Lease Telecom (part of Lease Group) and Mobile News magazine met to discuss the recent goings-on in the market and how leasing plays a significant role in the funding of business mobiles. The Q&A forms part of our ‘Leasing Spotlight’ as seen in this month’s edition of the sector publication.
Read the digital version of Mobile News here or read on for the Q&A.
What factors are driving device finance and leasing?
The increase in smartphone pricing has forced the market to explore alternative methods of funding the traditional mobile contract.
Over the past 4 years we have seen UK network operators pull upfront funding of devices from the independent dealer channel to better manage cash reserves. The move from upfront to the monthly drip-fed commission model now see’s the independent dealer channel earn when the network does. However this means, no (or limited) capital to fund handsets at the start of the contract. Limited upfront commission and soaring handset prices means dealers are looking to leasing to overcome the cash deficit and risk when renewing handsets on day one.
The increase in wholesale and SIM only options for business have also played a big part in leasing adoption, as customers seek greater savings versus traditional network contracts by separating the monthly mobile bill.
What are the issues surrounding risk and creditworthiness?
Payment risk and customer creditworthiness are managed by Lease Telecom and it’s funding panel. If a customer defaults on their lease repayments, there is no recourse for the dealer. Creditworthiness will of course determine how many handsets a customer can lease, just like any other lease or business loan. We are getting more and more favourable results in the start-up space, and have seen a spike in leases placed for weaker counterparties due to the growing appetite of smartphone lending from our funders.
How does device finance and leasing improve cash flow?
Leasing improves cash flow dramatically. All of our Partners receive their hardware revenues either the same or next day of equipment delivery, which is a drastic improvement versus traditional mobile contracts, where deals typically break-even at month 20 on a 24 month term. For the customer, the lease contract fully amortises the cost, and so there is no upfront contribution to consider, which is again, a win for cash flow.
What revenue opportunities are there for dealers and resellers to engage in device finance and leasing?
With a Lease Telecom account, Partners are far more inclined to embrace device renewal discussions, versus leaving it to their customer to source handsets themselves. So hardware revenue is front and centre as far as opportunities go. Leasing also opens up additional revenue discussions, such as device insurance and accessories. Customers are much more inclined to insure devices that are being financed versus those that are given as part of the contract ‘for free’. A monthly lease bill can also include service charges, such as delivery, number porting, handset setup, training, and the flashing and configuration of business apps. All of these services, along with software such as MDM and Office 365 can be up-sold and amortised across the term along with the hardware, giving the customer one convenient monthly bill for all of their mobility needs. Unified dealers can go the extra step towards full bill consolidation by including desktop phones, routers, POE switches and VOIP licences.
A bonus revenue stream presents itself at the end of the lease term, when the customer has the option to return the handsets. Apple devices typically hold 25-30% of their original value at month 24, giving Lease Telecom Partners the opportunity to generate trade-in revenues and offer trade-in bonuses to encourage the next device upgrade.
What device finance and leasing products do you offer?
Lease Telecom offers lease finance, hire purchase and residual value finance (known as operating leases), giving Partners the ability to cater for different opex budgets as required by the customer. Our residual value offering builds 25% into the cost of Apple devices, giving customers the ability to acquire the latest handsets at marked down costs.
How has device finance and leasing evolved over the last five years?
Since we launched smartphone leasing to the market in 2014, there has been a significant uptake owing to the increase in smartphone prices, shifts in network commission models and the introduction of competitive business SIM only plans. We are seeing more and finance and leasing offered in consumer markets, at point of sale (online and offline) and by manufacturers themselves. Lease Telecom has begun integrating it’s platform with online shops to help Partners deliver more cohesive customer experiences, we see this as a huge growth area for us and the sector.
Has the higher price threshold of tier-one devices benefitted device finance and leasing?
Absolutely. Networks, Partners, Customers and manufacturers have all been forced to look at different ways of making top end handsets available to the marketplace. Tier 2 and tier 3 vendors have followed suit in their pricing strategies and so with higher pricing across the board, finance and leasing seems likely to benefit for as long as handset prices exceed £500 per unit.
Is there consumer/user resistance to not ever owning the device?
A common misconception of leasing is that devices must be returned at the end of the contract term. With Lease Telecom, customers can return or retain the equipment depending on their needs. We have flexibility in our product to make devices available at the end of the contractual period or to have them returned and replaced.
Why would a consumer consider device finance and leasing rather than just take out a network contract direct?
Flexibility and cost effectiveness. The increase in wholesale and SIM only options for business have played a big part in leasing adoption, as customers seek greater savings versus traditional network contracts by separating the mobile bill. A £12 4GB data SIMO paired with a £16 handset lease provides a very viable and affordable alternative to direct network offerings, and due to the fully amortising nature of the lease contract, there is no upfront contribution for hardware to consider either.