In response to the growing popularity of buying mobile devices in instalments, Telefonica and CaixaBank have agreed to set up a joint consumer finance company. The aim is to help customers in Spain acquire mobile handsets and devices.

The new firm, dubbed Telefonica Consumer Finance, will be 50 per cent owned by each of the partners.

Telefónica is to act as the sales partner and CaixaBank – via its FinConsum subsidiary – will provide financing and oversee operating procedures.

The joint venture extends a 2012 agreement between the two companies. FinConsum currently helps Telefonica’s Movistar customers pay for their mobile devices in 24 interest-free monthly instalments.

Telefonica says more than 700,000 mobile phones have been financed during the last 12 months.

The Spanish operator abandoned device subsidies last year, separating out the cost of the handset from the tariff plan.

CaixaBank CEO, Juan María Nin, said that “with more than a million contracts expected annually, the finance company will be the second largest in Spain in terms of transaction numbers.

Telefónica Consumer Finance is expected to take full control of the mobile device financing business from Q1 2014.

Other operators have followed the instalment model, most notably T-Mobile US. Others, including Vodafone Spain, have returned to handset subsidies after seeing customers flock to rivals.

Yet Tim Deluca-Smith, VP of Marketing at WDS, argues in a recent guest blog for Mobile World Live that handset subsidies are a dangerous game to play. They have created a generation of consumers, he says, with little appreciation of the true value of mobile devices.

ABI Research further argues that operators will find it difficult to maintain the handset subsidy model as revenue growth struggles to keep up with subscription growth (driven by multiple device ownership).

According to the research recently released by ABI, device subsidy accounts for 68 per cent of the revenue derived from a typical 24-month contract – the single largest cost for a mobile operator over the lifetime of a subscriber’s contract.

“Carrier’s cannot continue to subsidise all these devices, yet they must maintain their place in the value chain, their relationships and touch points with subscribers, where device subsidy plays an important role,” says Nick Spencer, ABI’s senior practice director. “Carrier’s need to consider a more transparent and varied way for consumers to purchase their mobile devices.”

Spencer argues consumers do not want to be tied to an aging device for two years, but neither can mobile operators afford shorter contracts. More flexible options are then required for the customer, which can reduce the subsidy burden.

“Transparent and outsourced subsidy is one such option,” adds Spencer.

It seems to be the path that Telefonica is already going down.