5/7/2009 11:50:00 AM
New O2 revenue share model: 50% up front on handsets
O2 is in the early stages of deploying a revenue share model with manufacturers over the payment on handsets.
The proposed model is based on paying manufacturers 50% up front for the cost of handsets, with the remainder based on how much customers spend over the term of their contract.
Such discussions with manufacturers had previously been tabled by O2 as well as Vodafone over two years ago.
Those talks faltered due to manufacturers reluctance to take the impact on cashflows, and a failure to agree on the aspects of customer spend they would share.
Sources suggest O2 is now more confident that it could implement a scheme after its experience of a revenue share model with Apple, and the belief that the mobile market is at a more mature stage.
One insider said: ‘Handset volumes are significantly down for the manufacturers, competition has got really tough and there are new entrants wanting to make an impact.’
The source said manufacturers now faced a situation where they had to be ‘more amenable to adopt new models’.
Although the plan is in the early stages, O2 handset chiefs Steve Alder and Ian Clarke are understood to have sounded out several manufacturers about the proposed scheme.
Finance directors at manufacturers are concerned over the cashflow implications of such a scheme, with no ability to forecast customer spend and consequently the payments.
One source said: ‘There are also difficulties on how you calibrate ARPU. Is it total bill or outside the bundle? That will penalise us if an operator puts it on an aggressive tariff, or if the proposition offers good value to the customer.’
Another sceptical source said: ‘This is something that looks great on PowerPoint, terrible in the real world.’
Former Vodafone UK CEO Nick Read told Mobile two years ago he was pursuing a revenue share deal with manufacturers, stating: ‘I don’t think we’ll go to a total revenue share arrangement, but do I see a component of share to cap the cost of hardware loss up front? Yes, people are interested and certainly I am because it aligns our concerns.’
O2 declined to comment.