SIM-only deals pressurize European handset sales

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SIM-only deals pressurize European handset sales

By CAROLINE GABRIEL

Published: 25 March, 2009

READ MORE: Europe | Handset

As European cellcos chase new business streams, Orange France has made a U-turn on offering SIM-only deals, which have been the biggest growth area for O2 apart from its iPhone exclusive, but which could help slow handset sales.

Orange had been aggressively opposed to SIM-only packages but was forced to introduce them in the ultra-competitive UK, and has now launched its first such deal in France, though with the twist of playing the green card, by claiming SIM-only is more environmental.

The 12-month, no-handset contract also offers €40 ($54) in cash to any customer who retains their old phone for a further year, while Orange donates another €5 to the World Wildlife Fund. However, the scheme is limited to those with at least 1,500 points under the Orange loyalty program.

More aggressively, O2 UK has stepped up its SIM-only challenge, offering £10 ($14.60) rolling contracts, available online only. These undercut 3, Vodafone and Virgin Mobile and illustrate the popularity of SIM-only deals, which are said to be accounting for 30% to 35% of new UK sign-ups in the current quarter. O2's Simplicity non-handset tariff represented about 25% of new customer deals and over 10% of its postpaid customer base in the last quarter of 2008 - the biggest business driver after the iPhone.

SIM-only deals are important to operators burdened with heavy handset subsidies, especially when targeting the lower income or credit-crunched customer bases. Cellcos like O2 have been using various methods to persuade customers to hold on to their existing handsets for a longer period of time, unless an upgraded handset is a smartphone carrying a sufficiently meaty data tariff to offset the subsidy and drive additional mobile internet fees.

Analysis from GfK says UK sales of SIM-only deals rose by almost 96% during 2008 as deals proliferated, and the trend is moving to other European countries like France. Between January 1 2008 and January 31 2009, 143,000 SIM-only contracts were signed in the UK, with almost two-thirds being for less than £20 ($30) a month.