the key components in the development of the UK mobile market. It seems fair to suggest the operator’s decision to enter this market would place a strain on the partnership, but that’s not the case according to the networks, as John Garrett of Vodafone explains: ‘We are not targeting the same customers as the major device manufacturers who continue to be important suppliers to our business. Vodafone custom devices are high-quality, value-for-money alternatives to major brands that appeal to certain parts of our customer base. Vodafone devices are differentiated from branded devices sold by other operators because they maintain a consistent design and user experience generation to generation.’
It’s a point echoed by EE’s Danny Marshall: ‘ODM does not disrupt the market but helps to drive it to be ever more competitive, and importantly helps shape technology evolution, for example making network services such as 4G and Wi-Fi Calling available to more customers.’
In actual fact the details that surround these devices reveal the complex relationships that exist on a global level between the parent companies of these businesses. Susana Santos of IDC thinks the benefits go both ways: ‘While some manufacturers can benefit from partnerships with operators by selling devices under the operator’s brand, especially those that do not have strong brand presence/awareness such as Chinese OEM, others know that this is not the operator's business model.
‘Operators' core business is selling mobile data and voice services and it is important for an operator to provide to its customers a variety of brands that end users aspire to. Operator-branded devices don't represent a threat to other manufacturers, which target the whole market, whereas operators mainly target their own subscribers.
‘There are various benefits for operators to offer own branded devices. However, this strategy also represents costs and portfolio management responsibilities. International operators benefit from economies of scale. Vodafone, with presence in many European countries, benefits from quantity discounts and can manage in a more flexible way its portfolio between various countries. However, operators with operations in many countries have to take decisions that are relevant to the markets where they have presence.
‘Decisions are usually centralised and don't differ at a local level. For Telefonica (O2), where Latin America is the biggest market, this strategy is not prevalent as consumers strongly prefer well-known brands, and price-sensitive users prefer dual sim devices and can find affordable smartphones in the grey market. For Three, with a big presence in the Nordics, once again, brand is a strong factor in this region and users are not price sensitive, which makes it more difficult to compete through price against the traditional phone manufacturers. At the same time, retail has a strong presence in these markets and operators have less influence. It would not make sense for Three to differ its internal strategy for the UK market only, unless it does it through a local partnership as Three Italy did it with its Momodesign range of phones.’
Names and relationships
It’s well established that the UK is a very brand-sensitive market, perhaps one of the hardest to break into. The Samsung/Apple duopoly is tough for the likes of Sony and HTC to take a bite out of, so it would appear even tougher for a network to break into that space.
There is a mixed record of technology service providers entering the hardware market. While Amazon has seen incredible success with its move into the hardware market, it has been less straightforward for the likes of Google. Others, such as Facebook, have looked into it and then decided against producing branded hardware.
With networks continuing to spread themselves across multiple markets as quad play continues to grow, the relationship with the consumer changes too. EE’s TV or broadband services, for example, put a piece of EE-branded kit in their customer’s house, which can only smooth the passage to equipment manufacturer.