But the Spanish giant's strategy isn't as crazy as it sounds. Rather, the move shows just how tough the market is for Telefónica's mobile operator Movistar.
Indeed, the strategy makes sense, according to Stela Bokun, analyst and mobile devices practice leader at Pyramid Research . In Spain, total handset sales are declining and consumers are using their phones less. And Telefónica is clearly having a difficult time as the competition heats up too. The operator's mobile service revenues fell 7 percent in 2010, according to Bokun.
"What makes this deal special is the combination of a low-end tablet device and high subsidy on behalf of the operator," said Bokun. "Both are appropriate given ZTE's aggressive expansion strategy, and Telefónica's need to retain old customers, attract new ones, and migrate pre-paid [pay-as-you-go] to post-paid [contracts] as the competition in Spain continues to surge." Telefónica is offering ZTE's Light Pro tablet for free on a €49 (US$72) per month contract or for €19 ($28) on a €39 ($57) per month contract. But such low pricing is no surprise to Pyramid's Bokun.
"Operators such as Telefónica realize that they stand a better chance of attracting new subscribers and migrating pre-paid subscribers to post-paid [contracts] by offering high device subsidies," said Bokun. "The pockets of Spaniards are very shallow these days, and price is what drives the demand more than anything else."
It's surprising, though, to see Telefónica attach flat-rate tariffs to these tablets when the trend among operators is to offer different tiers of service depending on the amount of data used each month. But it's not clear what Telefónica's mobile data fair use policy is for these contracts. It could be quite strict and cut users off or slow their service down after a modest amount of data usage, which would make these tablet deals much less attractive.
For more on ZTE's device strategy and Pyramid's view on the mobile devices, please see these stories:
- Devices Drive ZTE in Q1
- Huawei, ZTE: Global Devices With Nice Prices
- Pyramid Intros New Smartphone Forecast
— Michelle Donegan, European Editor, Light Reading Mobile