Mobile Phones on Credit

Here's an interesting article over at The Feature about the lack of financing options for customers to buy the newest - and most expensive - mobile phones:

The mobile industry has moved away from the days when users thought that (at least in some countries) they could get a new mobile device for free. However, most would be amazed if they knew the real cost of a new phone, and the difference between what the operators pay to manufacturers and what users are charged.

In the glory days of mobile with annual growth rates of around 100% was not unusual, this did not seem a problem. When talking about the most attractive contract customers, subsidies can also seem a small price to pay in retaining such business. However, when looking at the majority of the user base, it would make sense for the operators to use credit options as a way of getting users to be able to pay sensible prices for new devices.

I did, an admittedly, unscientific survey across about 20 European retailers (not operators). None currently offered financing. Despite this, it was interesting to hear the sales pitches.

Many pushed the contract option hard. For example, I approached one retailer about purchasing a Nokia 7650. They would not sell it on its own. They had one prepaid option for which the price of the handset would be �180 (around �270). But if I was prepared to go to a contract option, then the price would be �99 with any monthly rental of at least �20. If I went with a particular contract option costing �30 a month (with all the associated free minutes) then the device would be free.


Most of those companies offering mobile finance are not exactly making a song and dance about it.

Vodafone offers a mobile finance deal, but only in the UK with no stated plans to extend it to its other operations. It also relies on its sales channels to push it, who also seem mostly ignorant of it. The deal is purely for contract customers for high-end phones and PDAs. The scheme provides ten monthly interest free payments to cover the cost of the device. Unusually, the scheme is underwritten and organized by Vodafone themselves, rather than by a third party financial provider.

A few other operators, such as O2 in Ireland working with GE Finance, offer a similar service. However, the one operator who does seem to openly push the idea is Telecom New Zealand. They aggressively promote the mobile financing route both through their stores and for online purchasers.

The financing is organized through a third party, FAI Finance, and payments are made directly to the bank. Financing options are far more flexible with payment possible either weekly, fortnightly and monthly, and payment term either 12 or 24 months. The deal is interest free, although there is a one-off booking fee of NZ$35 (around �15). The operator does not provide numbers but says that the deal is popular and allows subscribers to buy high-end terminals. Importantly, the deal is not restricted to contract users.


This is very interesting from a business perspective. Everyone knows that the prices of the most new mobile phones are ridiculously high and are only affordable via contract deals from cellular providers. A SonyEricsson costs at least $800 or more depending on the country, etc. This is way too much for most people with a deal and way out of sync with the $200-$300 PDA range that it's somewhat competing with. This isn't a super-lot of money, however, so why isn't financing more easily available? Telecom New Zealand seems to have the right idea. It seems crazy that the telecoms are taking all these costs on themselves to get the most advanced phones out there. Especially now with new GPRS/MMS and 3G services the telecoms want to push, they should be making as many options available to consumers as possible, no?

I wouldn't know the first thing about the economics of this sort of business. I mean you have guage the profits of providing the loans against the risks of defaulting. Are there other consumer devices that are available on credit like this already? I guess in the U.S. it would be impossible for someone without a major credit card to get the credit anyways. If Visa doesn't think you're credit worthy, than no one else will either is the thinking, right? But if even the GAP has a credit card, why the hell don't Telecoms make it easier to buy the latest gadgets on credit?

I wonder what sort of opportunity there would be for a 3rd party to enter this business? Well, I guess you could just buy this stuff from Amazon, etc. But the REAL place to provide this service is at all those millions of little mobile phone shops that are all over Europe. Having a kick-ass neato phone in your grubby little hand is the best incentive to sign the papers. Nothing like techno-lust to get you reaching for your wallet (and it's only $30 a month!). You could do a auto-industry-like leasing service where you pay insane ammounts monthly, but always have the latest gadget, etc. Who knows. It's an interesting observation by The Feature at any rate.


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