Lease Telecom’s Managing Director, James Phillips, answers key questions from the channel in an interview with Mobile News Magazine. Read the full feature here.
1) What factors are driving device finance and leasing?
In terms of the Partner channel, increased hardware costs have caused network providers to address the way they pay commissions, and for the most part, there is little desire to play the role of bank when it comes to fronting the cost of devices. Over the past 3 years we have seen UK network operators move from upfront to monthly (drip-fed) commission models which see’s the Partner earn when the network does. This means, no (or limited) capital to help fund handsets at the start of the contract. Prior to the rise of smartphone leasing, Partners would have little choice but to play the role of bank. With leasing, each device renewal see’s the Partner paid their hardware revenues upfront in full, so there’s no need to bankroll the hardware bill for the customer. Offering leasing also passes the full liability to Lease Telecom, so if the customer fails to keep up the repayments, it’s not the Partner’s problem.
The increase in wholesale and SIM only options for business have also played a big part in leasing adoption, as customers seek to eek out greater savings versus traditional network contracts by separating the mobile bill. A 2GB data SIMO paired with a £20 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.
2) What are the issues surrounding risk and credit worthiness?
Risk is less of an issue for the Partner, as Lease Telecom takes on the full liability for the lease. If a customer defaults on their repayments, there is no recourse for the Partner either. Creditworthiness will of course determine how many handsets a customer can lease, however, and contrary to popular belief, leasing approval rates tend to be in-line and in some cases better, than that of the mobile networks. Our primary role is to arrange credit, even for lesser creditworthy counterparties by drawing upon a range of funding options. We are getting more and more favourable results in the start-up space, due to the growing appetite from tier 2 and tier 3 lenders looking to lend against smartphones.
3) 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 methods, 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.
4) What revenue opportunities are there for dealers and resellers to engage in device finance and leasing
With leasing, Partners are more inclined to embrace device renewal discussions, rather than play them down to protect their own cash-flow. 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 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.
One often overseen revenue stream presents itself at the end of the lease term, when the customer has the option to return the handsets. 24 month old Apple devices typically hold 25-30% of their original value, giving Lease Telecom Partners the opportunity to generate trade-in revenues and offer trade-in bonuses to encourage the next device upgrade.
5) What device finance and leasing products do you offer?
Lease Telecom offers lease finance, hire purchase and residual value finance (known a 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. This leasing product is extremely powerful where customers are looking to eek out further savings, even against the already competitive SIM + Lease proposition.
6) 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. Combine these factors with general increased awareness for smartphone finance, we’re now processing 20 times the monthly value of leases versus 2015. Speaking with Partners, there is still educational work to do. To some customers it’s a completely new concept and to some Partners, leasing hasn’t been as smooth as promised by their finance broker. There are still some misconceptions in the marketplace, which we will eventually overcome. But all in all, our unprecedented growth is an indicator of how leasing adoption has gathered momentum over the past 5 years.
7) Has the higher price threshold of tier one devices benefited 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.
8) 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.
Source: Mobile News Magazine, Lease Telecom Spotlight, May 2019