This document investigates introducing a handset leasing business model for Telecom X to drive improved profitability. Market research shows shifting customer preferences towards lower cost SIM-only plans have reduced revenues. Handset leasing could be a solution by making premium devices more affordable and allowing frequent upgrades. Data analysis of two comparable companies, one with leasing and one without, shows the leasing company experienced higher revenue, profit and ARPU growth. Forecasts applied to Telecom X's financials predict leasing would result in over 4% higher profit growth compared to no leasing. To implement leasing, the next steps are understanding customer needs through a survey and creating an attractive leasing offer.

1. TELECOM X
DRIVING PROFITABILITY

2. 01. THE PROBLEM
02. MARKET RESEARCH
04. DATA ANALYSIS
05. CONSUMER NEEDS
06. EXECUTIVE SUMMARY
03. HYPOTHESIS

3. Telecom X is a telecom company that has faced a decline in
profits over the past few years. We have been engaged to
drive improvements in profitability.
A possible solution to consider is the introduction of
handset leasing.
This report will investigate the potential impact of handset
leasing on Telecom X’s profitability.
THE PROBLEM

4. MARKET RESEARCH
‣ Shifting customer preference
‣ Telecom network traffic growing by +40% per year but overall industry revenues are declining
‣ Due to an increased customer preference for lower monthly cost SIM-Only plans
‣ SIM-Only plans generate -27% less customer spend vs. traditional mobile plans
‣ Handset Leasing as an alternative for cost-sensitive customer
‣ Leasing is more affordable than purchasing a premium handset outright for a SIM-Only plan
‣ Customers are also able to frequently upgrade to the latest technology with no up-front costs
‣ Customers pay 50% less over 2 years with leasing vs. a traditional mobile plan
‣ Remonetising handsets
‣ Over a 2 year plan, customers will pay ~70% of the phone retail price, but then return it
‣ Telecom X are then able to remarket the handset for a different customer to lease

5. MARKET RESEARCH
‣ Other telecoms have seen positive results
‣ Singtel (Singapore) introduced leasing model in June 2018
‣ Following quarter, revenue +7.4% and profits +3.7%
‣ Previous quarters, revenue and profits had been declining
‣ SKT (South Korea) introduced leasing model in June 2018
‣ Within 1 month, 25% of new customers opting to lease
‣ 28% of customers in their 20s opted to lease
‣ Sprint (US) introduced leasing model in 2015
‣ Within 1 year, customer take rate of leasing plans was 45%
‣ Higher than traditional instalment plans
‣ An existing target segment
‣ An attractive offering for tech-savvy customers to frequently upgrade to the latest technology
‣ Attractive to cost-sensitive customers looking for more affordable premium handsets
‣ The option to frequently and affordably upgrade enhances a customers digital lifestyle

6. HYPOTHESIS
Introducing a handset leasing business model will drive improvements in profitability for Telecom X
Based on the insights from the market research, we should further explore handset leasing as a business
model for Telecom X as it has been introduced in similar markets with positive results and complements
current customer preferences.
Handset leasing is 50% less expensive than a traditional plan. It requires no up-front purchase costs and allows
customers the flexibility to regularly upgrade their handset to the latest technology. Additionally, once a
customer has paid 70% of the retail price over a 2 year contract, the handset can then be remonetised by
Telecom X.
It appears to be an attractive option, however, further data analysis is required to determine its specific
impact on Telecom X’s financial performance.
‣ “A Playbook for Accelerating 5G in Europe”, BCG (2018)
‣ “Singapore Telecom Sector”, Phillip Capital (2019)
‣ “Are Smartphone rentals value for money?”, Mobile World Live (2018)
‣ “Why Sprint is Focusing on Handset Leasing to Accelerate Growth”, Market Realist (2017)

7. DATA ANALYSIS
To determine the potential impact of leasing vs. no leasing, we will leverage industry data to create
financial forecasts for both scenarios, compare results and draw conclusions regarding the validity
of the hypothesis. The underpinning data to create the forecasts will be taken from the financial
statements of two other telecom companies in a similar market.
• Company A launched handset leasing at the start of Year 1.
• Company B operates in the same market and has not launched leasing.
The key metrics to be compared are:
• Operating Revenue
• Net Profit
• ARPU (Average Revenue per User)

8. DATA ANALYSIS – FINANCIAL STATEMENT (COMPANY A)
Company A Financial Statement
S$ Million
Year 0 Year 1 Year 2
Total Total Total
Income Statement
Operating revenue $ 8,537 $ 9,233 $ 9,670
Operating expenses $ (6,184) $ (6,270) $ (6,416)
EBITDA $ 2,353 $ 2,963 $ 3,255
Net interest expense $ (130) $ (143) $ (148)
Taxation $ 198 $ 201 $ 203
Depreciation & amortisation $ (743) $ (753) $ (759)
Net profit $ 1,678 $ 2,269 $ 2,550
Operating Revenue & Expenses Composition
Mobile Service $ 2,812 $ 3,375 $ 3,690
Others $ 5,725 $ 5,858 $ 5,980
Operating revenue $ 8,537 $ 9,233 $ 9,670
Operating expenses $ 6,184 $ 6,270 $ 6,416
Mobile Subscribers ('000s) 4,085 4,195 4,409
ARPU* 57 67 70

9. DATA ANALYSIS - FINANCIAL STATEMENT (COMPANY B)
Company B Financial Statement
S$ Million
Year 0 Year 1 Year 2
Total Total Total
Income Statement
Operating revenue $ 8,784 $ 9,033 $ 9,006
Operating expenses $ (6,153) $ (6,372) $ (6,470)
EBITDA $ 2,631 $ 2,661 $ 2,536
Net interest expense $ (158) $ (194) $ (189)
Taxation $ (356) $ (341) $ (305)
Depreciation & amortisation $ (1,416) $ (1,507) $ (1,469)
Net profit $ 2,117 $ 2,126 $ 2,042
Operating Revenue & Expenses Composition
Mobile Service $ 5,465 $ 5,641 $ 5,764
Others $ 3,371 $ 3,363 $ 3,102
Operating revenue $ 8,784 $ 9,033 $ 9,006
Operating expenses $ 6,153 $ 6,372 $ 6,470
Mobile Subscribers ('000s) 9,106 9,281 9,324
ARPU* 50 51 52

10. DATA ANALYSIS
To model the impact of each scenario, we need to determine the annual growth rates of Mobile Service revenue and
Mobile Subscriber count of both Company A and Company B.
As they have already introduced handset leasing, Company A’s growth rates will be the underpinning data for the leasing
scenario. These rates will be applied to Telecom X’s most recent financial statement to forecast the potential performance
impact of handset leasing on our key metrics.
Growth Rate %
Company A
Year 1 Year 2 Average
Mobile Service 8.15% 4.73% 6.44%
Mobile Subscribers 2.69% 5.10% 3.90%
Growth Rate %
Company B
Year 1 Year 2 Average
Mobile Service 2.84% -0.30% 1.27%
Mobile Subscribers 2.69% 5.10% 3.90%
To forecast the no leasing scenario, we’ll apply the combined average growth rates of both Company A and Company B.
This will give us industry benchmark growth rates that can be used to model the potential performance impact of not
introducing handset leasing. Below are Company B and industry average growth rates.
Growth Rate %
Industry Average
Year 1 Year 2 Average
Mobile Service 5.46% 2.25% 3.85%
Mobile Subscribers 2.16% 1.91% 2.03%

11. DATA ANALYSIS - SCENARIO 1 (LEASING MODEL)
• Applied Company A average growth rates to Telecom X financial statement
• Operating Expenses maintained at constant ratio
Growth Rate %
Company A
Year 1 Year 2 Average
Mobile Service 8.15% 4.73% 6.44%
Mobile Subscribers 2.69% 5.10% 3.90%
Telecom X Financial Statement (handset leasing implemented)
S$ Million
Year 0 Year 1 Year 2
Total Total Total
Operating Revenue & Expenses Composition
Mobile Service $ 1,354 $ 1,441 $ 1,534
Others $ 1,008 $ 1,008 $ 1,008
Operating revenue $ 2,362 $ 2,449 $ 2,542
Growth rate 3.69% 3.79%
Operating expenses $ 1,796 $ 1,862 $ 1,933
Mobile Subscribers ('000s) 2,341 2,432 2,527
ARPU* 48 49 51
Income Statement
Operating revenue $ 2,362 $ 2,449 $ 2,542
Operating expenses $ (1,796) $ (1,862) $ (1,933)
EBITDA $ 566 $ 587 $ 609
Net finance expense $ (27) $ (27) $ (27)
Taxation $ (45) $ (45) $ (45)
Depreciation & amortisation $ (294) $ (294) $ (294)
Net profit $ 200 $ 221 $ 243
Growth 10.38% 10.06%

12. DATA ANALYSIS - SCENARIO 2 (NO LEASING MODEL)
• Applied Industry Average growth rates to Telecom X financial statement
• Operating Expenses maintained at constant ratio
Growth Rate %
Industry Average
Year 1 Year 2 Average
Mobile Service 5.46% 2.25% 3.85%
Mobile Subscribers 2.16% 1.91% 2.03%
Telecom X Financial Statement (handset leasing not implemented)
S$ Million
Year 0 Year 1 Year 2
Total Total Total
Operating Revenue & Expenses Composition
Mobile Service $ 1,354 $ 1,406 $ 1,460
Others $ 1,008 $ 1,008 $ 1,008
Operating revenue $ 2,362 $ 2,414 $ 2,468
Growth rate 2.21% 2.24%
Operating expenses $ 1,796 $ 1,836 $ 1,877
Mobile Subscribers ('000s) 2,341 2,389 2,437
ARPU* 48 49 50
Income Statement
Operating revenue $ 2,362 $ 2,414 $ 2,468
Operating expenses $ (1,796) $ (1,836) $ (1,877)
EBITDA $ 566 $ 578 $ 591
Net finance expense $ (27) $ (27) $ (27)
Taxation $ (45) $ (45) $ (45)
Depreciation & amortisation $ (294) $ (294) $ (294)
Net profit $ 200 $ 213 $ 226
Growth 6.19% 6.10%

13. DATA ANALYSIS – COMPARISON LEASING VS. NO LEASING
Telecom X Financial Statement (Difference between Leasing vs. No Leasing)
S$ Million
Year 0 Year 1 Year 2
Total Total Total
Operating Revenue & Expenses Composition
Mobile Service $ - $ 35 $ 74
Others $ - $ - $ -
Operating revenue $ - $ 35 $ 74
Growth rate 1.49% 1.55%
Operating expenses $ - $ 27 $ 56
Mobile Subscribers ('000s) 0 44 90
ARPU* 0 0 1
Income Statement
Operating revenue $ - $ 35 $ 74
Operating expenses $ - $ (27) $ (56)
EBITDA $ - $ 8 $ 18
Net finance expense $ - $ - $ -
Taxation $ - $ - $ -
Depreciation & amortisation $ - $ - $ -
Net profit $ - $ 8 $ 18
Growth 0.00% 4.20% 3.96%
Growth Rate % Leasing No Leasing Difference
Operating Revenue 3.74% 2.22% (+) 1.52%
Net Profit 10.22% 6.15% (+) 4.07%
ARPU $ 50.00 $ 49.00 (+) $1.00

14. DATA ANALYSIS – CONCLUSION
Introducing a handset leasing business model will drive improvements in profitability
for Telecom X
There is sufficient evidence to support the hypothesis that introducing handset leasing
will improve profitability for Telecom X.
As per the data analysis, the growth rates of all key metrics are forecasted higher for
Telecom X when a leasing operating model is introduced vs. when leasing is not
introduced.

15. CONSUMER NEEDS
The next step is to create a handset leasing offer that addresses the needs of Telecom X consumers. It’s
important to understand who the potential leasing customers are, what they value and how to market the
offering to satisfy them.
Below are results from an online consumer survey.

16. CONSUMER NEEDS - SEGMENTATION
To develop a successful handset leasing offering that addresses market needs, it is important
to first understand who the target consumer is.
Based on insights from the survey data, the key customer segment that Telecom X should
target with a handset leasing offering is:
< 30 years old Price Sensitive Tech-Savvy Early Adopters
Handset leasing is a valuable yet cost-effective offering for a younger consumer. The lack of upfront
fees and lower monthly payments are attractive. Additionally, the option to frequently upgrade to
the latest technology is a unique feature that will enhance a customers digital lifestyle and cannot be
provided by SIM-Only offerings.

17. CONSUMER NEEDS - VALUE
Importance
Consumer Need High Medium Low
Upgrade frequency ✓
Low upgrade fee ✓
Low upfront costs ✓
Affordable monthly costs ✓
Option to keep phone ✓
Insurance ✓
The below matrix rates the importance of potential product features based on the data collected
by the consumer survey. This matrix should be used when creating the handset leasing product in
order to deliver maximum value by directly addressing consumer’s most pressing needs.

18. Telecom X’s decline in profits is driven by the existing offerings not
addressing consumers’ current needs.
Will introducing handset leasing reverse this decline? From our
research, there is a clear target segment and other similar markets
have responded positively to leasing plans. Introducing leasing
could improve net profit growth by 4%.
We recommend Telecom X introduces handset leasing.
EXECUTIVE SUMMARY