Mass adoption of smartphones eroding operator profitability

The increasing popularity of smartphones is threatening mobile operator profitability, new research from WDSGlobal has found. A combination of expensive subsidies, fixed data tariffs, complex service set-up and a high cost-to-support mean it can now take up to 16 months just for carriers to break-even on a subscriber.

The WDSGlobal research found consumers are increasingly looking to connect their smartphones to their internet, email and social networking accounts out-of-the-box. However, problems in setting up these more complex data services on smartphones means that, on average, smartphone support transactions take 30% longer to resolve than featurephone transactions.

The survey of over 1,000 UK consumers found that: Almost a third experienced set up problems with email – the most problematic data service; 21% experienced problems setting up the internet on their device, and 18% had problems with MMS; 27% of respondents did not find any of the support options available to them effective; Almost 10% did not even try to find a resolution, they simply abandoned the service altogether.

“It’s something of a perfect storm,” explained Tim Deluca-Smith, vice president of marketing at WDSGlobal. “The cost of selling and supporting smartphones is significantly higher than it is for the traditional featurephone segment. Operators are therefore keen to ensure their subscribers maximise the advanced revenue-generating features of smartphones. Unfortunately, a large percentage of consumers are struggling with the advanced functionality of the smartphone, and are defaulting back to more familiar voice and SMS services. Combine these conditions and it’s clear to see how operators’ margins are quickly being eroded.”

Smartphones already represent a third of all handsets sold, and are expected to overtake featurephones by the end of 2011. This consumer demand is driven by the desire to access a wide range of advanced content and services. However, this shift into the mass-consumer market creates problems for carriers – around half of people questioned make a purchasing decision based on price, which in turn has led carriers to heavily subsidise smartphones.

“Consumers are being sold on the idea that smartphones can deliver complete connectivity, keep you entertained and offer exciting apps. Get it right and operators can build highly-loyal and highly-profitable subscriber bases. Unfortunately, the out-of-box experience can be very different,” added Deluca-Smith.

This poor user experience immediately translates to lost revenues for operators, as the abandonment rate is extremely high. 27% of respondents did not find any of the support options available to them effective, and gave up as opposed to seeking further help. Alarmingly almost 10% did not even try to find a resolution, they simply abandoned the service altogether. There is a clear need for operators to get their smartphone strategy right, and ensure they have the necessary support channels in place to provide a good user experience as adoption increases.

The WDSGlobal research was carried out in March 2010 across 1,000 consumers in the UK.

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