SIM-only contracts (SIMO) are one of the biggest trends in mature mobile markets such as the UK. SIMO now represents almost 30% of the market. In Q4 2017, 44% of customers stayed with their network but moved to SIMO deals in the UK.
It’s a trend that can no longer be ignored by B2B service providers.
The reason for the popularity of SIMO is that an increasing number of customers don’t want to tie their handset renewal to their contract renewal. They don’t perceive new handsets to be offering sufficient increased value to justify changing them – preferring instead to hang on to handsets for longer and change them when they break or they feel they’re outdated.
This trend is natural when you think about it. Changing handsets and contracts at the same time was an artificial situation dictated by service provider goals, not customer needs. The contract was designed to spread the cost of the handset – lengthening as the cost of handsets increased.
But this mindset is looking increasingly old-fashioned. Customers are happy to source handsets directly from third parties, and profit-minded service providers might not be altogether unhappy about that. Providing handsets was a necessary evil at a certain stage of market development, but it also introduced considerable dissatisfaction into the digital experience without necessarily adding much profit.
Once the service provider is freed up from the restrictions of handset-determined contract cycles, they have more scope for commercial innovation and can better meet the needs of customers who no longer wish to be tied into such long-term deals.
SIMO contracts can be monthly, quarterly or yearly since they no longer need to recoup the handset price. This avoids a key problem for service providers – the risk of churn at the end of a long contract, when the customer discovers the price they are being charged is out of kilter with the market norm, or their needs have changed but the contracted services haven’t. It also means that handset issues more clearly become not-their-problem.
Since SIMO is now a big feature in markets like the UK, B2B service providers need to consider how they incorporate it into their B2B strategy. This requires a review and perhaps an overhaul of go-to-market strategies for service providers that have relied on handset sales to boost revenues. It means that analysts have to take a harder look at profitability rather than revenue (APPU rather than ARPU) in the service provider market. SIMO has the potential of boosting KPIs such as customer satisfaction, retention and even APPU if it is approached well.