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How to attract subscribers when they're happy with their current handset

A recent report from Gartner has revealed that smartphone sales are slowing down. Here are some alternative strategies for operators now they can no longer rely on subsidised smartphone hire-purchase to attract customers.

This year has already seen two reports regarding handset sales. First, at the beginning of the year Apple reported a drop in iPhone sales, then at the end of March, research from Gartner estimated that smartphone sales for the first time will exhibit only single sale growth.

As the pace of change in handsets has slowed and become incremental rather than ground-breaking in nature, it has become apparent that upgrading to the latest handset model is no longer a priority for many users. Competitively priced SIM-only contracts are now widely available, encouraging consumers to keep hold of their phones for longer with the attraction of lower monthly fees. Consequently, the demand for SIM-only contracts has increased. The potential for operators to leverage exclusive handset deals to entice and retain users has greatly diminished. Relying on limited period exclusivity from third parties is evidently a strategy that has had its day.

It’s time for operators to break the mould of competing on ‘exclusive’ handset deals, and equip themselves to start competing on the services that they deliver to their customers; innovating in communication services in order to differentiate effectively.

A false dependency on others

For too long operators have been relying on third party agreements with partners, be they exclusive handset deals, attractive handset hire purchase terms or by offering exclusive access to services such as Spotify, Sky Sports, and Netflix. This has always been a strategy with a relatively short shelf life. Whilst they are clearly in the operators’ interest, it is counter to the interest of their partners who naturally want to access the whole of the potential market and not just the customer base of one operator. Exclusive deals are an unreliable source of differentiation for operators – in an increasingly saturated, steady-state market they must look to other areas to gain a competitive edge.

Operators should look to the total service they provide to their customers – the devices plus the network access, coverage, bandwidth and connectivity together with the services that run on them.

Whilst operators are all engaged in a 4G bandwidth and coverage race, investing millions into their networks to ensure they are competing effectively, it is difficult to turn speed and coverage into long-term differentiators. With all operators providing comparable coverage, devices, and bandwidth, they need to turn to value-added services for differentiation.

Innovative features and enhancements to telecom services for business users and consumers alike provide a viable route to enhanced customer satisfaction and loyalty, as well as incremental revenue. This is where operators can gain a competitive advantage.

Service innovation hampered by legacy hardware

Operators have years of experience delivering services but most have barely changed since their creation. If an operator wants to develop a new service, it is traditionally implemented through the physical deployment, integration and commissioning of new equipment into the network. This task rests with the Network Equipment Providers (NEPs) whose technology forms the building blocks of the core network. Whereas the operators have relied on device manufacturers and content providers to differentiate in the marketplace through sponsored deals, they have also become heavily dependent on NEPs for in-network service innovation. This severely limits the speed at which operators can modify their networks to deliver new services, and the number of modifications that can be afforded.

Consequently, equipment enhancement costs and timeframes largely dictate whether to implement new innovative service ideas, rather than the merit of the idea itself. Furthermore, once the NEPs build the service into their product, it is then available to all operators with that equipment, so any differentiation is short lived.

Taking service innovation in-house

In order to stay ahead of the competition and offer their customers something unique, operators need to acquire the capabilities to deliver service innovation themselves. Some leading operators are already using flexible, service layer products in a network that can enable operators to by-pass NEP lock-in and take the innovation process in-house. They can grasp the opportunity to own the change process that has traditionally been out of their hands, and move to using in-house or partner developers in an open, free market. This enables them to collaborate, innovate and hit the timescales they desire for a budget that can finally afford.

Using this approach, they can create an attractive suite of new services and enhancements to existing services. For example, services that use personalisation and location awareness to alter the behaviour of the service dependent on location, diary and other user attributes; or services that assist the user whilst they are roaming and provide reassurance and a safety net for roaming expenditure.

In short, relying on equipment vendors, handset manufacturers or content providers to provide a differentiating factor is as flawed strategy because those providers want to deliver the same things to all competing operators. Instead, operators must create and own the differentiators themselves if they are to become more competitive. In order to do this, they must acquire the capability to deliver service innovation independently without having to rely on third parties.

To out-perform the competition you need to do something different. To protect your lead you need to do something unique and own the innovation process in-house. Solutions already exist which enable that to happen. Operators need to take action to utilise these capabilities or they will lose customers to those that are more pioneering and consistently providing added value to their customers.

Jonathan Bell, VP Product Marketing at Open Cloud