Virgin UK leads in high growth SIM-only market

MVNO Virgin Mobile has announced that it leads the SIM-only sector of the UK  mobile market. Citing research from analyst firm GfK, the carrier claimed a market share for May of 29.5 per cent.

SIM-only, where customers provide their own handset in return for lower prices on monthly text and voice bundles and the freedom of a thirty-day notice period, is the fastest growing part of the UK mobile market, according to Virgin. The firm’s share grew by ten per cent during May this year.

The popularity of SIM-only in the UK market reflects current financial conditions, with some consumers now motivated more by cost consciousness than the lure of a new handset. And the carriers offering these deals trumpet the importance of greater choice and flexibility in their offering. “[SIM-only] is popular and confirms our belief that it adds another choice for customers who want the assurance of  having a 30 day non-commitment plan that rolls from month to month,” said a spokesperson for Vodafone UK.

But there is more to it than greater strength in depth across the product portfolio. The greatest cost incurred  by carriers in customer acquisition derives from the subsidies they offer on handsets, which can be anything up to £200. SIM-only neatly sidesteps this issue offering a substantial saving to the operator. “We’re finding that a lot of customers are happy with their existing phone and would rather make a saving on the bundles,” said Annie Brooks, head of proposition at Virgin Mobile.

This may offer a win-win to operator and consumer, but it’s not good news for the handset vendors. “If you’re selling a SIM only deal you’re cutting the handset guys out of the mix and volumes can be affected,” said Stephen Hartley, an analyst with Ovum. “Obviously it depends on what part of the market you’re trying to address, though. If you’re going for the market that’s not buying particularly expensive handsets then perhaps it’s not that big a deal. Whereas if you’re cutting out the high end it would be a big hit. But all volume is good volume so any hit is going to be bad,” he said.

None of the handset vendors contacted by telecoms.com were willing to comment on the popularity of SIM-only, and the fact that their customers are actively persuading at least a portion of the market not to buy new phones. But they might be gladdened by Hartley’s prediction that it is likely to be a temporary phenomenon, if measured by individual customer rather than the lifespan of the trend as a whole. He suggests that users may just look to extend the lifetime of their current handset by six or twelve months, before resuming the standard upgrade cycle.

Vodafone and Virgin claim to have had no feedback from their handset suppliers, and argue that handset remain a vitally important part of their offering. Vodafone’s spokesperson told telecoms.com that SIM-only serves as a bridge between prepaid and contract tariffs, allowing consumers to get used to fixed monthly outgoings. “In the long term, this can only be a good thing for the handset manufacturers,” she said. That will depend on the conversion rate, though, which Vodafone has yet to discuss in public.