From the beginning of the German Digital Mobile Telecommunication Market in the early 1990s until today, competition between the 2 to 4 main Mobile Network Operators (MNO) was and is driven by gaining customers without any limitation of acquisition costs per customer. The so-called SAC (Subscriber Acquisition Costs) reached unforeseen heights over time and has become an indispensable incentive measure for sales and consumer.
The outstanding, extraordinary service to initiate and receive phone calls at every time and every place, became more and more attractive and affordable to almost everybody who was willing to pay for this new kind of civilian freedom. In a consequence of the unregulated mobile telecommunication service market at that time, service charges where solely determined by competition between rare touting providers in a strong and seemingly endless expanding market.
The customer acquisition model, in which mobile phones with a market value of more than 200 Euro are offered for a symbolic price of 1 Euro, paid and partly still pays off for MNO and Service Provider. The payback period for SAC payments was limited to 3-9 month after contract formation, while the contract continues to run for further 15-21 month with guaranteed monthly minimum turnover.
With the foundation of the „Regulierungsbehörde für Telekommunikation und Post (RegTP) “ in 1998 and rising competition in an increasingly saturated market, the service charges achievable per month and customer have decreased year by year. Even today in an already oversaturated German Telecommunication Market, the minimum of average revenue to be generated per contract still has not been reached.
MNO, Service Provider and finally the customers have to change their thinking about acquisition models and price sensitivity for mobile phones. The end of the mobile phone subsidy is about to happen but what comes next?
The present Thesis is about the revolutionary approach of Telefónica O2 Germany to change the market and customer expectations by introducing the so-called „My Handy“ mobile phone payment concept.
Background analysis for the need of change, approaches to go, pitfalls to be avoided and obstacles to take will be part of this thesis. Finally the expected and realized impact on Telefónica O2 Germany’s business and an outlook to future evolutions of the German Mobile Communication Market will generically be discussed.
Table of Contents
1. THE GERMAN MOBILE COMMUNICATION MARKET
1.1 HISTORY
1.2 MARKET CHARACTERISTICS AND DETERMINANTS
1.2.1 Demand Side
1.2.1.1 Segments
1.2.1.2 Total Market
1.2.1.3 Consumer Expectations
1.2.2 Offer side
1.2.2.1 Mobile Service Portfolio
1.2.2.2 Device Portfolio
1.2.2.3 Customer Services
1.2.3 Competitors
1.2.3.1 Network Operators
1.2.3.2 Service Provider (MVNO)
1.2.3.3 Mobile Phone Retailer
1.2.4 Regulation
1.3 MOBILE NETWORK OPERATOR TELEFÓNICA O2 GERMANY
1.3.1 Company Vision and Mission
1.3.2 Company Positioning and Customer Segments
1.3.3 SWOT-Analysis
2. INCREASING PRESSURE ON THE GERMAN MOBILE COMMUNICATION MARKET - NEED FOR CHANGE
2.1 REVENUE LOSS
2.2 MIGRATION EFFECT
2.3 REGULATORY IMPACT
2.4 FLATRATE TREND AND IMPACT
2.5 OUTLOOK
2.6 THE MARGIN/ACQUISITION DILEMMA
3. PROACTIVE APPROACHES TOWARDS FUTURE COMPETITION
3.1 GENERIC REQUIREMENTS FOR THE SUBSIDY SUBSTITUTION
3.2 APPROACHES FOR SUBSIDY SUBSTITUTION
3.2.1 The Cash Only Approach
3.2.2 The Rental Approach
3.2.3 The Leasing Approach
3.2.4 The Financing Approach
3.2.5 The Instalment Approach
3.3 APPROACH SELECTION – INSTALMENT MODEL
4. CHALLENGES TO TAKE FOR THE NEW APPROACH
4.1 MARKETING VIEW
4.1.1 Product Definition
4.1.1.1 Pricing Conditions
4.1.1.2 Proposition
4.2 OPERATIONAL VIEW
4.3 LEGAL VIEW
5. CONCLUSION AND OUTLOOK
6. CLOSING REMARK
Research Objectives and Core Topics
This thesis examines the financial and strategic necessity for the German mobile telecommunication industry to shift away from the traditional, subsidy-based customer acquisition model toward more sustainable, transparent, and installment-based payment concepts to counteract market saturation and declining average revenue per user (ARPU).
- The impact of market saturation and regulatory pressure on traditional mobile phone subsidy models.
- Strategic evaluation of alternative hardware payment concepts, including rental, leasing, and installment models.
- Detailed analysis of the "O2 My Handy" model as a revolutionary approach to decoupling service contracts from hardware financing.
- Operational and legal challenges, such as credit risk management, marketing transparency, and compliance with German financial regulations.
- The financial performance impact of transitioning from high upfront subscriber acquisition costs (SAC) to long-term installment revenue.
Excerpt from the Thesis
3.2.1 The Cash Only Approach
The most obvious approach for subsidy substitution is the simple cash only offer, where the customer has to pay in the moment of purchase. This concept is already complementary offered by all provider and does not enjoy great popularity by customers, since wholesalers like Media Markt and Saturn Hansa always offer much better prices, even if not combined with ambitious expert advice.
The concept misses almost all of the above listed criteria and will only be mentioned to serve the principle of completeness.
Summary of Chapters
1. THE GERMAN MOBILE COMMUNICATION MARKET: Provides an overview of the development, competitive structure, and consumer expectations within the German mobile telecommunication industry.
2. INCREASING PRESSURE ON THE GERMAN MOBILE COMMUNICATION MARKET - NEED FOR CHANGE: Analyzes the structural reasons for declining profitability, including revenue loss, regulatory intervention, and the impact of flatrate trends on provider margins.
3. PROACTIVE APPROACHES TOWARDS FUTURE COMPETITION: Evaluates various models to replace traditional hardware subsidies and selects the installment approach as the most effective solution for Telefónica O2 Germany.
4. CHALLENGES TO TAKE FOR THE NEW APPROACH: Discusses the practical marketing, operational, and legal implementation hurdles, such as product definition, credit checks, and financial regulatory compliance.
5. CONCLUSION AND OUTLOOK: Summarizes the success of the new strategy and reiterates the necessity for continuous innovation in service and financing models.
6. CLOSING REMARK: Provides a final perspective on the evolving smartphone market and the lasting impact of high-end device subsidy models despite the paradigm shift.
Keywords
Telefónica O2 Germany, My Handy Model, Mobile Telecommunication Market, Subscriber Acquisition Costs (SAC), Revenue per User (ARPU), Hardware Subsidy, Installment Model, Market Saturation, Customer Retention, Mobile Network Operator (MNO), Tariff Structure, Regulatory Impact, Financial KPI, Customer Loyalty, Competitive Strategy.
Frequently Asked Questions
What is the core problem addressed in this thesis?
The thesis addresses the financial unsustainability of the traditional mobile phone subsidy model in the German market, where high upfront acquisition costs are no longer justified by shrinking average revenues per user in a saturated market.
What are the primary themes discussed?
The primary themes include the structural decline of revenues, the shift in customer acquisition strategies, the evaluation of alternative hardware financing models, and the regulatory requirements for implementing installment-based payments.
What is the main objective of the research?
The objective is to demonstrate that separating the financing of mobile devices from core service contracts is a necessary and successful strategic step to reduce acquisition costs and maintain profitability in a competitive, saturated environment.
Which scientific methodology is used?
The research employs a qualitative analysis of market data, SWOT analysis, and a strength evaluation matrix to compare different business models (cash, rental, leasing, financing, and installment) based on predefined business criteria.
What does the main part of the work cover?
The main part covers the analysis of market pressure, the evaluation of different subsidy substitution models, and a deep dive into the operational and legal implementation challenges faced by Telefónica O2 Germany during the transition.
How would you characterize the work using keywords?
Key terms include market saturation, subsidy substitution, SAC reduction, installment financing, telecommunication strategy, and customer-centric business models.
Why is the "My Handy" approach considered revolutionary for the German market?
It is considered revolutionary because it explicitly decouples the ownership of hardware from the service contract, challenging the market-entrenched expectation of receiving mobile phones "for free" in exchange for long-term service commitments.
What role does the regulatory environment play in this new approach?
Regulation is crucial as it enforces transparency and consumer protection. The thesis explains that Telefónica O2 Germany had to carefully navigate the risk of being classified as a "charged loan provider" by the regulatory body (BaFin) while ensuring the model remained legally compliant.
- Quote paper
- Manfred Damsch (Author), 2010, Telefónica O2 Germany’s "My Handy Model" - The way out of the Acquisition Pitfall?, Munich, GRIN Verlag, https://www.grin.com/document/174551
