Within the last week, three of the United States’ four major mobile carriers (Sprint sat this one out) all announced, or are rumored to announce, variations on a theme: upgrade your phone faster, for a price.
T-Mobile’s Jump program adds a new $10 fee to the regular monthly cost of a phone as a way to let customers buy new phones at subsidized prices up to twice per year. Similarly, AT&T’s Next program lets users put down an extra five percent of the unsubsidized price of the phone for 12 months and then they can trade up. Verizon’s Edge scheme, as yet unannounced, will likely be something along these lines. (T-Mobile has already started sniping at AT&T: on Tuesday, the former called the latter's new plan a "smokescreen.")
So why is this happening all of a sudden? Put simply, the American mobile market is highly saturated—there are fewer and fewer new customers for these carriers. Only 1.1 million Americans got mobile phones for the first time in the first quarter of 2013—the lowest ever growth for that market. Q1 2012 saw around 1.83 million new additions, which shows a quarter-over-quarter loss of 60 percent this year. Meanwhile, there was a modest quarter-over-quarter gain in prepaid customers.
The rest of the world, meanwhile, has been prepaid-dominant for years. As of last year, Western Europe served about 70 percent prepaid customers, while China, India, and Africa reached 70, 95, and 99 percent prepaid customers, respectively. (Heck, you can go prepaid yourself—I use Straight Talk—and start off by buying an unlocked phone.)
Simply put, these new plans are a way to keep customers in contracts, which make more money for carriers. Yes, T-Mobile did away with contracts—but if a subscriber is committed to getting that Jump deal for 12 months, that looks a lot like a contract.
It’s usually better to buy, then re-sell
“I think these moves are a bit of window dressing on changes to contract structure that are less-than-groundbreaking,” Chris Silva, an analyst with the Altimeter Group, told Ars.
“That said, the math works out OK for those who are rapid phone switchers [or] technophiles and are always seeking the newest gadget. A total of an additional $30 per month (based on T-Mobile’s plans) for six months plus the initial cost of a device, say $99.99 (again, based on T-Mobile’s numbers), gets a user a new phone for under $500, which falls short of the $500+ unsubsidized pricing for many handsets. The math works out, but only for a subset of the population and for a short window of time. It's also worth noting that these plans involve a device trade-in, so there's no way for the user to capture residual value from their original device by re-selling it.”
Charles Golvin, another mobile analyst with Forrester Research, agrees with this assessment.
“[These new deals] reflect the fact that the market is saturated and carriers are more focused on reducing churn (which better refresh policies help) than on new customer acquisition (which initial subsidies help),” he wrote to Ars in an e-mail.
However, he applauded carriers for making the true cost of phones more transparent to customers.
“[Saying] ‘The phone costs $600 and you pay for that over 20 months,’ is, in my opinion, more transparent than ‘The phone costs $100, you have to sign up for a two-year contract, send in a $50 coupon, and if you terminate the contract you pay a fee that scales depending on how long you've got left on that contract,’” he added.
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