An estimated 4 million consumers in the UK have been charged for mobile phones that they already own, at an additional cost of £490 million, according to recent research from Citizens Advice. Consumers that have paid off the device subsidy do not automatically have their monthly service plan reduced when the device has been paid, leading to overpayment for mobile phones.
The onus is currently with the consumer to understand this and contact their provider to find a suitable plan to migrate to. This has led to pressure for the bundling of subsidised devices and monthly plans to be more transparent. Before the regulators step in, let’s discuss the options for solving this conundrum.
Why Customers Get Confused
The ever-increasing price of smartphone devices has also seen consumers holding on to their devices for longer than 24 months, even though device manufacturers typically refresh their range annually. The frequency of operating system (iOS / Android) updates, bringing welcome end-user benefits at no cost, can be a reason not to upgrade.
Consumers often feel loyal to their mobile operator due to brand significance, coverage, friends-and-family schemes and after-care service in a variety of retail stores. Couple this with a device that’s locked to a single network and we can see why consumers may view their monthly charge as a cost for device, tariff & service.
Ofcom are currently consulting on how to address overpayment for mobile phones, but Citizens Advice says their proposal of sending a single notification to customers before their contract ends doesn’t go far enough to help consumers.
Separating the Device Agreement
Some UK operators, including O2, Sky, Virgin and Tesco, already provide clarity by having separate agreements, one for the device as an unsecured loan, and one for the service plan. In these cases the customers knows exactly how much they pay per month for the device and for the service.
However, calls for the likes of EE, Vodafone and Three to simply follow suit aren’t as straightforward as it might seem. Offering an unsecured loan increases the complexity for the operators in terms of having to be FCA regulated and meeting the compliance obligations. This isn’t an easy task. Among others, it involves changes to credit assessment systems at point of sale and for customer management, regular AML & KYC checks, IFRS accounting practices, capital provision for bad debt, the ability to recognise total customer level exposure and re-training sales teams in multiple channels.
Balanced against the various stages of transformation projects across the industry, this surely introduces further cost and complexity and yet another significant revenue gap to try and plug. Yet it is likely that Ofcom will step in and force the issue at some point if consumer group pressure persists.
Another Option — Improving Communications
Would investment be better placed into amending systems that allow the traditional subsidy model to exist, but with more transparent billing that enables customers to see how much they pay for service vs. subsidy every month and how much subsidy they have left to pay?
Perhaps this is another reason for operators to get smarter about how and when they communicate with their customers.
We have regularly pointed to how the leading providers are using advanced analytics to be proactive and build a real relationship with their customers through effective and tailored communications. Having a regular interaction with customers — rather than some welcome communications followed by a void during contract, followed by a generic upgrade offer at end of contract — must be more valuable and improve churn measures.
Nurturing customers through frequent and transparent communication — underpinned with the analytics that drives intelligent decisions about when, how, why and what to communicate — can streamline operations, reduce operational cost, reduce churn and increase conversion. For example, keeping customers informed regularly, through the channels that they prefer, about how much subsidy is left on the device allows the customer to feel in control. Combining this with nurturing messages in the months leading up to renewal, based on measures such as lifetime value and retention investment required, can make it an easier decision for the customer and result in them being less inclined to look elsewhere. The advent of rich communication services will also enable this to be more of an automated yet two-way conversation.
Operators continue to broaden the portfolio of products and service available to customers and measure themselves using the Net Promoter Score. Having a deeper relationship with a happier customer can only generate the opportunity to sell more to them and others, and further help recover lost revenue from optimising the mobile tariff once the device is paid for.
With the upcoming directive for UK customers to be able to switch provider via SMS to also consider, there is no doubt that churn can be influenced by really combining advanced analytics with communications strategy and execution.