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Home > Communications > Wireless > Components/Equipment
Switching Channels: Finding the Right Distribution For Handset Upgrades
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| Published Date:
September 2006
Published By:
Yankee Group
Page Count:
3
Order Code:
R388-2285
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Handset Vendors Take a More Direct Route to Reach Consumers
Since the mobile industry in Latin America began, handset vendors have sold their products through operators. Postpaid handsets are heavily subsidized—low-end handsets are normally free—and operators are increasingly subsidizing prepaid handsets as well. This subsidization makes it impossible for handset vendors to go direct. After all, why would a customer pay full price for a handset from a retail store when an operator offers it for less?
Although vendors have sold many phones through this arrangement, there are some drawbacks. Operators often have little interest in selling high-end models and are content with the serving the middle and low end. In addition, operators like to play one vendor off another, and the availability of very low-cost phones from smaller vendors has given them the ammunition they need to do this. Branded vendors sometimes find it difficult to get “shelf space” for all their models. Finally, the operators pay little serious attention to the rapidly increasing upgrade/replacement market. Consumers want to replace their low-cost entry phones with more sophisticated models that appear in the vendors’ advertising. However, these phones do not represent new lines. Therefore, they do not generate new operator revenue.
Yankee Group predicts upgrade sales will grow from being a relatively small component of total handset sales to being the second most important component after churn by 2007. We define “upgrades” as sales to existing users that look for a new phone but are staying with their existing operator. Considering that many consumers churn simply because they want a new phone, the proportion of handset sales attributable to upgrades would be even larger—perhaps even the largest source.
Increasingly, the solution for the leading vendors is to distribute directly.
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