Traditionally, businesses have purchased their mobile devices as part of their mobile network contract, typically using some form of ‘tech fund’, or ‘device subsidy’. This model has never really offered best value for the customer as it requires the cost of the airtime to be artificially inflated in the first instance to enable the ‘device subsidy’ to be provided. However, as the devices were ‘free’, or ‘subsidised’, it didn’t make sense for customers to look at alternative device sourcing options. In reality, it was a clever way for mobile networks to force their customers to buy mobile devices directly from them, rather than explore the marketplace – and in the process, they retained higher airtime revenues and margin, whilst also making additional margin on the devices when compared to SIM-only contracts.
Mobile device subsidies are dying out
Whilst there are always exceptions, this model is now starting rapidly to die out, as more businesses start to recognise that sourcing the device and the airtime as separate elements can deliver significant cost savings, and can also deliver greater contract and device flexibility. For instance, with no mobile device costs to fund over 24 months with the mobile network, businesses can negotiate significantly reduced contract terms (e.g. 30 day per connection term on a SIM-only basis) and also minimise any spend or wider contract commitments.
In fairness, the networks are also struggling with the old ‘subsidy’ model. When mobile phones cost £100 and the average airtime bill was typically greater than £700 over 24 months, it was easy to ‘subsidise’ the ‘free’ phone. Now that an entry level iPhone, or equivalent Samsung device, is in the region of £300, and airtime costs have roughly halved, we have reached a tipping point, where not only can the device no longer be subsidised by the airtime, but instead the device is often actually more expensive than the airtime. The mobile networks know this model is finished, and so expect to see a significant shift away from tech funds over 2017/18.
Time to rethink your mobile device purchasing strategy
This market change provides an excellent opportunity for businesses to rethink their mobile device purchasing strategy. Previously, mobile device purchasing was led by the available ‘subsidy’ – however, now businesses can be more creative in terms of how they fund devices and access better technology for their employees. A smartphone is typically about the same cost as an entry level business laptop, and as a result they have some residual value after 24 months. A range of major finance organisations have started to realise this, and have started to provide smartphone purchase finance agreements and rental models at competitive rates.
So, it’s now possible to rent a smartphone over 24 months on a simple subscription model and then either hand the device back and receive a new one, or, in some instances, even purchase the device based on the residual value. It’s the same model that funds the majority of the motor industry. As a guideline, expect this model to deliver a small overall saving as against purchasing the device over a 24 month period. However, when the airtime savings and greater flexibility are taken into account, businesses can typically get much more device technology for the same budget that they used to spend with their mobile network.
Importantly, the costs can be fully offset against corporation tax, and there is no requirement to negotiate large, one-off capital expenditure budgets with finance – you are simply using your existing mobile budget to get better overall value for money by separating the airtime and device purchasing. As an example, an iPhone 6S 32Gb would typically cost around £17 per month on a rental model. Combine that with SIM-only UK voice and data plan for £13 or less, and you have a full estate refresh for £30 per month per user.
Get a no-obligation Utelize Healthcheck and see whether you could upgrade to Apple iPhone without increasing your mobile budget.
Suspect you’re overpaying for your mobile services or not getting best value for money from your existing Vodafone, O2 or EE contract? Then invite us in for a no-obligation Utelize Healthcheck. Using your own data, we’ll run our analysis processes to help to show you exactly how you spend your budget today – identifying areas of overspending and excess costs and usage, as well as highlighting any possible policy breaches and management issues. We’ll also provide a clear proposal on how separating your airtime and device purchasing could help to partially, or even fully, fund a total device refresh to Apple phones across your estate, without breaking your budget.
To find out more or to arrange an introductory call, contact Kevin Steed on 03300 240 444, or email [email protected]