O2 will find it tough to cut subsidy

O2 will find it tough to cut subsidy

If O2 permanently slashes handset subsidies, O2’s CEO, Ronan Dunne, will take his place as a legend among operators in years to come. While Dunne has the best chance any operator boss has ever had to cut subsidies, we still think it is unlikely he can pull it off. But first, the reasons why Dunne could get it right. Appetite among operators for new customers is at its lowest level in history. Operators have switched their focus away from the dash for new customers and now onto profits and margins as the market has saturated.

An increasing number of consumers, meanwhile, are far less interested in the latest phone, and an increasing number are more interested in a discounted deal, even if they have to keep their existing handset. But O2 risks rivals seizing on an opportunity to take market share. And that is why a future of a sustained and significant cut in handset subsidy is so difficult to believe in.

T-Mobile’s MD Jim Hyde found subsidy in the UK insane, and tried to change the model. Nick Read at Vodafone tried to bluster rivals into not cutting prices last year by warning that he would simply match prices and rivals would lose their advantage and cut their margins in the process. Years previously, Orange’s former sales director Stuart Henry tried and failed to cut subsidy. There will always be four other major networks, and the temptation for at least one to break ranks and take customers with the word ‘free’ is huge. It is the biggest piece of evidence against any allegations that the networks are working in concert.

O2’s senior team are expected to watch the response from rivals over the next few weeks, and have left the option open to return to the consumer’s friend and the operator’s worst enemy: subsidy.

Written by Mobile Today
Mobile Today

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