Sprint resurrects two-year wireless service contracts to give customers more choices
Just weeks after Sprint (NYSE: S) discontinued offering two-year wireless service contracts, the carrier told FierceWireless that it has reinstated those options in order to give its customers more choices.
"We listened to our customers and are giving them more choices to get their new device," Sprint spokeswoman Michelle Leff Mermelstein told FierceWireless. "Sprint is the only carrier to offer the most choices to obtain a new device -- lease, installment bill, two-year contract or pay full retail price."
Indeed, Sprint's website this morning shows four options for customers to buy a new phone: They can lease devices, pay for them in monthly installments, ink a 24-month service contract, or pay for the full price for the gadget. For example, Sprint is selling the 16 GB iPhone 6s under a leasing model ($26.39 monthly), an installment model ($27.09 for 24 months), a contract model ($199.99 through a two-year contract), and full price for $649.99.
The news is noteworthy considering that Sprint in early January appeared to have joined the rest of the nation's tier-one carriers in discontinuing two-year contracts. Citing a leaked internal document, Android Central reported in January that the operator had 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 sold through two-year contracts were no longer being offered on Sprint's website as of Jan. 8.
Moreover, Sprint's CFO Tarek Robbiati essentially confirmed the move a day earlier 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 at the time.
Sprint had previously said it would kill the contract model by the end of 2015, but it missed that deadline. Now, though, Sprint appears to have reversed that plan.
T-Mobile (NYSE:TMUS) dumped the two-year contract model in early 2013, and its competitors began to follow suit in 2015. Verizon (NYSE: VZ) in August largely discontinued offering contracts, though will provide them to existing customers who wish to continue using them. And AT&T (NYSE: T) earlier in January too stopped offering contracts, virtually at the same time Sprint dropped them from its website.
The move to reinstate two-year service contracts and subsidized device pricing likely is an attempt by Sprint to set itself apart from the competition by offering what they do not. However, the nation's wireless carriers have largely moved away from two-year contracts because most Americans don't appear to like them much; AT&T and Verizon offered installation plans alongside two-year contracts for years, and their results largely showed that customers preferred installation plans.
"The percentage of phone activations on installment plans increased to 67 percent in the fourth quarter compared with about 58 percent in the third quarter and about 25 percent in the fourth quarter of last year," Verizon CFO Fran Shammo said during the carrier's fourth-quarter conference call with analysts, according to a Seeking Alpha transcript of the event. "The fourth quarter take rate accelerated but was below our expectation of 70 percent, which contributed to equipment revenue growth that was lower than expected. We expect the first quarter take rate for device installment to be above 70 percent."
He said Verizon counted 25 million device installment phone connections in total at the end of the fourth quarter, representing around 29 percent of Verizon's postpaid phone base. Overall, he said, more than 40 percent of Verizon's postpaid phone customers are on "unsubsidized service pricing."
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