T-Mobile and O2 are trying to delay handset upgrades until after Christmas in what appears to be an effort to steer limited cash resources elsewhere. But is it worth risking churn?
A bid to save cash
O2 and T-Mobile are tightening their belts over the Christmas period in what seems to be an attempt to save cash in the last months of the year. The two networks are discouraging customers from upgrading to new handsets before the New Year. O2 claims it is not obstructing upgrades, merely giving customers an option to save money; however, it is assumed that ‘option’ will be withdrawn in January.
One industry observer says: ‘There is speculation that they could be running out of budget, but the position of each of the two networks is different. Running out of money could be the case for T-Mobile, which has done this before. Analysts suspect that O2 is focusing on iPhone customers, which is the major drain on its budget.
’O2 has spent a huge amount of money in making the iPhone affordable to its customers, as the network has been under pressure from Apple to hit sales targets. In September, the operator admitted it wasn’t stocking the Nokia N96 (a decision it has since reversed), one of the most anticipated phones of the year, because a large proportion of its budget was going into subsidising the iPhone.
Meanwhile, T-Mobile has had a very tough year. For the first six months, the operator has been losing customers and ended up with half a million subscribers less in June than its total at the start of January.
T-Mobile has undertaken an extensive cost-cutting operation throughout the organisation, outsourcing its customer services to the Philippines and cutting its financial department by 100 staff.
Emeka Obiodu, principle analyst at Ovum, says: ‘It all comes down to cutting costs. In this economic climate all companies are trying to cut costs, and the easiest area would be retention.
‘They [O2 and T-Mobile] are trying to juggle their options. Rather than adding 200,000 and losing 100,000 customers, they are trying to just add the 100,000. It’s much cheaper.’
The operators claim that the discounts they are giving in return for postponed upgrades are benefiting their customers. O2 offers all its customers the choice of delaying their upgrades until January, with a £15 discount per month, but all customers still have the option of immediate upgrades.
T-Mobile is blocking upgrades for certain customers and is offering small discounts (£5 per month) until January.
A spokesperson for T-Mobile says: ‘Airtime discounts range between £5 and £15, depending on the “value” of the customer. The discount applies for the length of the contract renewal.’
Risking churn with upgrade delays
Discouraging customers from upgrading their handsets has prompted fears from those within O2 and T-Mobile that some customers will switch to networks that give them the phone immediately.
It has triggered interest from rivals that disgruntled customers could be ‘on the market’ until after the New Year.
The inability to upgrade is leading to churn on the networks and, according to one dealer, both networks are seeing an increased attrition rate. One dealer says: ‘Not everyone can get a discount [on T-Mobile] so we have to churn them. If we don’t the customer says they will come back which is bad for us because we lost the customer.’
It is in situations like these when the relationship between the networks and dealers start to matter, and some dealers that are still disgruntled by O2’s recent commission changes are taking the opportunity to get their own back.
Another dealer says: ‘For us it’s good that O2 are trying not to spend, because we can now churn a lot of customers [onto other networks]. It’s better for us because of the change in commission structure. They have made it clear they deal with independents only on their own terms.
‘On T-mobile it’s a pity, because we used to do a lot of T-Mobile upgrades. We are trying to delay them. The question customers ask is if they can have the phone on another network, but I don’t like churning people from
T-Mobile. I like them because they support the independent dealers.’
The fact that dealers have traditionally secured a higher commission for starting a new contract than they do for upgrades is also not helping the networks at the moment.
Retailers feel the impact
Retailers selling T-Mobile upgrades have complained of poor communication from the operator and about being put in the awkward position of not being able to upgrade.
One Carphone Warehouse employee says he first heard about the issue when he was trying to upgrade a T-Mobile customer, but was told by the upgrade centre that the customer could not get an upgrade. Meanwhile, one major T-Mobile dealer says he was only told of the changes eight hours before they were implemented.
T-Mobile dealers say they will not know whether a specific customer can upgrade before they have called the operator. One dealer says: ‘It’s impossible to know who will get an upgrade, it seems completely sporadic. It doesn’t only depend on how much money they spend monthly, but also how many calls they receive – how much T-Mobile makes in termination fees.’
Some dealers say their income is slightly lowered as a result of T-Mobile’s change in policy. ‘We are losing money because we can’t upgrade and we lose the commission, unless we churn them to other networks,’ one of the dealers says.
He adds that for dealers to keep their customers they have to find T-Mobile subscribers a reasonable alternative on other networks if the customer is unable to upgrade.
Customer belt tightening
Not being able to upgrade is not bad news for all customers, though. With the economic climate forcing consumers to make savings wherever possible, some are more than happy to save a few pounds and delay their handset upgrades.
The networks are presenting their attempts at postponing upgrades by offering customers more choice. But O2 and T-Mobile already give customers the option of a lower monthly payment with no handset in the form of Sim-only deals.
A spokeswoman for O2 says: ‘We have found that some customers remain happy with their existing handset and would rather save money in the current economic climate. As a result, those who do not wish to upgrade yet can receive a £15-per-month discount on their monthly subscription. We will review this offer in January.’
Meanwhile, a T-Mobile spokesperson says: ‘We believe that, in the current economic climate, most customers will welcome the opportunity to make savings on their monthly bills.’
Falling sales for manufacturers
It will be the handset manufacturers that are hit the hardest as a result of the operators’ policy. Obiodu says: ‘We have already moved to 18-month contract cycles and now we are at 24. If operators are not encouraging customers to upgrade their handsets, I doubt manufacturers
will be happy.’
Manufacturers are not being particularly vocal about the possible fall in sales. A spokeswoman for Nokia says: ‘When they put the orders into us it’s calculated into that and so it goes into our sales projections for the period as well.’
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