By Drew FitzGerald
The wireless contract is staging a comeback.
U.S. cellphone carriers are offering their most generous
discounts in years, handing some customers brand-new devices for no
money down or small monthly payments stretched over many months.
The discounts from AT&T Inc., Verizon Communications Inc. and
T-Mobile US Inc. require customers to make long-term commitments
that give carriers the stability they need to reassure investors as
they increase spending on 5G network upgrades.
AT&T kicked off the trend in October by offering high-end
smartphones such as the iPhone 12 free with an eligible trade-in
device. Its discount later dropped to $700, which covers the entire
price of an iPhone 12 Mini and most of a standard iPhone 12, among
other gadgets.
Verizon followed suit on Tuesday, dangling trade-in credits of
$700 toward new iPhones and $800 toward high-end Android phones.
Both companies' most generous offers require that customers stick
with an unlimited data plan for a set time.
"It's essentially a contract," said Jeff Moore, the head of
telecom research firm Wave7 Research. "We're seeing carriers
locking in the customer base that they have as opposed to
encouraging switchers."
The free-phone strategy is a throwback to the wireless market a
decade ago, when U.S. carriers subsidized the price of most new
smartphones in exchange for subscribers' guaranteed monthly
payments.
The status quo shifted around 2013, and carriers began hawking
no-contract wireless plans to customers who bought their own
devices.
Subscribers could also pay off the cost of a new smartphone
through monthly installments added to their bills.
AT&T and Verizon are now footing most or all of those
purchases in exchange for reliable revenue. Verizon's free-phone
offer requires a two-year commitment. AT&T on Friday stretched
its 30-month payoff plan to cover three years. Both companies are
offering the deals to existing customers, not just new ones or
those adding a new phone line.
T-Mobile is offering trade-in credits worth up to $1,000 toward
new smartphones paid off over two years. Its offer covers a wider
range of mobile data plans but only applies to customers activating
a new phone line.
Each carrier covers the cost of the smartphone through monthly
bill credits equal to what their regular equipment installment
payments would be. More expensive devices such as the iPhone 12 Pro
Max -- sticker price $1,100 -- yield low monthly installment
payments. Verizon's $700 to $800 offer also throws in a $300 gift
card for new customers. The discounts require continuous wireless
service for at least two years; otherwise, customers must pay off
the balance of the smartphone purchase.
Wall Street analysts say the offers to existing AT&T and
Verizon customers affect a much wider range of eligible users than
previous promotions did. Paying to equip new and existing customers
with new smartphones has already cost AT&T as much as $2
billion per quarter, according to estimates from industry
researcher MoffettNathanson LLC.
The handouts have yielded AT&T the sharp subscriber growth
that investors tend to reward. The Dallas company added nearly 1.4
million postpaid phone connections to its base over the six months
that ended in March.
David Christopher, executive vice president of AT&T's
wireless division, said the device credits are more like
interest-free financing than a long-term contract for wireless
service. He said the carrier started offering subsidized financing
because the sticker price on top smartphones has risen from $600 a
few years ago to $1,000 or more today, and buyers wanted more ways
to cover the purchase.
"Our customer base is very valuable, and low churn is
represented by customers voting to stay with AT&T," he said.
"It resonated in the marketplace. We like the formula."
Industry executives also say the generous phone deals reveal
fiercer competition in the wireless market, which has shrunk to
three national carriers since T-Mobile's takeover of rival Sprint
Corp. in 2020. Satellite operator Dish Network Inc. gained the
ingredients for a fourth national system through a Justice
Department-brokered settlement, but its first cell towers won't go
live until later this year.
The consolidation hasn't yet led to sharply higher service
charges, though monthly rates haven't fallen either.
MoffettNathanson estimates the average revenue per user on a
postpaid plan, which carriers value for its reliable monthly
payments, has hovered around roughly $47 over the past three
years.
Cable-internet providers Comcast Corp. and Charter
Communications Inc. are adding to the fray with their own low-price
wireless plans. Those deals are only available in the cable
providers' footprints, where they have arrangements to provide
cellular service with help from Verizon's network.
"We see a competitive, healthy market out there," T-Mobile Chief
Executive Mike Sievert said last month. "When more people start to
enter the switching pool, you have more people that are jump balls.
And when more people are jump balls, T-Mobile tends to do
well."
Verizon, meanwhile, is counting on customers with cheaper
wireless service to upgrade to its most expensive unlimited-data
plans, which include high-speed 5G access and subscriptions to
media services such as Disney+. The carrier said about a fifth of
its postpaid wireless accounts subscribed to these premium
unlimited plans at the end of 2020, a share executives hope to
boost to about 50% by the end of 2023.
AT&T's offers apply to several wireless plans, but its
executives have touted their ability to upsell customers to
premium-tier service bundled with other perks such as HBO Max. The
telecom giant recently unveiled plans to spin off HBO owner
WarnerMedia into a new company combined with rival Discovery Inc.
The carrier hasn't detailed its plans for HBO Max after the deal
closes but has said the Hollywood business will remain part of
AT&T through mid-2022.
All three national carriers are working to shore up their
customer bases as they increase spending on 5G infrastructure. U.S.
companies bid about $81 billion earlier this year to secure new
federal spectrum licenses that support the high-speed connections,
adding to the sector's overall debt. Executives have said those
down payments will yield benefits once their customers start to
notice 5G's faster internet speeds in the coming years.
Until then, AT&T and Verizon could keep battling it out in
the market with discounts to avoid bleeding subscribers.
"It's a stalemate," said Craig Moffett, a MoffettNathanson
analyst. "History says it's a lot easier to start these kinds of
price wars than it is to end them."
Write to Drew FitzGerald at andrew.fitzgerald@wsj.com
(END) Dow Jones Newswires
June 05, 2021 06:07 ET (10:07 GMT)
Copyright (c) 2021 Dow Jones & Company, Inc.
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