Subsidies allowed in Finland
Finland has been very unusual mobile phone market in Europe. Only in Finland and Italy phone subsidies haven’t been allowed. 1.4.2006 Italy is left alone when bundling phone and subscription is allowed for 3G phones in Finland. Elisa was the first operator to announce its plans.
Let’s do some number crunching for Elisa’s packet for Nokia 6630.
You can take 400 min monthly packet for 6630. Total monthly cost is 27,90€. Call cost is 0.45€ per minute and you pay basically 240€ about a phone i.e. 10€ per month as you are married to operator for 24 months.
The very same company offers 500 min monthly packet under Kolumbus brand. The price is 17,90€, which makes 0,36€ per minute. Consumer can buy Nokia 6630 from independent Veikon kone shop at price 299€. Columbus don’t have 400 min packet but to make comparison valid let’s calculate 400×0,36€=14,32€.
So consumer will pay monthly 17,90-13,42=3,58€ more about Elisa voice calls compared to non bundled deal. It makes 86€ in 2 years. On the other hand he gets 299€ phone with discounted price 240€. It’s 59€ difference. Elisa gets 27€ return for money tied to device (4.5% ROI) and guaranteed customer for 2 years. Consumer don’t need to use own money to buy expensive device but on the other hand loses possibility to change operator in next 2 years.
Probably in the other markets it’s not that easy to make comparisons. Everybody knew there isn’t free lunch available. What bothers me is that bundling leads to less competition. When people are tied to operator for 2 years and there is practically no way to resign, it will finally lead to less competition. This is also question about politics and controlling market economy. It shouldn’t be news to anyone that all markets are regulated; there isn’t free market anywhere in any business. Governments do always regulation and that’s good because otherwise this world would be even crazier than it is today. This is just good example where regulation is needed to increase competition for the benefit of consumer. In this case other countries should have followed Finnish model, not another way around.
One addition, point I want to emphasize.
Bundling was allowed by regulator to speed up data service take off.
All the packets introduced so far are voice packets (phone+n minutes per month). You can add data service if you wish and cost is as it used to be before.
Hey Finnish telecom regulator. Keep close eye what’s happening there!
Alot of people can’t afford that 250 euros upfront for the phone, so paying the 3,58 extra per month is much easier for some.
This is something that can boost the sales of 3G devices. In that sense I’m eager to see what will happen.
I hope that people will purchase more 3G devices thanks to this, hence I’m looking forward to the new regulations.