Locking handsets - why it's wrong
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Posted Tue 13 December 2011 @ 8:59 a.m. by Paul Brislen
SIM locking has reared its ugly head again, with Telecom’s offshoot Skinny proposing to lock handsets to the XT network for a period of nine months.
TUANZ is opposed to such things as they’re a barrier to customers moving freely between networks and we already have enough of those thank you.
But someone on Twitter argued that in fact it’s a good thing for customers wanting a low-cost smart phone and challenged me to explain myself, which I hope I managed. I figured it was time to do something similar here on the blog.
First of all, what is SIM locking? I don’t know the ins and outs of Skinny’s plan, but I’m pretty sure it’s not SIM locking but rather handset locking – that is, the handset will check to make sure it’s on the XT network and if it isn’t, it won’t connect. Skinny tells us it will lock the phones to the XT network for the first nine months, and after that they will be unlocked for free. Customers will probably have to call in to get them unlocked I would expect, so they’ll actually be locked permanently unless the customer makes the decision to switch it off.
Skinny says that by locking handsets it will be able to subsidise the retail price of the handset to customers. So what’s the problem with that, asks my correspondent? It’s a good question – if that was it, in isolation, then we probably wouldn’t have an objection, but there's more to it.
Customers who want to move in the first nine months can unlock the phone for a $30 fee. That’s not much (probably equivalent to two or three months’ service) and certainly won’t be enough to recoup any loss Skinny will make on the phone itself, which begs the question why lock handsets at all?
In effect, it’s a term contract for the prepay market and that’s where my objection lies. Skinny is aimed at the low-spend end of the market and these customers are extremely price sensitive. They churn, and I’ve heard figures of around 30% market churn year on year, which is a lot but masks those customers who churn constantly in the search for a better deal, some as often as every three months.
They also tend to be on prepay, which is a great way of controlling your spend
(put $20 on the phone account and when it’s gone, it’s gone. No overuse charges
can occur) but the key point here is flexibility. They can move to another
provider on a whim, and frequently do, following the short-term deals that the
telcos seem to love.
Number portability has been a godsend to these customers and their lack of loyalty to one provider or another means they’re keeping the telcos honest. When your competitor offers a great short term deal and you haemorrhage customers, that’s a clear sign you need to move with the times.
All the telcos hate this high level of churn (it's costly after all) but that doesn't seem to stop them offering incentives to be a new customer - it happens all the time, and the telcos continue shoving new deals at new customers as if there's an endless supply of them. Try rewarding those that stick around longer than a year and see what happens, I say.
But I digress.
By locking prepay customers into a nine month contract, that all stops. The sweeping move to new deals will slow down, the churn rate will drop and the pressure for telcos to respond quckly to a competitor’s new offer will slacken off. We’ll see less dynamism in a market that’s already known for its ploddingly slow response times.
And if Skinny locks handsets, what will the other players do? You can bet Telecom proper and Vodafone will both look at locking handsets – Vodafone tried it a few years ago and was told off by the Commerce Commission but reserved the right to try again at a later date. Once they both start locking handsets that leaves our nascent competitive market in disarray.
The MVNOs have yet to get a proper toe hold in the market and this certainly won’t help, but it’s 2Degrees that will suffer the most. Skinny is aimed directly at Degrees’ market base and by locking handsets to Telecom’s network, fewer customers will be able to migrate to 2D, the one company that seems able to introduce the kinds of plans the customers love but the telcos aren’t fond of – regime changing plans like rollover minutes, data that lasts more than a month and all the rest.
That’s the real problem – it’s not Skinny locking handsets in isolation that’s the risk, it’s the locking down of the prepay market, the slowing down of response to competitive pressures and the potential to damage the new competitive market that makes me very wary of handset locking. We already have enough barriers to switching – let’s not introduce a new one.
Incidentally, I see a someone doing the rounds of various comment threads telling customers that Vodafone and 2Degrees “de-spec” handsets so as to stop them from working on Telecom XT.
As far as I can tell this is utter rubbish – there just aren’t that many handsets that run on 2100MHz, 900MHz and Telecom’s 850MHz that the idea of any operator buying handsets that specifically exclude Telecom is a nonsense.
Categories: Regulatory | Wireless carriers