You probably already know that mobile phone retailers are falling over themselves to better each others deals. You will see many websites and high street shops advertising free or discounted line rental offers for 6, 9, 12 even 14 months.
So how can dealers make these seemingly crazy offers? First, you need to understand how dealer gets paid and how mobile phone industry works (just a little bit). The dealer gets paid by network, based on what price plan (tariff) he connects customer to; a higher price plan means more money for dealer.
Then dealer must pay for cost of phone. A high quality and expensive phone means less profit for dealer. The difference between tariff commission and cost of phone gives dealers gross profit.
However, dealer must then pay any cashback money from this remaining commission. The dealer basically is 'betting' on how many customers will claim their cashback money after stated 6th/12th month (or as given); lower percentage of customers that claim, higher dealers profits. The higher percentage claiming, closer dealer comes to going bust!
It is a fact that many are actually offering deals to customers that do not make them any money at all, and may make a loss. So how can they make this work?
Retailer goes bust without paying customer
The worrying problem is that some do not make it work, and have gone bust. Less reputable and unstable companies have not got balance right and had to pay out so much cashback that they simply do not have money in their coffers to pay, and have closed shop leaving customer without their cashback money.
In 2004 Mobile Republic went into administration allegedly for this very reason, and left many customers without their cashback.
Take benefits of cheap offers but miss problems