European Mobile Operators are Cutting Smart Phone Subsidies

European mobile service providers in several European markets are looking to reduce the high level of subsidies they currently offer to new and upgrading smart phone customers.


In Spain, Vodafone appears to be ending the practice of subsidizing smart phones for new customers, following a similar announcement by market-leader Movistar (Telefonica) earlier in the month.


Vodafone Spain plans to offer free finance programs for the purchase of new handsets and introduce a scheme to buy back old phones from upgrading customers.


Operating costs are the clear reason for clipping the subsidies. When a service provider subsidizes a $600 device to the tune of perhaps $400, it essentially is making a loan to the subscriber until the full amount is recovered.


What remains to be seen is the impact of subsidy changes on the rate of innovation in handsets and applications, if, as some would suspect, the end of subsidies slows down the rate at which consumers replace their handsets, and might reduce the rate at which they buy some of the more-powerful and latest devices.


There is some evidence to that effect.