Finding Innovative Ways to Reduce the Capital Burden of Smartphones: The Only Way to Africa Device Penetration

The bandwagon of 5G launches has finally reached the continent of Africa. With the 5G technology released in over 19 countries within Africa, it is set to revolutionize the telecommunications industry, unlocking unprecedented opportunities for innovation and economic growth. With faster speeds, lower latency, and increased capacity, 5G is poised to transform various sectors, including healthcare, manufacturing, transportation, and entertainment.

The adoption of 5G is heavily dependent on consumers having access to compatible devices and the ability to purchase them conveniently. According to the latest report by Ericsson, the adoption of the 5G network in regions like North America, Gulf Cooperation Council and Western Europe is expected to reach over 80% by 2027 against the backdrop of increasing 5G smartphone use as against to Africa where 5G adoption is expected to hit just 10%.

Some of the continent’s biggest telecoms — like Safaricom and MTN — are creating space for 5G growth by expanding infrastructure, but the low penetration of 5G devices, which remain unaffordable to many, is standing in the way of mass adoption.

Then how do telcos ensure that the 5G Technology is successfully implemented and adopted?

Telcos and its Role of Enabling 5G Device Monetization

By facilitating device availability and affordability, telcos can drive widespread adoption and maximize the utilization of their 5G networks. Moreover, effective device monetization strategies can help create new revenue streams for telcos, leveraging the immense potential of 5G technology. But how do telecom operators achieve this?

Telcos are uniquely positioned to facilitate device monetization due to their strong relationships with device manufacturers, extensive distribution networks, and direct interaction with consumers through their retail and online channels. Telcos leverage these advantages to offer innovative financing models, trade-in programs, and lease options that make 5G devices more accessible and affordable for consumers.

Let us have a look at some of the popular strategies adopted worldwide by telcos to enable consumers to have affordable and easy access to 5G Devices:

The old approach: Device Financing and Subsidies

• Device Financing and Subsidies are popular mechanisms to reduce the upfront cost of 5G devices for consumers. Telcos collaborate with device manufacturers to offer installment plans, allowing consumers to spread the cost of a 5G device over time. Additionally, telcos may subsidize the cost of 5G devices by absorbing a portion or all of the device's price, making it more affordable for consumers. By facilitating financing and subsidies, telcos lower the barriers to entry for 5G adoption.

MTN Device Financing provides the most convenient and affordable means of upgrading your mobile device to a new world of the smartphone experience. With their device financing scheme, you can get a smartphone of your choice by making an initial deposit of the cost of the smartphone and conveniently spread the balance over a period of 6 to 12 months.

• However, there's a very basic problem in this approach. The fact that 5G phones will almost certainly be even costlier to produce than 4G models, by up to 20–30 percent, ensuring consumer affordability is almost certain to become a costlier proposition for operators. Rising smartphone subsidy expenses already are starting to become unsustainable, with one North American operator experiencing a 30 percent increase in four years and another South Korean operator registering a surge in smartphone-related costs to enable their first million 5G connections.
• Smartphones already occupy up to a 50 percent share of a subscribers’ telecom wallet—the money customers spend on both wireless services and devices—so transferring more cost to the customer isn’t a viable option. And, operators cannot just retreat from smartphone-related customer offers because smartphones will remain a critical source of subscriber stickiness.

Now, given that smartphone financing and subsidies are burning a hole in both the telco's balance sheets as well as the consumer's wallet, there's a need for the telcos to revisit their strategies for managing overall smartphone expenses in the face of these challenges.

Telecom Operators also can serve as strategic partners to OEMs to help distribute used phones in developing markets. OEMs would like to grow their market penetration in developing markets such as Africa but don’t want to lose their brand positioning due to uncontrolled reselling of used phones, especially refurbished ones.

The new approach: The Re-Commerce Strategy

Telecom operators are best positioned to play in the re-commerce economy. They are uniquely capable of generating both used-phone supply and demand. With a huge number of functional phones sitting idle in people’s drawers and many 3G and 4G phones expected to be traded in as part of the 5G migration, telco have the opportunity to capitalize on this expanding pool of supply to drive new subscriber growth and consumer affordability.

Seizing this opportunity requires a well-defined re-commerce strategy that boosts and leverages a device’s residual value—the market price for a used smartphone at any point after its launch—to potentially drive three major benefits. (Source: McKinsey)

• Trade-In Programs: Trade-in programs enable consumers to exchange their existing devices for credit towards the purchase of a new 5G device. Telcos offer attractive trade-in values for older devices, incentivizing consumers to upgrade to 5G. These programs not only accelerate the adoption of 5G devices but also contribute to sustainable practices by encouraging device recycling and reducing electronic waste.

Epic’s (Telco in Malta) latest offering gives customers the opportunity to recycle their old devices responsibly, earn extra money, and reduce their carbon footprint. With the trade-in programme , participants can trade in their outdated mobile phones for competitive cash offers, contributing to a circular economy and supporting Epic’s continued commitment to a future-ready Malta.

• Lease Programs: Lease programs allow consumers to temporarily possess a 5G device by paying a monthly fee without committing to a long-term contract. This approach provides flexibility and affordability, particularly for consumers who prefer to upgrade their devices frequently. Telcos benefit from lease programs by ensuring a steady revenue stream and promoting the continuous adoption of newer 5G devices.

Verizon Device Payment Program ?gives you the flexibility to upgrade early and pay for your device over 36 months rather than pay for all of it up front. No need to wait to get a new phone. Upgrade as soon as your device is paid off.

• Device Upgrade Programs: Device upgrade programs operate similarly to lease programs but with the added feature of enabling consumers to upgrade to the latest 5G device after a certain duration or when specific conditions are met. These programs appeal to technologically savvy consumers who desire the latest features and capabilities of 5G devices. Telcos benefit from device upgrade programs through improved customer loyalty and increased average revenue per user.

AT&T Next Up is AT&T’s phone upgrade program designed and geared towards early adopters looking for the flexibility to upgrade their phone sooner rather than later.?For a $6 a month fee, you'll have the option to upgrade your phone early, after paying off 50% of your current device cost and turning it in for a new one.

Other Key Levers for a Successful Smartphone Strategy:

• Securitization and Financing of Devices: Finding innovative ways to reduce the capital burden of smartphones. The principal problem posed by smartphone financing for a telecom operator is cash flow. The OEMs supplying smartphones need the payment from the telcos within 30-90 days while the telcos receive the same from the customers over the span of 24-36 months, applying significant pressure on their balance sheets. This problem can be easily tackled through securitization of handset receivables. Even though this has been around for years, most global operators have only scratched the surface of using the vehicle to gain immediate cash and employ their capital more efficiently. For investors, these asset-backed securities are a stable, highly-rated investment vehicle.

Verizon was first to market with a public securitization offering. It launched the $1.2 billion securitizations (underpinned by more than 3 million receivables , representing average monthly payments of $28) to much acclaim in 2016.

• SIM-based Locking Options: Developing a technology where if the user removes the SIM from the financed smartphone to replace it with the service provided by some other company, the telco is alerted and the phone is locked, even when the device is offline. The user should not be able to access the financed smartphone and should be able to do so only after the original SIM is inserted. The same smartphone locking technology can be used when the user does not fulfill the EMI payment. This can help telecom companies strengthen their smartphone leasing model while ensuring customer stickiness in a highly competitive market.
• Partnerships with Fintech Companies to support the BNPL option: It is a concern for telecom operators that invest upfront in the tunes of billions of dollars and revenue flows in once subscribers start using their services. However, with a lot of investment flowing into new Fintech corporations and NBFCs and given that they are a lot more adept at offering and tracking micro-financing loans, telcos might be able to shift this financial burden on the Fintech companies by partnering with them to support the Buy-Now-Pay-Later Option offered to the consumers.
• Selling Value-Added Services with Smartphones: Telcos should formulate strategies to drive and increase revenues around the sales of smartphones by increasing the attachment rates for insurance, accessories, connected devices, and other services. Many operators now offer a branded insurance plan that usually is bundled with additional value-added services such as password protection and cloud storage. This growth should be supported by the premium price tags of 5G smartphones, as millions of customers look to de-risk their expensive purchases.

Vodacom in South Africa provides comprehensive device insurance covering devices against loss, theft, and damage, including water damage with plans starting from as little as R10 per month. One can choose what they want to cover and the premium is calculated accordingly.

Other Telco Best Practices around enabling consumers to have an easy and affordable access to devices:

• Maxis Zerolution : This is a smart device ownership program that allows you to purchase a device with RM0 upfront payment* and pay for it over 24-36 months.

• T-Mobile Jump! On-Demand : JUMP! On-Demand (JOD) is an 18-month lease agreement that lets you sign a new lease and change your leased device once every 30 days. Since this is a lease and you aren't buying the phone, the monthly payments are reduced. You can buy the phone for the full retail price later or keep upgrading!

Mobile Manufacturers and OEMs doing their bit to make 5G devices affordable:

• Google partnering with telecom operators in different markets to launch affordable 5G-enabled devices: Jio partnered with Google to work on low-cost Android smartphones . The move came after Google invested Rs 33,737 crore (USD 410 Million) in Jio Platforms for a 7.7 percent stake, last year. Previous reports also noted that Jio is looking to outsource and manufacture over 10 crore low-cost smartphones in India. Keeping that in mind, Jio recently launched the world's cheapest 4G Smartphone "Jio Bharat " with a starting price of $12. This unique platform for entry-level phones leverages device and network capabilities to provide internet-enabled services on these devices such as WhatsApp, movies, music, and many more.

Together with Google, Deutsche Telekom and T-Mobile US have developed 5G-enabled smartphones for the European market.?The T Phone and T Phone Pro are based on the established “REVVL” product range from T-Mobile US. Deutsche Telekom has set itself the goal of ensuring that everybody can have access to the 5G network. The T Phone will only cost 219 euros and the T Phone Pro is priced at 269 euros. And when purchased with any MagentaMobil rate plan, the smartphone models will only cost 1 euro respectively.

• Qualcomm and MediaTek bringing down chipset prices now that they have recovered the development costs: Aiding the transition to more affordable 5G launches are chipset makers such as Qualcomm and MediaTek. A newly launched budget 5G chipset by Qualcomm is undercutting MediaTek to infuse the segment with high performance and 5G support, which is becoming a plank for the brands to market their budget 5G phones.
• realme plans to put 100 million 5G phones in the hands of young consumers around the world by 2024 Smartphone vendors can play a crucial role in popularizing 5G. In this regard, realme echoed this by stressing that technology is only as strong as its adoption rate and outlined plans to help drive 5G adoption globally and bring the technology to the masses. The company said that it is channeling 90% of its R&D resources into 5G technology and plans to invest US$300 million in the field across seven global development centers to meet the consumer demands for thinner, lighter, and affordable 5G devices .

For more insights on the 5G Device Strategies and Telco Best Practices, please contact [email protected]