Falling aquisition costs...How does that add up?

[3GScottishUser]

It has recently been reported by HWL that their aquisition cost is reducing. In the last quarter of 2004 it fell from €299 to €271 per customer.

I dare say this takes into account the falling cost of 3G handsets but how can aquisition costs fall when customers pay less money?

Here is my analysyis:

In 2003 you got a 3 handset and 3 months line rental at half price. On a £25 contract that got 3 a revenue of £412.50 minus the cost of the dealer commission and handset cost. For argument lets say the dealer gets £100 and the handset cost £170. So aquisition cost £270 or thereabouts.

In 2004 you could get a 3G handset with 12 months rental at half price or better (as low as £5/month after cashback). Taking the former example thats £150 revenue for 12 months. The commision to the dealer would have been about the same as in 2003 (£100) and handset a bit less at £150 or thereabouts. So aquisition cost £250 plus an extra 9 months half price line rental £112.50 (provided by the dealer). So true aquisition cost must be about £372.50 at best.

How then can aquisition cost be falling? Are cashbacks from 3 counted as 'promotional and advertising support', taking them out of the aquitition equation? Seems like the most likely answer. How else could they claim what they have.

The stats all companies produce always tell the story they want investors and the press to believe but those who have been following this product know that what has been happening in the market does not concur with what is being claimed...... Accounting procedures and designations have much to answer for perhaps?

[Ben]

Hmm, I've long been baffled by a lot of Three's figures - infact all the networks figures baffle me. The calculations they use for the various figures we see just aren't practical in real terms. ARPU is the killer!

Taking dealer cashbacks out of the equation I'd imagine it has to come down to cheaper handsets. Three will no doubt pay a lot less for the LG's now than it did when the U8110 came out, and it's probably the biggest purchaser of the Moto's and NEC's... the 6680 could cost them, *if* they release it.

Interesting that in just one quarter new subscribers are having €20 less spent on them. Saying that, HWL recently had a whole accounting shakeup did it not, I daresay there will be a lot of questionmarks when trying to compare figures old and new. Perhaps that's the idea.

Keep in mind that data provided by Huth (end march) were for the seven countries were 3G services are active. SACs are on average. SACs in Italy (44% of Hutch 3G subs in the world) are much lower then in the UK.

SAC (or CAC) given by Hutch were :
€299 on average for jan/jul
€252 in July
€270 in November
€271 on average for H2 04.


Denis

[3GScottishUser]

UK ARPU is falling and 3 have a much lower revenue from non-voice than other networks. No surprise really as they dont have any open Internet access so revenues from data are restricted to their own content sales.

My biggest concern is the real vs the fake figures. ARPU is about billed revenues which is fine but latterly 3 and others pay dealers who offer consumers cashbacks which whilst entirely legitimate disguise the true amounts that customers really spend on the products and services.

For as long as the cashbacks feature I take the whole ARPU statistic with a ton of salt (especially from a new network with most of their customers appearing during periods of heavy cashback activity).

[Ben]

I don't think the dealers are getting paid any extra to offer the cashback incentives - it'll just be coming out of their commissions. The networks are obviously paying the dealers too much if they feel they can give large chunks of it away!

I thought Three had much higher non-voice revenues, in terms of a percentage, than other UK nets?