Box Breaking and Counterfeiting
It is interesting that that in the USA people are being arrested for blatant box breaking on the suspicion of being terrorists. They may be annoying a few operators and avoiding a few taxes, but I doubt that this can be called terrorism.
The box breaking phenomena has blighted the sale of prepaid phones in the UK for many a year now. It creates huge problems especially with the customer numbers, churn figures and ARPU reported by the operators, not to mention the unprofitable nature of subsidizing prepaid handsets and paying agents commissions for “non-sales”. I suspect that some of the prepaid customer figures in the States also are suffering from this type of inflation. I actually saw the video footage on Fox news and the phones which were densely boxed were Tracfone GSM phones, which no doubt were heading off to a non-subsidy based third world country. The use of SIM cards in GSM phones actually encourages this type of trade, whereas I’m sure there is a very limited market in non-SIM based iDen and CDMA phones.
An even more dangerous example of box breaking is also starting to appear in UK market. This time it is more dangerous to the unwitting buyers health than the operator’s pocket. This is innocuously called “mixing” or “blending” but involves the replacement of a manufacturers battery with a counterfeit battery in a new phone and subsequently selling the manufacturers battery as an original accessory. The problem is that with margins so slim for the distributors and for instance with an original Nokia 6230i battery selling for around £7 and a fake for £2. The margins on counterfeiting are higher than on selling the phone. Add to this that Nokia are allowing distributors to package the product themselves (eg the insertion of an operator SIM card and operator specific packaging) and you have the recipe for unscrupulous distributors to cause damage to the whole value chain. Again the use of a SIM card, actually encourages this type of behaviour.
My own opinion is that with the VAT fraud problem and also counterfeiting, it will not be too long before a manufacturer decides there is just too much reputational risk is dealing with distributor and try to build a network themselves cutting out the distributor’s altogether.
The box breaking phenomena has blighted the sale of prepaid phones in the UK for many a year now. It creates huge problems especially with the customer numbers, churn figures and ARPU reported by the operators, not to mention the unprofitable nature of subsidizing prepaid handsets and paying agents commissions for “non-sales”. I suspect that some of the prepaid customer figures in the States also are suffering from this type of inflation. I actually saw the video footage on Fox news and the phones which were densely boxed were Tracfone GSM phones, which no doubt were heading off to a non-subsidy based third world country. The use of SIM cards in GSM phones actually encourages this type of trade, whereas I’m sure there is a very limited market in non-SIM based iDen and CDMA phones.
An even more dangerous example of box breaking is also starting to appear in UK market. This time it is more dangerous to the unwitting buyers health than the operator’s pocket. This is innocuously called “mixing” or “blending” but involves the replacement of a manufacturers battery with a counterfeit battery in a new phone and subsequently selling the manufacturers battery as an original accessory. The problem is that with margins so slim for the distributors and for instance with an original Nokia 6230i battery selling for around £7 and a fake for £2. The margins on counterfeiting are higher than on selling the phone. Add to this that Nokia are allowing distributors to package the product themselves (eg the insertion of an operator SIM card and operator specific packaging) and you have the recipe for unscrupulous distributors to cause damage to the whole value chain. Again the use of a SIM card, actually encourages this type of behaviour.
My own opinion is that with the VAT fraud problem and also counterfeiting, it will not be too long before a manufacturer decides there is just too much reputational risk is dealing with distributor and try to build a network themselves cutting out the distributor’s altogether.
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