UK 3G operator, 3, is about to launch two Euro 9 ($10.75) handsets into the Irish market, according to The Sunday Times.
Signing up for its Euro 60 a month package ($71.74) entitles you to either a Sony Ericsson K608i and the NEC 338. This undercuts Vodafone by c. Euro 40 for the SE model.
While heavily subsidised handsets are nothing new in the industry, it’s interesting that 3 is resorting to the only tactics that seem to work for the company - discounting the hell out of its products. It famously struggled in its early marketing in the UK by trying to persuade us that we should all go 3G to get mobile video calls. Finally, they were forced to abandon this and simply offer cheap voice rates.
Of course, signing up subscribers with attractive price-led packages isn’t necessarily a poor strategy. If people sign up to one thing (cheap voice calls or handsets) and then discover all the other compelling benefits of using your service, they may remain loyal in the future. However, if your service has little to differentiate it from that of your competitors’, price-led activity leaves you very vulnerable as users will simply switch to cheaper offerings as they emerge.
It’s too difficult to say if 3 has a compelling and sustainable competitive advantage, but my current feeling is that they probably don’t in comparison with the fearsome competition in the UK and Ireland.
Time will tell.
Russell This could have something to do with the fact that 3 needs to get customers on board if its to IPO. I have heard that at present its internal valuation is 3 times what the market thinks its value. Also speaking with someone last month I was told that the churn rate is not pritty now that rivals have launched 3G services.
Thanks for the comment, Ian - as ever.
Russell
Russ - how is this sort of offer any different from those that other operators put out? It seems like a low-cost handset, but only if you forget about the pretty meaty monthly fee which you’re signed up to for.
10 euros + 12 months at 60 euros per month = 730 euros commitment over the first year. Vodafone offer this handset PAYG for 249 euros, which is considerably more subsidy no?
Hi Tom
It’s not really different at all. I’m just trying to say that the only success 3 seem to have is to discount the hell out of their product. And that this is a dangerous game to play.
While discounting is a fact of life in many industries, including telecoms, their various marketing efforts have failed to find the other effective buttons to push.
Yes, Vodafone’s package is cheaper, but that is sort of my point. Someone can always offer it cheaper, leaving a brand dependent on discounting very vulnerable.
Russell
Isn’t this how any new entrant into a telecomms market starts off - by buying customers?
e.g. Orange, EasyMobile, Virgin, etc. Didn’t they all start off with excellent deals designed to attract customers away from incumbents?
And 3 seem well established in certain markets - I understand that they *own* “white van man” (not a bad place to start off given the way that mobile transformed the businesses of builders/plumbers/etc)…
Their figures for music video downloads are quite good too. I was sceptical about 3 when they kicked off - they missed a trick with no coherent offer for business customers - but they seem to be doing some interesting things now.
lol tom - white van man! quite correct though. I believe Three’s is also the busiest portal per subscriber.