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Georgina Lee

Operators are being forced to cut the prices of their top models, eroding the profit margins that such exclusive products offer

Exclusive 3G handsets might attract the attention of potential mobile-phone subscribers, but operators continue to rely on old-fashioned subsidies to convince them to sign up.

Available exclusively from SmarTone Telecommunications is Sanyo's S103 slider handset, which boasts a 2.4-inch screen - among the widest available.  This alone is not enough to lure subscribers as SmarTone is offering the handset for $4,900, picking up $800 of the phone's cost.

Larger rival Hutchison Telecommunications - which offers LG and NEC models on an exclusive basis in Hong Kong - continues to offer the most generous enticements. The latest NEC 338 is available free of charge for customers who agree to an 18-month package at $151 a month.

One analyst said offering exclusive phones on a subsidised basis was destroying any opportunity to enhance average revenue per user (arpu).

'For Hutchison, its heavy handset subsidies offset the margin [that comes with handset exclusivity],' the analyst said.

'Its main aim is to load up its 3G network with as many subscribers as possible ... but what is the point of loading up your network with subscribers if they give low arpu? 3G is all about enhancing arpu.'

The competition for exclusivity looks set to heat up, with industry sources indicating SmarTone will offer the Sony Ericsson V800.

At present, the phone is available solely to Vodafone subscribers. SmarTone, however, is Vodafone's network partner and could also offer the handset, leveraging the procurement strength of the far larger European operator.

'The Vodafone Group has about 10 handsets and at least four to five of them are exclusive to the group,'   the analyst said. 'This would give them a lot of competitive advantage ... SmarTone does hope to benefit by securing handsets with Vodafone.'

Of the nine handsets SmartTone plans to launch, four of them will be exclusive. Two of the models - the Sanyo S103 slider phone and Sharp SX813 flip phone - have already been launched.

CSFB analyst Jeffery Tan credited SmarTone's 2.5G exclusive handset, the Sharp GX series, for the company's 58 per cent rise in handset and accessory sales last year.

But despite the potentially higher margins that come with exclusive handsets, rival CSL has not seen a need to adopt the same strategy.

Chief executive Hubert Ng Ching-wah has said Hong Kong lacks the scale to offer exclusive phones, adding that the market could be well served by  mass-market brands such as  Sony Ericsson, Motorola and Nokia.

Nevertheless, the company is considering offering 'customised' mobile phones towards the end of the year.

Merrill Lynch suggested that operators needed to take a balanced approach, offering exclusive phones to attract premium customers amd cheap deals to price-sensitive customers to build scale.

It said  22 per cent of the mobile-phone population was 'more willing to pay up for cool handsets'.

'We believe that SmarTone's exclusively designed 3G handsets should be helpful in retaining its high-end subscribers only,' Merrill said.

'But the availability of low-cost 3G handsets is an important enabler for SmarTone to attract mass market subscribers on economic terms.'



Forget handset snobbery - 3G customers want subsidised phones