The end of the two-year service contract: Sprint, AT&T join Verizon, T-Mobile in dropping contracts
Sprint (NYSE:S) appears to be joining the rest of the tier-one U.S. carriers and is no longer offering contracts to new phone customers. Coupled with a similar move by AT&T today, the news serves to essentially signal the end of two-year service contracts and subsidized smartphones, which had been a central element in the growth of the wireless industry and the rise of smartphones.
Citing a leaked internal document, Android Central reported that the operator has ceased giving new customers the option of buying a subsidized phone and signing a two-year deal. Sprint will continue to offer contracts for tablets, according to the document, and additional phone lines and upgrades may still be offered contracts "on a reactive basis only."
Subsidized handsets were no longer being offered on Sprint's website this morning.
And Sprint CFO Tarek Robbiati essentially confirmed the move yesterday at an investor conference, noting the advantages of the leasing program the carrier has increasingly turned to during the past year. Leasing is a "churn killer," Robbiati said, because it allows Sprint to re-engage with subscribers once the lease period is complete. And leasing also provides a way for Sprint to generate revenue by selling refurbished products, he added.
"It is apparent to the market now that we are eliminating subsidies moving forward, which is in line with the rest of the industry," Robbiati noted.
Indeed, Sprint -- which had previously said it would kill the contract model by the end of 2015, only to miss that deadline -- is the last of the major U.S. carriers to move away from contracts. T-Mobile (NYSE:TMUS) dumped the model in early 2013, and its competitors began to follow suit in 2015. Verizon in August largely discontinued offering contracts, though will provide them to existing customers who wish to continue using them. And AT&T (NYSE:T) said last week it would stop offering contracts starting today.
To be clear though, wireless carriers are still using equipment installation plans and leasing options to tie users to their services -- just as they previously did with two-year service contracts and subsidized phones. For consumers, the difference between the two approaches is that now they have the option to pay off their device at any time and switch providers without incurring early termination fees. And, if they stay with their provider, they typically pay lower monthly service fees if they pay off their device in full.
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