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Contract customer loyalty shifts

Bonnie Tubbs
By Bonnie Tubbs, ITWeb telecoms editor.
Johannesburg, 02 Jun 2015
Handset makers and app store ecosystems are drawing more consumer loyalty.
Handset makers and app store ecosystems are drawing more consumer loyalty.

The proliferation of smartphones, app store ecosystems, consumer savvy and a movement towards questioning established norms and practices in the mobile contract space are causing consumer loyalty to stray from mobile operators.

This is according to analysts, who say a trend towards SIM-only and prepaid options means the consumer-operator tie will slowly diminish as more mobile customers opt to spend their pennies elsewhere.

This shift in spending loyalty will move to handset manufacturers, for one, says Ovum analyst Richard Hurst. "It is interesting that this trend [away from traditional contracts with handsets] seems to be driven by handset manufacturers, who want to maintain a relationship with end-users. Even at the high end there is a sentiment of 'I will get my own handset and only have to rely on the operators for connectivity'."

So the focus and loyalty of the customer is starting to lean more towards the handset manufacturers and app stores, explains Hurst.

This comes in the wake of a new, SIM-only mobile virtual network operator (MVNO) me&you mobile; mid-contract price hikes and a growing pool of high-end spec, mid-level price - as well as low-cost - smartphones.

Questioning consumers

Me&you mobile CEO Brett Howell says the MVNO's market research revealed consumers today are more educated, and are starting to question things.

In the telco space, he notes, to date there has actually not been a great deal of choice. "The majority of packages and contracts that are available are all so similar and in essence offer the customer the same thing. Traditionally the networks have relied on expensive handsets to attract customers and this has resulted in customers being tied into long 24-month contracts to pay off a device."

However, consumers have now started to realise purchasing airtime separately to their device allows them to extract maximum value and have the freedom to shop around for the best deal on a monthly basis, says Howell. This is the premise upon which the new MVNO's offering is based.

Swift Consulting CEO and tech blogger Liron Segev says, if there is one shift this year has seen so far in terms of the mobile telecoms landscape, it is that there is a definite rise in SIM-only contracts and prepaid options. "People aren't blindly renewing their contracts so much anymore. They are realising they are paying for what is made to sound like a 'free' device."

No such thing as free

Antony Seeff, CEO of cellphone bill analysis company Tariffic, says one of the reasons some people are electing not to upgrade their phone along with their contract every two years, is because phones do not change as much these days. "The iPhone 5, for example, is still a very practical phone for most people, even though it is now over two years old."

BMI-TechKnowledge director Brian Neilson says contract customers are more aware of the handset cost component because it is now separately itemised on their monthly bills. "Many do the quick math, multiplying that number by 24 and after a quick draw-in of breath, would ask themselves if this represents fair value for money, or if they really need to replace their two-year-old [Samsung] S4, which is still a pretty decent phone."

Seeff notes, while most service providers have begun offering SIM-only deals, it is surprising - and unfortunate for consumers - that most these deals come with a 24-month contract obligation. "It is understandable that consumers often have to lock themselves in to a long-term contract if they're paying off a phone, but there's no justification for such a lock-in on a SIM-only deal."

Tariffic's message to corporate clients is that they should not be in the business of financing handsets for their employees. "We often recommend that our clients use the 'free phone' value to reduce subscription and look at a SIM-only tariffs."

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