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Operators increasingly abolishing handset subsidies, turning to financing

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Mobile operators in Europe are increasingly shifting away from handset subsidies to selling smartphones on installments, Informa Telecoms & Media has found. According to new research, close to 30 operators across Europe have abolished subsidies for some or all of their customers and moved to leasing or financing schemes this has allowed them to cut their own costs, while still offering high end smartphones for low up front prices.

Operators have seized on plans like Vodafone Red Hot in the UK and O2 Germany's My Handy as the way to get more customers using smartphones. However, it isn't enough to cut subsidies and hope customers will continue to buy mobile phones; operators have to determine who they're targeting and how they want to present the new program.

"The keys to a successful financing program are transparency, simplicity and flexibility," says Francesco Radicati, a research analyst within Informa's European Operator Strategy team. "The rising cost of devices like the iPhone means operators have to pay increasingly large subsidies to offer 'free' phones. Financing allows operators to continue offering phones for a low up-front price without subsidizing them; as an added bonus, it makes it easier to market smartphones to consumers on pay-as-you-go."

These attributes of transparency, simplicity and flexibility should be emphasized as benefits to consumers. Specifically, they mean users have a clearer idea of the cost of their phone, and can choose between a selection of phones and plans that suit them; in some cases, phones on installment plans are sold without a SIM-lock, meaning users can upgrade to a new phone without breaking their contract.

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