Phone Leasing--From Manufacturers--Could Disrupt Mobile Provider Revenue

A potential shift to smartphone leasing in the U.S. mobile business points out just how hard it is for access providers (mobile, fixed, cable TV, satellite, fixed wireless, independent ISP) to create value, and therefore sustainable advantage, for their services.

Traditionally, the bundling of subsidized mobile phones with service contracts reduced churn and created consumer “lock in.” That hasn’t changed very much with the recent shift to installment plans. Basically, that move simply shifted how mobile service providers record revenue: less for recurring service and more for device sales.

A potential move to device leasing might be another matter. That opens up “new opportunities for device suppliers,” said Jan Dawson, Jackdaw Research principal.

Conversely, carrier average revenue per account could drop substantially. Comparing the older model where the phone was bundled with service with a contract, and the newer pattern where the device is sold separately from service, but on an installment plan, aggregate mobile service provider revenue is basically revenue neutral, either way.

But all could change if consumers are able to lease phones directly from the device manufacturers themselves. In that case, there will be a direct hit to carrier revenues. 

It’s the difference between the grey line and the blue line. The magnitude of revenue shift depends on what percentage of customers shift from financing their phones from the device supplier or the access provider (mobile operator).

These are the sorts dangers for ecosystem participants when value shifts inside any value chain. Carrier executives always worried about the amount of value they represent in the ecosystem will not be terribly reassured by what could happen because of device leasing, directly from the device suppliers.

AT&T ARPU

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