AT&T CFO John Stephens this week talked up the operator’s focus on keeping the customers it already has, including through offers that provide the opportunity to bump existing subscribers into higher tier plans or sign on to services like HBO Max.
Speaking at a Citi investor event about how he sees the business going forward, Stephens, who is retiring this year, said he feels strong about momentum on priorities like 5G wireless and fiber, as well as the “relentless customer focus we have.”
AT&T already has strong assets in place, he noted, thanks to 5G network investments with deep low- and medium-band spectrum holdings and FirstNet spectrum, an extensive 15 million fiber-to-the-prem footprint, and content library and platforms like HBO Max.
Moving ahead, it’s all about “those resilient, reliable subscriber relationships.”
Churn has been low across the industry and Stephens maintained that keeping current customers is the best way to grow a subscriber base. For wireless, AT&T recently revamped its in-store and online retail service and delivery systems. When the 5G-capable iPhone 12 came out, AT&T put out an aggressive offer that it made available to existing customers as well as new ones. It had already started offering deals on 5G Samsung smartphones to current and new subscribers in August.
“Is it a competitive offer, absolutely,” Stephens said Tuesday. “Is it a rational offer, absolutely.”
He noted that customers sign on for a 30-month equipment installment plan (EIP) and these are subscribers that AT&T already knows the churn and payment histories of.
“They’re going to stay with us, they’re going to pay us, and we get a trade in phone,” he said. And the strategy to invest in retaining them benefits AT&T not only in maintaining a base the carrier can rely on to stay and pay on time, but also extracting more value.
“On top of that we get the opportunity to sell them up, whether it’s adding HBO Max, whether it’s going to the Unlimited Elite programs,” Stephens said. “It’s really a win-win for them and for us. And so we think of it as an investment in those customers, but these are our best customers.”
AT&T is seeing continued positive momentum, according to Stephens, and is excited about results fourth quarter investments are showing. Stephens pointed to third quarter wireless postpaid adds as evidence earlier efforts were paying off.
In Q3 AT&T recorded 1 million net postpaid wireless additions, including 645,000 phones. The carrier will report fourth quarter earnings on January 27. On Wednesday T-Mobile reported preliminary Q4 metrics including 824,000 postpaid phone net adds.
When asked by Citi analyst Michael Rollins if there’s an outsized cost to the customer retention program, with some offers that give certain subscribers up to a $700 bill credit for a new phone, Stephens said it’s reasonable for the long-term value.
Along with the chance to upsell, it means AT&T could add more phones, devices and other lines from those existing subscribers.
“They also have to provide a trade-in, which offsets some of that cost and they make a 30-month commitment to us so churn is very low.”
“From a cost perspective, is there a cost, sure … is it a very reasonable investment specifically for the impacts on lowering churn? Oh definitely we believe so,” Stephens said.
30-month device installment plans
In November Wave7 Research flagged traction in the option for 30-month EIPs, and principal Jeff Moore told Fierce the market evolution toward what he categorized as a “megatrend” is on track.
AT&T has been doing 30-month EIPs for a while, dropping 2-year financing for the six-months longer term EIP more than a year ago.
Since the 5G-capable iPhone came out, T-Mobile offered 30-month device payment options across three models. Wave7’s December postpaid report showed Verizon offering a 30-month payment option on its most expensive smartphones, including the iPhone 12 Pro, 12 Pro Max, Galaxy Z Fold2, Note 20 Ultra, Note 20, Galaxy S20 and GS20+.
“The percentage of phones activated on 30-month plans in late 2020 compared to the percentage two years ago in 2018 would be a dramatic difference,” Moore said. Although 24 months is still the most prominent and available for the lion’s share, newer phones account for most activations.
In part, Moore cited in a reaction to pricier devices, like the Samsung Galaxy S20 series.
“You have all of these really expensive phones and there’s just a little bit of sticker shock if you look at what it costs if you only finance it across 24 months as opposed to 30 months,” he said.
Roger Entner, principal and founder at Recon Analytics, echoed a similar sentiment last fall, in that for the customer, what it really boils down to is affordability.
“As device prices are getting higher and higher, you have to get the monthly installment price at the same rate, and one way to do that is finance that over more months,” Entner said.
In Entner’s view, the consumer doesn’t care how expensive that phone is, ultimately, be it $700 or $1,200. “That’s a ‘Mickey Mouse’ number,” he told Fierce. Instead, he thinks consumers want to see that monthly device payment hover around the same amount.
Carriers have all played around with longer equipment installment plans. Verizon, for example, at one point offered a 36-month payment plan for the Galaxy Note 10+ 5G.
While spreading device payments over a longer term lowers the monthly rate for consumers, Entner noted it also comes with the unintended consequences of elongated handset upgrade cycles (a negative for OEMs) or carriers heavily subsidizing trade-ins.
Since equipment sales don’t account for the biggest share of revenue, he doesn’t think a subscriber holding a phone for an extra six months has much impact on carriers. And as Stephens has referenced at investor events, it means they’ve signed on with the carrier for a longer period.
And getting new phones into subscribers hands is especially important when there’s a technology shift (ie 5G networks) or new spectrum.
“[Carriers] want people to take advantage of that, and that means a new handset,” Entner said, noting aggressive subsidies like AT&T has done are one way to go.
In the face of flat or declining revenues, carriers need to lower the cost of delivering service in order to be more profitable, he said, one impetus for deploying 5G.
“The carriers are doing their best to create a super cycle by these very aggressive subsides so that customers can take advantage of these new networks and that the cost of providing connectivity to these people gets lower and therefore it becomes more profitable,” Entner said at the time.