Versatile Amphibian

This morning, O2 announced that it would offer a handset leasing proposition for UK mobile phone customers . Regular readers will recall that I've been thinking about this for a couple of years now and blogged about it in May 2010 (if only I'd talked to O2 about it). On the specific deal in question, I thought it was worth working out who benefits from this deal. The answer, to put no finer point on it, is O2. Financially, that is. The total price of 12 months of £55 a month contract is £660, but you have to take off 12*£20 = £240 for the airtime, so the handset cost equates to £440 for a £499 phone, which would be worth £325 in perfect condition after 12 months. If you stumped up the full amount for the handset then you’d have spent a net of £174 for the device. If you leased from O2 you’ve paid £440, so the effective cost is £266 for a new phone every 12 months. A great model for O2, as they’re effectively pocketing that £266 in addition to their profit on the service. c.20%...

Following yesterday's post, here's some related thinking on the impacts on operators of handset leasing. Handset sales represent around 25% of operator revenues in a typical European market, but generate only around 5% of margin. It may therefore be the case that the scenario described would lead operators to a more profitable structural model than exists today. Oil companies are consistently and acceptably profitable, despite being (literally in some cases) the ‘dumb pipe’ that operators are so desperate to avoid becoming. One of the reasons for the oil majors sustained profitability is clear focus on their role in the value chain – to supply the fuel that enables transportation, relying primarily on location, then brand and finally product innovation to compete. BP or Shell do not need to subsidise the purchase of a car in order to drive consumption of fuel because consumers are ‘hooked’ on it (it gets them from place to place) and there are many credible car manufacturers an...