Cogitative blurbs on all things mobile

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Unlocking the phone: Going contract free?

February 27th, 2007 by abhishta

Krisse from AllaboutSymbian has a great article on Unlocking Mobile Phones and why we all should go for SIM-free phones. Its a great article and definitely worth a read.

My take on on the whole contract issue:

I don’t like contracts and I’m not in one right now. I think that unlocked phones are great. They free you from contracts and allow you to choose providers at will. But a sim-free environment is not so rosy for your providers. Why?

  • ARPU – Average Revenue per User
  • Churn – Number of users leaving the company’s service
  • Cut-throat competition

Without contracts, the main way for a service provider to attract customers is pricing and offerings. But with an open standard like GSM, there is no sustainable competitive advantage, technology wise. So companies begin pricing wars, and start under-cutting one another. As users keep switching providers, churn increases. And high churn will definitely reflect badly on the provider. Under-cutting doesn’t help much either. It ultimately will reduce the ARPU a company gets from its users. I understand that the consumer ultimately benefits from this, but for a healthy industry, both sides must be happy. The relationship must be symbiotic.

I’m beginning to see this happen in India too. About 2 years ago, when I was still in Mumbai, the market was dominated by sim-free phones and prepaid calling cards. GPRS carried a flat-rate fee for Rs. 99 and sms was dirt cheap. But this January, when I visited India, I saw locked phones on the market. Rates for extra services have gone up and contracts are being introduced. Carriers like Airtel and Hutch are selling subsidized handsets which people are buying. Why? because they’re cheap. In all honesty, if T-Mobile offers me a free phone for the Get More 39.99 plan, I’d take it, because the way things are, I’ll be paying 39.99 anyways, even if I buy an unlocked phone. And that’s the general mentality. A normal customer doesn’t gain much with unlocked phones.

I think a completely sim-free market will always start moving to contract and locked-phone market. I think this is due to the fact that operators will continue to try and undercut and get one – up on each other for market share and users will continue to move between carriers as this happens. Eventually, a time will come when market share will increase significantly, increasing operating costs, but ARPU will not, and to make matters worse, there will be no barrier to churn. This will cause operators to then start exploring options of generating more ARPU and reducing churn which will give rise to a contract-based system.

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