From the beginning of the German Digital Mobile Telecommunication Market in the early 1990s until today, competition between the 2 to 4 main Mobile Network Operators (MNO) was and is driven by gaining customers without any limitation of acquisition costs per customer. The so-called SAC (Subscriber Acquisition Costs) reached unforeseen heights over time and has become an indispensable incentive measure for sales and consumer.
The outstanding, extraordinary service to initiate and receive phone calls at every time and every place, became more and more attractive and affordable to almost everybody who was willing to pay for this new kind of civilian freedom. In a consequence of the unregulated mobile telecommunication service market at that time, service charges where solely determined by competition between rare touting providers in a strong and seemingly endless expanding market.
The customer acquisition model, in which mobile phones with a market value of more than 200 Euro are offered for a symbolic price of 1 Euro, paid and partly still pays off for MNO and Service Provider. The payback period for SAC payments was limited to 3-9 month after contract formation, while the contract continues to run for further 15-21 month with guaranteed monthly minimum turnover.
With the foundation of the „Regulierungsbehörde für Telekommunikation und Post (RegTP) “ in 1998 and rising competition in an increasingly saturated market, the service charges achievable per month and customer have decreased year by year. Even today in an already oversaturated German Telecommunication Market, the minimum of average revenue to be generated per contract still has not been reached.
MNO, Service Provider and finally the customers have to change their thinking about acquisition models and price sensitivity for mobile phones. The end of the mobile phone subsidy is about to happen but what comes next?
The present Thesis is about the revolutionary approach of Telefónica O2 Germany to change the market and customer expectations by introducing the so-called „My Handy“ mobile phone payment concept.
Background analysis for the need of change, approaches to go, pitfalls to be avoided and obstacles to take will be part of this thesis. Finally the expected and realized impact on Telefónica O2 Germany’s business and an outlook to future evolutions of the German Mobile Communication Market will generically be discussed.
Table of Contents
- Executive Summary
- Chapter 1: The German Mobile Communication Market
- Chapter 2: Acquisition Cost Challenges in the German Mobile Market
- Chapter 3: Alternative Acquisition Models
- Chapter 4: Telefónica O2 Germany's "My Handy" Model
- Chapter 5: O20 Tariff and Market Impact
- Chapter 6: Successes and Challenges of the O2 My Handy Model
Objectives and Key Themes
This thesis analyzes the challenges of high acquisition costs in the saturated German mobile telecommunications market and examines Telefónica O2 Germany's innovative "My Handy" model as a potential solution. It investigates alternative acquisition strategies, assesses their market viability, and evaluates the success and challenges of O2's approach.
- High acquisition costs in the German mobile market
- The shift away from subsidized handsets
- Analysis of alternative acquisition models
- Telefónica O2 Germany's "My Handy" model and its implementation
- Market impact and competitive implications
Chapter Summaries
Chapter 1: The German Mobile Communication Market: This chapter provides an overview of the German mobile communication market, highlighting its maturity and saturation. It discusses the challenges posed by a market where almost all potential customers already possess mobile phones, limiting organic growth. The chapter sets the stage by illustrating the competitive landscape and the declining revenue per user (ARPU) and profit margins that are driving the need for innovative acquisition strategies.
Chapter 2: Acquisition Cost Challenges in the German Mobile Market: This chapter delves into the escalating costs associated with acquiring new mobile customers in Germany. It explains how the traditional model of heavily subsidizing handsets to attract customers has become financially unsustainable due to prolonged payback periods. The chapter emphasizes the necessity for a paradigm shift in acquisition strategies to maintain profitability in a highly competitive market. Specific examples of the high costs involved and the resulting financial strain on mobile network operators are provided.
Chapter 3: Alternative Acquisition Models: This chapter explores various alternative approaches to customer acquisition that move away from the costly handset subsidy model. It examines different incentive structures and their potential for market acceptance and financial impact. The chapter analyzes various models, contrasting their strengths and weaknesses in terms of customer appeal, operational efficiency, and overall financial returns. The discussion serves as a foundation for understanding the rationale behind Telefónica O2 Germany's chosen strategy.
Chapter 4: Telefónica O2 Germany's "My Handy" Model: This chapter focuses on Telefónica O2 Germany's "My Handy" model, a revolutionary approach that unbundles the handset purchase from the service contract. It details the reasons behind the company's decision to adopt this model, including the challenges of overcoming consumer expectations of free handsets. The chapter also describes the strategic advantages and potential risks associated with this innovative approach. Key aspects of the model's design and implementation are analyzed.
Chapter 5: O20 Tariff and Market Impact: This chapter examines the launch of the O20 tariff, a complementary product designed to reduce the high cost of service contract acquisition. The chapter analyzes the design and marketing of this new, simple, and easy-to-sell tariff. The chapter also assesses the significant impact this tariff has had in combination with the "My Handy" model on the competitive landscape. It explains how this combined strategy enabled the company to acquire a large customer base, outperforming its competitors.
Chapter 6: Successes and Challenges of the O2 My Handy Model: This chapter presents a comprehensive overview of the success and challenges faced by Telefónica O2 Germany in implementing the "My Handy" model. The chapter details the initial successes in acquiring new customers, contrasting them with the increased vulnerability to competitive attacks resulting from a change in customer acquisition models. The chapter also acknowledges the continuing presence of a market niche for high-value handsets and contracts which will continue to drive high acquisition costs.
Keywords
German mobile communication market, acquisition costs, handset subsidies, alternative acquisition models, Telefónica O2 Germany, "My Handy" model, O20 tariff, market saturation, ARPU, customer acquisition, competitive strategy, revenue sharing.
Frequently Asked Questions: Analysis of Telefónica O2 Germany's "My Handy" Model
What is the main focus of this document?
This document analyzes the challenges of high acquisition costs in the saturated German mobile telecommunications market. It specifically examines Telefónica O2 Germany's innovative "My Handy" model as a potential solution, investigating alternative acquisition strategies, and evaluating its success and challenges.
What are the key themes explored in this analysis?
Key themes include high acquisition costs in the German mobile market, the shift away from subsidized handsets, alternative acquisition models, Telefónica O2 Germany's "My Handy" model and its implementation, and the model's market impact and competitive implications.
What is the "My Handy" model?
Telefónica O2 Germany's "My Handy" model is a revolutionary approach that unbundles the handset purchase from the service contract. This contrasts with the traditional model of heavily subsidizing handsets to attract customers.
Why did Telefónica O2 Germany adopt the "My Handy" model?
The traditional model of heavily subsidizing handsets became financially unsustainable due to prolonged payback periods. The "My Handy" model was adopted to address these escalating acquisition costs and maintain profitability in a highly competitive market.
What are some alternative acquisition models discussed?
The document explores various alternative approaches to customer acquisition that move away from the costly handset subsidy model. It examines different incentive structures and their potential for market acceptance and financial impact, analyzing their strengths and weaknesses in terms of customer appeal, operational efficiency, and financial returns.
What is the O20 tariff and what is its role?
The O20 tariff is a complementary product designed to reduce the high cost of service contract acquisition. Its simple and easy-to-sell design significantly impacted the competitive landscape when combined with the "My Handy" model, enabling O2 to acquire a large customer base.
What were the successes and challenges of the "My Handy" model?
The "My Handy" model initially succeeded in acquiring new customers. However, it also increased vulnerability to competitive attacks due to the shift in customer acquisition models. The document acknowledges that a market niche for high-value handsets and contracts continues to drive high acquisition costs.
What is the current state of the German mobile communication market?
The German mobile communication market is characterized by maturity and saturation. Almost all potential customers already possess mobile phones, limiting organic growth. Declining revenue per user (ARPU) and profit margins are driving the need for innovative acquisition strategies.
What are the key takeaways from this analysis?
The analysis demonstrates the challenges of maintaining profitability in a saturated market with high acquisition costs. It highlights the potential of alternative acquisition models, like the "My Handy" model, while acknowledging their inherent challenges and the ongoing need for strategic adaptation in a competitive landscape.
What keywords best describe this analysis?
German mobile communication market, acquisition costs, handset subsidies, alternative acquisition models, Telefónica O2 Germany, "My Handy" model, O20 tariff, market saturation, ARPU, customer acquisition, competitive strategy, revenue sharing.
- Quote paper
- Manfred Damsch (Author), 2010, Telefónica O2 Germany’s "My Handy Model" - The way out of the Acquisition Pitfall?, Munich, GRIN Verlag, https://www.grin.com/document/174551
