T-Mobile slams AT&T's 'Next' handset upgrade program

U.S. smartphone upgrades decline 9% year over year
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T-Mobile US (NYSE:TMUS) struck back hard against AT&T Mobility's (NYSE:T) "Next" handset upgrade program, arguing that while the plan tries to copy T-Mobile's "Jump" upgrade program, AT&T is essentially making customers pay for their phones twice with Next.

T-Mobile unveiled Jump last week--though AT&T's Next plan, which AT&T announced Tuesday, was likely in the works at around the same time. Still, the reaction from T-Mobile was severe, with the company issuing a statement and top executives lambasting AT&T's plans as a poor imitation.

"Did AT&T really just start charging full price for devices without discounting their rate plans? OMG. Really? #asktheschoolkids," tweeted T-Mobile CEO John Legere, who told CNET that "their offer is terrible for consumers."

Under AT&T's Next program, customers buy a smartphone or tablet with no down payment and agree to pay monthly installments for the device over the course of 20 months. However, after 12 payments, if the device is in good working order, customers can trade it in and upgrade to a brand new device with no down payment, or can keep using their device and have no more payments after 20 months.

After 12 months, if customers sign up for a new wireless plan when they trade in their device, AT&T will waive the remaining unbilled installment payments. If AT&T customers cancel wireless service, the remaining balance on the device becomes due.

However, the Next program does not include any reduction in the service pricing AT&T customers pay. As many commentators have noted, AT&T customers will still pay the same service pricing that they would if they bought a subsidized device.

"You get to pay for the same phone twice," T-Mobile CMO Mike Sievert told AllThingsD.

With T-Mobile's Jump program, customers can enroll by upgrading to a new phone, financing it through the T-Mobile EIP (equipment installment plan) and then paying $10 per month per phone. The $10 fee lets customers upgrade their phone twice every year after the initial six-month enrollment period has expired. T-Mobile said the $10 fee not only pays for the enrollment in the Jump program but also is an insurance plan that covers damaged or lost phones. T-Mobile emphasized that the insurance program alone is $8 per month, so enrolling in Jump is just an additional $2 per month.

AT&T struck a defiant tone in responding to T-Mobile's comments. "AT&T Next is designed for people who want zero down payment and a new smartphone or tablet every 12 months. It's something no other company offers and it's an additional choice we offer customers along with traditional two-year subsidized pricing and no commitment pricing,"  AT&T spokesman Fletcher Cook told AllThingsD. "The best choice for customers who prefer keeping their devices for two years or more is our popular two-year subsidized pricing."

"While marketed as customer friendly, the (Next and Jump) programs are both essentially price increases for the customers that opt into them," analysts at Jefferies noted of the plans from T-Mobile and AT&T. "Both plans are designed to boost revenues as the smartphone penetration ARPU lift subsides. The actual impact the programs will have on the topline will be a function of customer acceptance, which we think will only be modest. We believe there is a limited sub-set of users who have to be early adopters, and are willing to pay the incremental fees associated with these plans."

Indeed, both plans appear to be an attempt to juice smartphone sales. According to data from investment bank UBS cited by the Wall Street Journal, 68 million Americans upgraded their phones last year, down more than 9 percent from a year earlier. That decline is likely due to tightened smartphone upgrade policies from wireless carriers as well as the slowing rate of innovation in smartphone technology.

In other T-Mobile news, the carrier is maintaining an aggressive posture regarding AT&T's proposed acquisition of flat-rate carrier Leap Wireless (NASDAQ:LEAP). "We're going to take Leap the old fashioned way, customer by customer in the market and in doing so we'll probably save ourselves billions of billions of dollars," Sievert told Reuters.

Last week Legere hinted at a new prepaid offering from T-Mobile, called Apollo 15, which will target Leap's Cricket-branded prepaid customer base. In an interview with the Journal, Legere said that the company isn't looking to buy Leap but will instead go after the company's customers with a new prepaid offering. "The best way to think about Apollo 15 is T-Mobile network, T-Mobile devices, Leap customers," Legere said.

For more:
- see this AllThingsD article 
- see this separate AllThingsD article
- see this CNET article
- see this separate CNET article
- see this WSJ article (sub. req.)
- see this Reuters article

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