Vodafone Spain Brings Back Device Subsidies

Vodafone's Spanish division is bringing back cut-price smartphones for new customers for a limited time, the firm said on Monday, prompted by a mass client exodus in recent months after scrapping handset subsidies in the recession-hit country, Reuters reports. 


The move illustrates the clear danger for any single service provider that attempts to break from established practices that consumers find helpful, such as selling hot new devices at subsidized prices, even if that means consumers need to sign a service contract. 


Vodafone says the policy is temporary, and will end September 15, 2012.  


Vodafone and Telefonica, with almost 70 percent market share between them, have suffered huge subscriber losses since they decided to use Spain as a test case for a new business model that cuts subsidies for smartphones.


Vodafone has lost over 600,000 mobile clients since April, when it stopped slashing prices on smartphones, while Telefonica's Movistar lost 572,000 in April and May, according to data from Spain's telecoms regulator.


It remains to be seen whether Vodafone actually will reinstate the "no subsidies" policy after September 15. Given the crushing recession in Spain, Vodafone probably needs to do everything it can to stem the subscriber losses, and boost uptake of smart phone services.


Mobile service providers have clear motivation to stop subsidizing smart phone sales, as such practices harm operating results. But, as Vodafone has discovered, such practices also can lead to high customer churn or slow smart phone adoption.


Subsidies might just be a necessary evil, from a service provider perspective, where it comes to encouraging adoption of high-end smart phones, with their associated boosts in recurring revenue.