Hello Elisse,

Here is my report for our client company: X regarding whether or not they should expand their
product offerings to handset leasing.
Below are the reasons why I recommend this move:
Leasing is a concept familiar to many people as a result of its widespread use in industries such as
automobiles and consumer products.

“Leasing in the telecoms industry will be worth billions over the next few years,” says Daniel Proctor,
commercial director of Henry Howard Finance. “Technology is becoming more and more expensive.
Leasing and financing are huge benefits to the mobile channel because it can easily help them avoid
paying over the odds for handsets and similar products. “Lease Telecom is one company specialising
in telecommunications finance, which has been quick to identify the needs and opportunities in the
market.

In the telecom industry leasing has been available for expensive equipment to enterprise and business
clients for many years, but the concept of offering leased handsets to consumers is relatively new. As
a result of significant efforts to find new revenue sources, we have started to see operators trialling
various leasing options for handsets to consumers.

For subscribers, leasing is a trade-off that lowers the initial cash outlay needed for equipment in return
for monthly payments and an agreed buy-out ‘residual price’ at the end of the lease. For operators,
leasing means higher ARPUs over the life of the contract, both via a financing premium and lower
churn rates during the lease. In effect, the subscriber is paying a premium for not having to pay the
full cost of the equipment upfront.

Benefits
For any operator considering offering consumers the option to lease equipment such as handsets, there
are a number of factors to consider. Firstly, why do people lease phones? For subscribers the most
commonly cited reasons for leasing are that it reduces the initial cost of the device and enables you to
keep current with the latest devices using a regular, predictable payment.

For operators, the most common benefits cited include the potential revenue increase from allowing
low ARPU prepaid subscribers to use higher ARPU equipment and services that they otherwise could
not afford. In addition, operators cite maintenance savings and increased expenditure from subscribers
because they are able to move the latest equipment and service offerings. Leasing effectively removes
the upfront cost barrier that may have delayed a purchase, or even prevented the purchase at all.

Operators also have potential new revenue from financing charges such as interest, and some have
pointed out that leasing tends to yield more revenue than if the subscriber buys the handset and keeps
it for a long time period. Other important observations from operators included that offering leasing
tends to reduce the need to offer discounts to attract subscribers, which also had revenue impacts.

In addition, some marketing executives pointed out that the end of a leasing contract provided a
‘trigger event’ for the purchase of new equipment even if the current equipment was working well.

Trade-offs
There are some important trade-offs that must also be considered by both the subscriber and operator.
The most important is that subscribers should be aware that in the end, handset leasing, just like any
other kind of leasing, ultimately results in the subscriber paying more for the equipment over the life
of the contract. Some countries regulate that the total amount paid over the life of the lease must be
disclosed to the subscriber at contract signing. In some cases the subscriber specifically initials the
amount as part of the contract signing.

The use of leasing also raises some business model discussions. One of the most interesting questions
is around roaming and ongoing service charges for leased equipment. Specifically, does the leasing
business model still work when a subscriber’s lease unlocks phones that are not tied to the leasing
operator’s network? In other words, the revenue from the handset is significantly reduced if all the
operator provides is finance for the handset, since one of the primary motivations for leasing was to
enable subscribers to use higher value handsets and operator services that are enabled or enhanced by
the latest equipment. Is this business driver negated or at least reduced if subscribers are not tied to the
leasing operator’s network?

Another interesting question centres on predictable costs for prepaid subscribers. If a prepaid
subscriber leases a handset, have they effectively become a post-paid subscriber, even if they only use
a prepaid service plan? In other words, is leasing equipment a way to make prepaid subscribers
become post-paid? (See the dilemma of moving prepaid subscribers to post paid subscribers.) It has
been pointed out that if a subscriber leases equipment and has a post paid data plan, then the monthly
payments are still unpredictable. But if a subscriber leases a handset and uses prepaid plans only then
their costs can be totally predictable every month.

A final question that will require monitoring by operators implementing leasing services is how the
introduction of leasing affects the sale of supporting services, such a warranties and insurance plans.
Insurance and phone replacement plans in particular are becoming more popular and it is not clear
what effect, if any, leasing may have on their popularity.

Insight Research projects that telecommunications services revenue worldwide will grow from $2.2

trillion in 2015 to $2.4 trillion in 2019.
Telecommunications firms and enterprises are still trying to determine what the "killer apps" for
5G will be. With the advent of 5G, we're likely to see new kinds of apps we've never considered
before.

In reality, 5G is very much in the "build" phase right now. However, as people come to truly
understand its capabilities and limitations, we can expect to see the next generation of solutions based
on 5G.

The transition to 5G is expected to generate a windfall for network, infrastructure, and equipment
vendors. Gartner predicts that worldwide 5G network infrastructure revenues will touch $4.2 billion in
2020, recording year-over-year growth of 89 percent.