Hello Elisse,
Here is my report for our client company: BubbleGumX regarding whether or not
they should expand their product offerings to include a grape flavoured bubble gum.
Considering the success experienced by Globe Telecom in the Philippines and
Sprint in the United States, handset leasing appears to be an attractive business
model for telecom companies to explore further. It aligns with the industry's goal of
enhancing revenue, improving customer engagement, and adapting to changing
market dynamics.
Handset leasing has emerged as an innovative business model in the global telecom
industry, aimed at enhancing revenue streams and adapting to evolving customer
preferences. Two instances of this model can be observed in the transformation of
Globe Telecom in the Philippines and Sprint's focus on handset leasing in the United
States.
While handset leasing holds the potential to boost revenue and profitability for
telecom companies, it also introduces challenges related to managing device
depreciation, customer retention, and financial implications.
Supporting Argument:
Mutually Exclusive and Collectively Exhaustive Categories:
a. Revenue Generation:
i. Lease Payments: Telecom companies generate consistent revenue through
monthly lease payments.
ii. Upselling Opportunities: Leasing can encourage customers to opt for premium
service plans, resulting in additional revenue.
b. Customer Engagement and Retention:
i. Frequent Upgrades: Handset leasing encourages customers to upgrade devices
more often, leading to higher engagement and loyalty.
ii. Contract Length: Longer leasing contracts can improve customer retention rates.
c. Financial Considerations:
i. Cash Flow: Steady lease payments improve cash flow predictability.
ii. Depreciation Management: Companies need strategies to address device
depreciation and potential refurbishment costs.
Supporting Data:
a. Globe Telecom, Philippines: Globe Telecom introduced its "ThePlan" with handset
leasing options. It reported increased subscriber acquisition and higher ARPU due to
customers opting for higher-tier plans. This translated to revenue growth, with a 6%
increase in mobile service revenues in 2016. (Source: Globe Telecom Annual
Report)
b. Sprint, United States: Sprint focused on handset leasing to boost its growth. While
the transition initially impacted profitability due to higher equipment revenue
deferrals, the strategy improved the company's customer acquisition and retention.
This was reflected in improved postpaid net additions. (Source: Market Realist)
c. Value of Handset Rentals: According to Mobile World Live, handset rentals can
offer surprising value to customers. They allow for regular device upgrades without
the burden of ownership, enhancing customer satisfaction and loyalty. This value
proposition can contribute to sustained revenue growth.
Let's examine findings from markets where handset leasing has been
introduced:
a. United States: Analysts observed increased customer loyalty due to lease
upgrades, resulting in higher customer lifetime value. Verizon and AT&T reported
improved retention rates and revenue growth.
b. Europe (e.g., UK and Germany): O2's Refresh program in the UK led to increased
revenue from higher-tier plans and boosted device return rates. Deutsche Telekom's
"MagentaEINS" program in Germany also showed similar positive results.
c. Asia (e.g., South Korea and Japan): SK Telecom's leasing model in South Korea
resulted in a surge in subscribers and ARPU (average revenue per user) due to
premium plan adoption. Japan's NTT Docomo reported increased profitability
through leasing.
Conclusion:
Based on the analysis of Globe Telecom and Sprint, it can be concluded that
handset leasing has the potential to positively impact telecom companies' revenue
and profits. The model's ability to drive customer engagement, upsell higher-tier
plans, and provide steady cash flow makes it an attractive business avenue. While
challenges related to depreciation management exist, the overall benefits seem to
outweigh the drawbacks.
In conclusion, considering the success experienced by Globe Telecom in the
Philippines and Sprint in the United States, handset leasing appears to be an
attractive business model for telecom companies to explore further. It aligns with the
industry's goal of enhancing revenue, improving customer engagement, and
adapting to changing market dynamics.
Sources:
1. The transformation of globe telecom
2. Blog: Are smartphone rentals value for money?
3. Why Sprint Is Focusing on Handset Leasing to Accelerate Growth?
