Why Operators in Pakistan are Unsuccessful in Selling Contract Based Phones?

Internationally, contract base method of phone purchase is quite popular among consumers but in Pakistan that’s not the case. The Pakistani mobile phone market is another world; there are no phone contracts, operator subsidies or even a preference for 3G connections. To understand why operators in Pakistan are unsuccessful in selling contract based phones, we should first know what ‘contract based phones’ are? Well, contract based phone means that you pay a specific monthly fee for a fixed period of time. Like there will be a billing cycle of a month or so and service provider provides credit to consumer.

Contract arrangement works really well for all parties involved, such as the mobile company will be able to sell more handsets, the operator will get more users and most importantly user will get handset at a very convenient payment method

In this arrangement, you are essentially promised to continue to pay the service provider a certain monthly rental in exchange for a discount on the upfront cost of your phone. Since the operator is getting certain amount from the customer for a reasonable period of time, they can afford to offer you the handset. One of the important thing to note here is that these phones are often „locked“ to the service provider it is purchased from.

One of the biggest reasons for this is the inability of service providers to ensure that you stick with them for the 1 or 2 year of contract period and continue to pay the minimum monthly rental

In this contract system, the operator pays the whole amount to the mobile manufacturer and funds the handset for its customer, which allows customer to get the handset at a cheaper price or even for free. Normally this type of arrangement works really well for all parties involved, such as the mobile company will be able to sell more handsets, the operator will get more users and most importantly user will get handset at a very reasonable payment method. Most mobile phone contracts provide mobile customers with a handset and a monthly allowance of calls, data and texts. And when a customer has contracted or assured to be with a particular service provider, he is offered certain concessions & discounts based on duration of contract.

Looking at the market realisms of Pakistan, the first and the foremost thing one will notice is that Pakistani consumers are very price sensitive. We are the ones who communicate with ‘Missed Calls’, subscribe daily/weekly/monthly bundles and what not. So the service providers in Pakistan have accordingly introduced products and services suiting needs and use of their consumers. Call charges in Pakistan are very low, our telecom operators play on the principles of low charges as their call rates stand among the lowest call rates when compared to any other country.

We don’t have National Insurance numbers or a proper system through which one can make customers to pay their monthly rent

One of the biggest reasons for failure of contract base phone  is the inability of service providers to ensure that you stick with them for the 1 or 2 year of contract period and continue to pay the minimum monthly rental.

Another prominent issue here is that Pakistani market is predominantly a ‘Pre-Paid’ market. The reason why we see contract base phones in west is because they are post-paid market. The ‘pay-as-you-go’ preference is the first and the prime advantage of prepaid plans as compared to postpaid plans in Pakistan and anywhere in the world. The possibility of having complete control of cost is the most attractive option for many users. This is also one of the reasons that our operators aren’t investing in introducing the contract base phones in Pakistan. Let’s take an example of Ufone Super Card, keeping in mind the capacity of majority of Pakistani consumers, the operator has understood users’ need and introduced a solution that is highly appreciated by the consumer. It reflects the market needs and consumer behavior of two totally different markets. On the one hand, there are users who are price conscious and want to spend as low as possible and on the other hand users who prefer postpaid.

Another major issue is that operators don’t offer contract option because in Pakistan it’s easy for people to just disappear. We don’t have National Insurance numbers here or a proper system through which you can make customers to pay their monthly rent.  Also in our mobile market, mobile users switch their networks depending on the packages and offers by service providers. Seamless number portability i.e MNP (Mobile Number Portability) also facilitates frequent changes in operator based on cost and service benefits; this allows customers to change their network without changing the number. Which is a hurdle that makes operators to think twice before offering contract based phones.

There are certain operators, banks and companies that have started offering contract option, for example Ufone and Faysal Bank; both companies have partnered to offer smartphones not only at discounted rates but also an easy payment option with no markup or down payment, but this offer is only for Faysal Bank’s credit card customers.

Things are changing: the new trend is for EMI; customers buy the phone and they have to pay for it in Equated Monthly Installments. Since this kind of arrangement can be spread over a time of 6-24 months it has brought pricey smartphones in the reach of more people. I would like to give an example of www.homeshopping.pk; they have started offering smartphones on EMI (Easy monthly installments) and they are doing really good. Again, the issue with them is that their service is limited to Lahore and Karachi, plus they only offer this service to people having a salaried account.

One more example of companies offering EMI in Pakistan is ‘Mian Group of Chakwal’, that has outlets in seven major cities of Pakistan. They are offering EMI on variety of products including smartphones but on a very high interest rate.

In an open market such as Pakistan where customers are mostly enrolled for the prepaid option, the contract option is actually more of a bane than a boon for the customers and operators alike

I feel that in an open market such as Pakistan where customers are mostly enroll for the prepaid option, the contract option is actually more of a bane than a boon for the customers and operators alike. The mentality of the customer is to save on Calls/SMS/Data bundles, which are usually. Contract based phones will become more widespread in Pakistan at an opportune time. To me mobile and telecom market is fiercely competitive market in our country and anything valuable to consumers will be a hot cake for both consumer and provider. As of now it seems the idea of ‚contract based phone‘ is not a really a thing for Pakistan. But who knows, Pakistani consumers may even get something hotter than contract based phone.