SIM-only hits handset sales

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SIM-only is a zeitgeist consumer concept in the mobile industry. As economic woes have deepened over the past six months, particularly in the UK, airtime providers have adapted products and marketing to reflect the new parsimony in the market. Invariably, that has converged towards SIM-only deals, rolling monthly contracts with no hardware subsidy.

SIM-only is pitched perfectly at consumers presently mindful of their monthly spend. It represents a way for airtime providers to maintain footfall on the high street, despite the slump in retail, and also long-term to convert some prepay loyalists into fully-fledged subscribers.

Market sales analyst GfK says sales of SIM-only deals have soared 95.9 per cent between January 2008 and January 2009 – in part, because of the sudden proliferation of such deals in the market and the marketing spend behind them. It said 143,000 SIM-only subscriptions had been signed by January 31, 2009, of which 62 per cent were sub-£20 monthly deals.

It is a huge market, suddenly and, where upgrading subscribers are trading down to SIM-only deals at least, a significant loss for manufacturers. The subsidy model that has sustained them in Western Europe, and seen mobile market penetration go way beyond 100 per cent, has changed.

Handset manufacturers have been caught in a kind of pincer movement by network operators, which have at the high-end extended upgrade cycles with 18-36 month contracts and at the low-end removed them altogether with the SIM-only phenomenon.

Sony Ericsson UK and Ireland managing director Nathan Vautier suggests SIM-only sales account for 20 per cent of the contract market, and admits handset makers like Sony Ericsson are feeling the pinch in sales.

Vautier says: “There’s been an obvious impact on us but we are producing compelling products on the high-end contract handset side.”

Of other manufacturers that made themselves available for Mobile News, Samsung maintains sales have been good, up on 2007 and projected to rise further.

Samsung UK and Ireland director Mark Mitchinson says: “I am confident around our product line-up and believe the difficult times and increased competition will sharpen our senses and make us fitter, more agile and hungrier than ever.”

He adds: “We have a clear vision that embraces change and, as the recession bites, there are a number of things you must continue to do regardless; look after your good people, continue to advertise to your existing and prospective consumers and work in a totally unified way with your loyal customers.”

But, clearly, handset sales in the high-end prepay and low-end contract segment have been hit. Sources claim handset sales in the UK last year were down 10 per cent on 2007.

The answer? Vautier suggests a focus on mid-range and premium devices, attended by significant marketing to ensure the message gets out, as an obvious “short-term shot in the arm” for vendors.

In that respect, Sony Ericsson is gathering together its strong Walkman and Cyber-shot music and imaging brands in a new ‘Entertainment Unlimited’ high-end portfolio, as it revealed at Mobile World Congress in Barcelona last month.

It also – or implicitly in the new device franchise – has a half-dozen Android-based mass-market devices in production, Mobile News understands.

“Handsets that provide value-added services will thrive while low-end handsets go head-to-head with SIM-only deals,” explains Vautier.

“This is because customers are always looking for more value for their money. The Entertainment Unlimited handsets use this concept by providing customers both a high quality MP3 player and camera.”

Sony Ericsson has other progressive strategies to drum up demand and profitability in the face of the new network tactics conspiring against the traditional sales model. “We’re looking at other ways to attract customers too,” states Vautier, simply.

Smart marketing is important, of course. Vautier makes the point that marketing real estate is cheaper to come by in a recession, and that the UK business has a clear run on 2009 with the kind of funds available to it in 2008, before the storm hit the global economy and Sony Ericsson’s global sales and operating profits (in 2008, down 6.6 per cent and €1.6 billion, respectively).

“Marketing goes much further now, so we can do more this year with the same money we had last year,” says Vautier.

Samsung has set aside £5 million for advertising the Tocco Ultra Edition handset. Mitchinson says: “Consumers are willing to spend their hard earned cash on high-tier Samsung devices, it’s just that they have more choice and can take more time to shop around for the best deal in the market place; believe me they’re out there.”

Mitchinson contends that SIM-only deals are a short-term draw for the industry; a gamble that delivers no clear value to the sector. “It’s obvious why network operators are heavily promoting the initiative. That said, network operators and retailers alike haven’t built up their retail estates to sell SIM cards and deal with customer complaints,” he explains.

“Unlike the US, the UK market is still driven by innovative and highly desirable handsets and it’s a false economy that will only drive down usage. The ARPU generated by a SIM-only deal is unknown and a lottery too.”
Operators agree. SIM-only is not an antagonistic move by them in their changing relationship with manufacturers; it is purely an opportunistic and shrewd sales initiative, introduced first by O2 in April 2007, ahead of broader economic collapse.

Full article in Mobile News issue 435 (March 23, 2009).

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