Industry needs to shore up defences as new buying patterns emerge
Our recent consumer research has identified further disruption to traditional buying patterns for mobile phones and connectivity. The entire journey, spanning research and information-gathering to purchase and after-sales support, shows that people’s attitudes are changing as they become savvier in their purchases and increasingly willing to embrace new and emerging channels.
One of the clearest trends is the decoupling of mobile phone and airtime purchases. Our latest survey into mobile buying behaviour showed that new destinations including Amazon, Apple and eBay are now established and important channels to buy mobile phones. In the past, mobile operators dominated sales, offering heavy device subsidies for bundled phone and airtime tariffs.
The decoupling doesn’t stop there, as SIM-free phones and SIM-only connections are on the rise. The SIM-free segment reached 4.4 million units in the UK in 2020, our research shows, equal to more than a quarter of total sell-in. Supporting this, nearly half of all post-paid mobile customers are now on a SIM-only deal.
Another factor is a diminishing role for bricks-and-mortar retail as consumers more readily embrace online channels. Naturally, Covid-19 has accelerated the migration; nearly two-thirds of people who bought a mobile phone in the UK in 2020 did so online. This compares with 52% among those who bought in 2019 and just 36% before that. Customers have become increasingly confident of buying handsets based on listed features, familiarity with leading brands and recommendations. Phone shops will continue to play an important role in the industry for many years, but it’s hard to see a return to pre-pandemic footfall.
Our survey also suggests that mobile phone replacement cycles, which have been getting longer for the past several years and are now at about 48 months, are unlikely to fall back significantly anytime soon. More than a third of people (34%) expect to keep their current mobile phone for longer than their previous one. This is twice the number of people (17%) who thought they will keep it for a shorter period. The remainder (48%) expect to retain for a similar length of time. A slowdown in device innovation, coupled with the very steep prices of many premium smartphones, are turning consumers off quicker upgrades.
The changes in consumer buying behaviour raise important questions about a part of the mobile phone industry that’s often overlooked. Fraud and theft have been rife for years, costing the industry billions of dollars annually. As the channel landscape continues to fragment, it’s creating opportunities for organized and international crime.
Risk & Assurance Group (RAG) recently reported that handset crime could be costing telecom companies almost 3% of their revenue globally. According to other sources, about 400,000 devices are reported stolen each year in the UK, although the real figure is probably two to three times higher. With flagship smartphones from brands including Apple, Huawei and Samsung now priced well over £1,000, it’s no surprise that criminals have eyed a lucrative opportunity.
Concern that wrongdoers could sidestep operators’ security mechanisms is a possible reason why credit rejection rates reported by some network providers can be as high as 70% for new promotions. The rate in the UK is lower, but still far higher than in many other sectors. It’s a problem that the mobile industry has never really properly addressed.
As the journey to buying new mobile devices moves into a new era, operators may find they need to offer a broader range of financing options. This could be accelerated by the pandemic economy, which is pushing people to seek greater flexibility and control over their spending.
But financing is a complex area and one where telecom operators don’t necessarily have a lot of expertise. A 2020 survey from RAG found that bad debt represented by far the greatest single cause of revenue leakage among communications providers, responsible for $14 billion of lost revenue each year.
One way that operators could mitigate risk is by working with a service such as Trustonic’s Telecoms platform. This makes smartphones more affordable to customers while minimizing risk to operators by lowering the chances of bad debt and missed customer payments as well as helping to cut losses from handset fraud.
Safer financing could help mobile operators tackle many of the emerging trends we’ve identified in our research. In a changing telecom landscape that’s also experiencing the fallout of Covid-19 and faltering economies, it could be a prudent investment for the industry.
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