SIM-only plans to account for 30% of UK market by end of 2017

Research firm CCS Insight has released new findings which suggest the downfall of subsidized-handset contracts and the growth of SIM-only contracts for UK consumers.

The news will be welcomed by the operators, who have been vying to move out of the subsidized-handset model for some time, primarily due to the cost. CCS Insight believe the proportion of SIM-only contracts could account for as much as 34% by the end of the year, compared to 27% at the beginning. It’s a more profitable game as operators move into the multi-play territory, leaning more on services than physical products themselves.

While this might be quite a transition for UK customers who have become used to the two-year refreshment cycle, it is position which is becoming more the exception than the rule. France and Spain, for instance, have been offering more attractive SIM-only deals for some time, with the latter proving to be quite successful. Orange’s Spanish business has recently reported 99% of consumer voice contracts were on such a deal in the last quarter of 2016.

Subsidized-handset deals may have been a good way to attract the consumer to the smart phone market during the early days of the technology, though the wave of OTT services now available to the consumer has impacted the profitability of the operators in recent years. A lower reliance on SMS and call allowances on contracts has resulted in a desire for new business models at the telcos, with many moving towards the multi-play market.

This transition has also been coupled with the growth of the MVNO market, with new entrants such as TalkTalk and Sky, creating a race to the bottom as data tariffs become more prominent in contracts. CCS Insight also predicts greater penetration of the MVNOs in the UK, taking total subscriptions towards 87 million by 2021. Combining these two different competitive threats creates not only the desire, but a necessity to create new business models to recoup eroded profits.

It also demonstrates how fickle the cash-conscious consumer now is, though the woeful customer service records of the UK operators is hardly going to encourage brand loyalty. The game now is to offer as much as possible, and bank on the economics of scale and cross-selling to bring in the revenues. If data will define the attractiveness of a contract in the connected era, savings will have to be made elsewhere.

Perhaps a lack of innovation and differentiation for physical features on handsets has reduced the consumer desire to replace devices on such a frequent basis; it would certainly be welcomed as a convenient change in consumer behaviour by the telcos as they look to boost the role of expensive value adds elsewhere.