18% of Americans would sign on to a handset upgrade plan, according to survey
The device upgrade plans recently unveiled by T-Mobile US (NYSE:TMUS), AT&T Mobility (NYSE:T) and Verizon Wireless (NYSE:VZ) likely won't save too many customers money, but they could boost carriers' margins and increase smartphone sales for handset makers like Apple (NASDAQ:AAPL), analysts say.
New Street Research said it recently conducted a survey "based on 1,000 demographically representative responses" and found that 37 percent of survey respondents said that they would adopt an installment plan, but that roughly half of those people changed their mind once they were told that they would pay more in total than with a regular two-year contract, suggesting real demand of 18 percent.
Even still, New Street analyst Jonathan Chaplin concluded that the plans could boost AT&T and Verizon's margins by 1.5 to 3 percent (AT&T executives recently said they expected the company's Next plan to have a positive impact on margins.) Sprint (NYSE:S) has not announced a new upgrade plan, but Chaplin wrote that such a plan could boost Sprint's margins by 2-3 percent. The economic effect on T-Mobile, which allows more frequent device upgrades under its Jump plan than AT&T or Verizon, will be neutral, Chaplin wrote.
"The plans are the equivalent of a price increase; carriers benefit at the expense of consumers. Those that adopt the plans would be voluntarily increasing their costs," Chaplin wrote. "Our survey suggests that a subset of consumers will do this for three reasons: 1) some don't realize that they are paying more in total on the installment plan; 2) some prefer paying more over time than paying a lump sum upfront; 3) some will pay more to get greater flexibility around upgrades. Our survey suggests that a combination of the last two factors will drive adoption--consumers seem to value this the way they would handset insurance or programs like Apple Care."
Chaplin also wrote that the new plans could boost handset volumes by 6 to 9 million units annually, which equates to a 4-6 percent boost in smartphone volumes. "We believe high-end smartphones, like the iPhone and the [Samsung Electronics] Galaxy series, will see most of the increase. Offsetting this benefit is the risk that a vibrant refurbished device market hurts the handset vendors' volumes or pricing power over time," he wrote.
Other analysts see an upside for handset makers as well. Average prices of smartphones will likely drop to $285 this year from $300 in 2012, Chetan Sharma, an independent wireless analyst, told Bloomberg. Increasing the rate of device upgrades could offset the negative effects of falling prices.
"These plans appeal to people that are interested in the latest and greatest phones--those that are real mobile enthusiasts and can think ahead and know that they need more than one upgrade in the two years," IDC analyst Kevin Restivo told Bloomberg.
Sharma said Apple has the most to gain from the new plans because consumers have learned to time contract upgrades to when a new iPhone is introduced annually.
Although the plans are largely the same, each carrier offers a slightly different take on handset upgrades. Verizon's Edge program divides the cost of a phone over 24 months, and if after six months 50 percent of the retail price of the phone is paid, the customer can upgrade to a new device. Under AT&T's Next program, the cost of the phone is broken into 20 payments, and customers can upgrade after 12 months. Finally, with T-Mobile's Jump program, can pay $10 a month (in addition to the cost of their phone) and can then upgrade their phone twice every year.
- see this Bloomberg article
- see this Seeking Alpha transcript
- see this GigaOM article
- see this AP article
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