Rogers Considers Cutting Subsidies on Smartphones Such as the iPhone [Update]

Rogers CEO Nadir Mohamed believes it is time for Canadian carriers to look into reducing smartphone subsidies, he said at the company’s annual general meeting in Toronto, reports The Globe and Mail:

Mr. Mohamed said Rogers is the first in Canada to tackle the subsidy issue, because of its position as the industry’s market leader. He said when smartphones first came to market, it was essentially a choice between a BlackBerry and an iPhone, and customers expected subsidies in exchange for their heavy use.

But with a host of new competitors offering lower-cost products – such as Sony, HTC and Samsung – Mr. Mohamed said the companies will be able to better match phones with customers.

Just yesterday Rogers announced its 2012 Q1 earnings, where it was reported wireless voice revenue was on the decline but offset by higher data revenue. It was also revealed iPhone activations increased by 35% compared to the year ago quarter.

An anonymous shareholder at the AGM raised the same issue to Rogers as to why they continued to pay for iPhone subsidies–when customers are eagerly lining up for Apple’s smartphone. Apple announced $11.6 billion in profit yesterday for its 2012 second quarter, and derived more than half of revenue from its 35.1 million iPhone sales.

Mohamed mentioned as people start out with cheaper introductory smartphones and smaller bucket data plans, Rogers can even eventually steer them towards higher-end products and richer data plans.

“People want to start out with smaller buckets of data as a way to get into the category,” he said. “This business hasn’t used segmentation, which is a standard piece of business in other parts [of our business]. You will see that going forward as we start targeting different segments.”

Are consumers willing to pay full price for the iPhone? Of course. We’ve seen line ups for unlocked iPhones outside Apple Stores. But on the other hand there are those that always want to sign contracts to get a subsidized device.

What’s your take? Reduce subsidies along with contracts and go back to the good ol’ days?

Update 1: Rogers contacted us and forwarded the exact details of Nadir’s talk at the AGM. He did not refer to eliminating subsidies rather reducing them. Full text below:

HUGO MILLER, BLOOMBERG: Will subsidies keep rising (muffled)?

NADIR: I would differentiate between the amount of the subsidy in terms of the absolute dollar versus the rate per device.  We have not seen the rate per device going up. In fact, I would say the mix over time will lead to a lower blended cost for subsidy, quite apart from whether an individual supplier will lower the subsidy or not. It’s a mix issue. One thing we have learned that applies to every business is that the more choice there is, the more likely you’ll see that the prices come down. As a service provider, I just see a lot more choice going forward than we have had in the last ten years.

HUGO MILLER, BLOOMBERG: Apple’s numbers yesterday suggest that that kind of growth is not slowing anytime soon. Clearly the subsidies, as much as iPhones are a welcome opportunity, (muffled) is there anything that Rogers or the industry can do to  mitigate those subsidy costs, and how important is having other platforms?

NADIR: Great question in terms of subsidy and very timely. One of the things that impacted our quarter in terms of the earnings side of it, is the amount of smartphones we loaded -over 640 thousand activations. iPhones specifically were  up 35% and we all know the model in terms of subsidy. So to answer your question in terms of what we see going forward, a couple of things: One is clearly when we look out ahead at the number of suppliers we now deal with versus lets say even five years ago where essentially, if you go back to where we started were BlackBerry and then iPhone,  if you look out now, we have had the chance to sit with many suppliers, whether it’s Samsung, Sony, HTC,  there is whole group of new suppliers that have tremendous product selection.   For consumers it means much greater choice. For service providers it means having the option to bring way more to the market as opposed to relying on one or two suppliers.  I think part of the answer in terms of the subsidy model is the mix of smartphones that are in the market will change over time. Android clearly is the fastest growing part of that spectrum.  I suspect the others will continue to be strong including Apple.  The mix will factor in because there are different subsidies with different devices and service providers.  The second thing is very much a view that if you look at the history of wireless and where we are today, we have always talked about smartphones as a proxy for getting customers that deliver higher value in terms of using their services more and. In our language, higher ARPU or revenue per customer.  As I look forward it is clear to me.  Understand we are the leaders here, we are at 60% and this is going to be an industry issue.  We just get to these things faster – that’s the benefit of being the industry leader. What we see is that the next ten, 20 points of penetration, almost by definition, will be people who want to start out with buckets of data that will be smaller buckets as a way to get into the category and then grow with usage over time.   When you look at that versus the subsidy you have on the smartphone, what I look at from a service provider POV is to start segmenting the market.   This business of wireless data has not used segmentation. It is a very standard piece of our business in other parts of our business.  You will see that going forward where service providers including ourselves will start targeting different devices for different segments of the market to factor in what we would consider the usage pattern of that individual customer.   I think both will work hand in hand in terms of how the subsidy model evolves.

[via The Globe and Mail]