Brown’s Bytes – The Tech Fund’s Dirty Little Secret…

Welcome to Brown’s Bytes! Your weekly insight from Mobliciti’s CTO Andy Brown. Follow #brownsbytes

21st September 2018

Carriers were in the news this week here in the UK: Millions Overcharged for Mobile Contracts

To summarise the story, it’s a simple tale of how carriers structure their offerings to make extra profit:

  1. Bundle the hardware cost with the airtime so the consumer doesn’t have to pay up front for it
  2. Charge a single monthly fee for an agreed period (the contract term)
  3. Keep charging at the same price once the contract is up

The cost of the device is fully covered off by the end of the contract… every month the consumer goes over their contract term is pure profit on the hardware element.

Although the story was based around consumers rather than Enterprise I thought it was interesting for several reasons:

  • These are the exact same carriers that Enterprise use – leopards don’t usually change their spots!
  • This has been going on since the dawn of Mobile contracts. It’s in the DNA of carrier’s business models.
  • It put a number on how much they are making out of this. £500 million isn’t small change even for a large carrier

Surely smart Enterprises wouldn’t fall for these obvious ruses like silly consumers? So, let’s look at how Enterprise deals tend to be put together.

Enter the Tech Fund…

Enterprises can’t maintain each line individually like consumers do – that would be a massive management overhead. So, they tend to contract all their lines together in a big lump of committed spend on a regular basis (let’s say for argument 3 years).

In negotiations with the carrier you’ll sit down and at a very high-level start to look at:

  • How much voice / SMS / data & roaming you need
  • What phones you want to buy over the next 3 years

The negotiations at this stage can be pretty tortuous, especially if you’ve decided to benchmark multiple competitors as well. You’ll be bamboozled with all manner of bundles and offers and usually as part of this will be the Tech Fund.

Simply put the Tech Fund is an off-balance sheet loan. Based on commitment to spend (per use per month) over the term, the carrier offers you a pot of cash back to spend on hardware.

Sounds simple and fantastic. You’re in control of hardware, but you don’t have to “buy it” each time.

Ahhh, but….

Let’s say you’ve got 500 users and you’re feeling generous and want everyone to get a new iPhone XS @ £1000 RRP. You’ll therefore need half a million of extra cost added back into your monthly costs.

Except it won’t be half a million. It will be more… how much? Who knows… it’s all in a bundle!

Now let’s also consider how you spend your new half a million… You just order devices from the carrier.

You can’t buy them anywhere else and you will be purchasing from a “special Enterprise” catalogue where the prices are not fixed… they fluctuate completely beyond your control. Remember also, that phones come down in price over time… even Apple ones, but you probably won’t see this in your special catalogue!

Now also remember that overall Apple prices are rising, but your fund is set at a point in time, for 3 years. Nobody expected an iPhone to cost £1000 3 years ago! It’s a long time to be locked into a deal.

You’re almost guaranteed to either:

  • Use up your Tech Fund too quickly and then have to buy phones for actual cash, but then put them on your standard tariff anyway (which remember has hardware included!)
  • Not use all your fund in the term. This is more common than people expect and good luck getting the money back at the end of the contract!

All this complexity comes from the same trap that consumers fall in to… getting a shiny new phone without having to spend a £1000 up front on it!

And finally, Enterprises often overrun their Mobile contracts because it takes so long to negotiate a new one! As soon as you go over the term the carrier is making extra profit, just like they do from consumers!

I’d strongly recommend bearing all this in mind when your contract next comes up, and please get in touch before then – we have a range of solutions that are competitively and transparently priced that we’d love to talk to you about for airtime and hardware. No more hidden nasty surprises!