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Spanish carriers rethink dumping subsidies

Telefonica claims it will increase profit and loyalty over time, but Vodafone reintroduces subsidies on all models


Published: 8 November, 2012

READ MORE: Spain | Vodafone Group | Billing | Handset

Operators are struggling with their objective of reducing reliance on handset subsidies, which eat into profits. The Spanish carriers have been aggressive in this area as they struggle, in a recession-hit market, to maintain profitability. But it is proving tough to wean users away from low upfront device costs.

Telefonica put a positive spin on the impact of reducing subsidies, during its quarterly earnings call this week. Executive chairman Cesar Alierta said the carrier was stepping up "the focus on quality as a key lever to reduce churn" in its mobile operations, by reducing subsidies but promising better quality of experience and long term value. However, revenues in the Spanish wireless unit were down by almost 20% year-on-year in the third quarter, even though there were improvements to churn and postpaid ARPU.

Vodafone Spain was less inclined to stick with its strategy. It said it will re-introduce subsidies for smartphones after losing over 639,000 customers in the second quarter. The other two Spanish cellcos, Orange and TeliaSonera's Yoigo, have held onto subsidies and saw their market share increase, gaining 80,240 and 58,069 customers respectively, in Q2. Telefonica lost 830,000 subscribers between April and August, according to Reuters.

Vodafone is now swinging the other way, claiming its break with subsidies was only an experiment. It reinstated some subsidies in May and will now offer them on all smartphones, with some new models, including the iPhone 5, carrying no upfront fee on contracts from €35 a month (or less if the mobile deal is added onto a broadband contract).

Reuters points out the fierce competition for Spain's budget constrained consumers. Broadband operator Jazztel is offering a smartphone worth more than €200 for no upfront fee on contracts of just €5 a month, if subscribers take a bundle of fixed and mobile services.

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