Spanish giant Telefonica has cut the price of its high-end smartphones by up to 30 per cent in an attempt to halt customer losses at Movistar, its domestic mobile operation.
Telefonica, which scrapped handset subsidies in Spain over a year ago, has reduced the Samsung Galaxy S4 by 15 per cent, going from €755 to €639. The South Korean vendor’s Galaxy Mini 2 has been slashed 30 per cent, to €116.
Other smartphones getting the cut-price treatment include the Samsung Galaxy SIII Mini (down 16 per cent), the Nokia Lumia 520 (16 per cent) and the Sony Xperia U (18 per cent).
Telefonica maintains that the price cuts do not herald a return to handset subsidies. The operator says it simply wants to pass on savings to customers from buying terminals in bulk.
That may be so – for the time being – but the non-handset subsidy model pursued by Telefonica in cash-strapped Spain seems to be under threat.
According to figures released this week by CMT, Spain’s telecoms regulator, Movistar registered a net loss of 248,000 customers. For the first three months of this year, the net customer loss has been a staggering 700,000.
As of 31 March 2013, Movistar’s market share by subscribers was 35.6 per cent. That’s three percentage points down from a year ago.
MVNOs with cheaper offers have been the main beneficiaries. They logged 210,000 net customer gains during March.
True, there are margin gains to be had from scrapping handset subsidies. The OIBDA margin for Telefonica Spain (which includes both wireline and wireless businesses) was 47 per cent during Q1 2013, an impressive leap from the 42.6 per cent achieved the same quarter a year ago.
Other Q1 2013 metrics, however, are not so pleasing to the eye. Handset revenue dropped 67.4 per cent, to €141 million, while mobile service revenues slipped 13.6 per cent to €1.2 billion.
And if customers are being lost to competitors, there is less of an addressable market to pitch data packages to, which might offset falls in voice and messaging revenue.
Movistar’s data revenue fell 7.4 per cent during Q1 2013, to €399 million. And no doubt OIBDA margins will be squeezed after the smartphone price cuts.
Telefonica made the difficult decision last year to stop handset subsidies for new customers, perhaps willing to sacrifice some market share for margin gain. Continued sharp drops in customer losses, however, may well force the Spanish to revisit that decision.
Cuts in smartphone prices could be the first sign that Telefonica’s resolve is weakening.