There’s a revolution of sorts happening among American mobile phone carriers.
AT&T T has announced a new no-contract, no-down-payment plan called Next, allowing U.S. customers to subscribe to a smartphone over monthly instalments and upgrade after just one year. Prior to July 26, when the plan comes into effect, they typically upgraded after two, and paid service contracts.
This comes just a few weeks after T-Mobile re-introduced itself to the world as an “Uncarrier,” offering a contract-free, two-year plan for smartphones with unlimited calling, texting and data, for $70 a month.
While AT&T might be responding to the noise made by T-Mobile, the industry as a whole is facing consumers that are increasingly disgruntled with being locked into long-term contracts that after two years, see them pay out $2,000 or more, far more than the $400-$650 face value of the smartphone. Carriers themselves are also struggling to maintain profits after subsidising large numbers of these phones.
Stephen Stokols, CEO of disruptive mobile data provider Freedom Pop, says that while the market is demanding new payment options, and Next will likely have “some traction,” the new plans probably won’t have mass appeal. Stokol, whose FreedomPOP service focuses on lowering overall costs for wireless access, says Next and the “Jump” pricing plan from T-Mobile essentially try to create “false subsidies” that make devices look cheaper by, for instance, requiring a lower down payment and lower monthly costs.
“This is the hidden trade off to existing plans that consumers will see through. Meaning, if you really want to get a $649 phone for $145, you need to still lock into a contract,” says Stokols.
The new plans essentially provide the same value, sliced in different ways, he adds. For example, AT&T’s Next plan might allow consumers to get a device like an iPhone for a monthly fee with nothing up front, but it would be in addition to a typical data and voice bill. “The users is still paying for a device in full,” he says. And if a customer cancels, they are still on the hook to pay for the device.
“There’s always a learning period over a couple of months,” he says. “I’m a little skeptical. I think you’ll see it increase its share of pre-paid in the overall market.” But, Stokol added, “it’s not going to be as massive as people think… It’s going to be at the fringes and I think they [AT&T] know that.”
Partly this is because the carrier industry is centred around the prevalent device-subsidy model and it will be difficult to pivot away. Consumers, also, will learn over time that plans like T-Mobile’s are effectively leasing models, where the user constantly trades up the phone. “Users are wising up,” to the model, says Stokols. “I think it’ll increase share but it’ll be a small part of what AT&T does in 12 months time.”
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