As promotions disappear, carriers turn to new phones to goose sales

AT&T is promoting the Razer Phone 2 as a "gaming powerhouse." (AT&T)

The nation’s major wireless network operators appear to have a new strategy for this year’s holiday shopping season: exclusive phones coupled with expensive services.

That’s a decided change from previous years, when AT&T, Verizon, T-Mobile and Sprint offered wide-ranging discounts, bundles, promotions, price cuts and buy-one, get-one offers in order to capture as many customers as they could.

Further, the change comes as wireless operators generally report their best financials in years. For example, the Wall Street analysts at Evercore noted in a recent report that, collectively, the nation’s wireless network operators reported growth in their service revenues for the first time in years in the second quarter. In the recently completed third quarter, that growth reached 2.7% year over year.

“3Q18’s wireless results showed YoY service revenue growth (on a constant accounting basis), as price competition receded modestly, with competitive efforts focused on ‘more for more’ offerings rather than direct price cuts,” the Evercore analysts wrote. “Subscriber growth remained healthy, although growth did slow YoY. Overall promotional activity has been relatively restrained over the last several quarters, and we don’t see evidence of any imminent return to the value-destructive handset promotions that prevailed in fall 2016, in particular.”

Others agreed. “Buoyed by lack of cut-throat competition, Q3 showed a big jump in overall revenues for the operators,” wrote Chetan Sharma Consulting in a summary of the U.S. wireless industry in the third quarter. “U.S. mobile revenues in Q3 18 grew by 6.34%—the highest growth figure in almost 3 years.”

This trend is not necessarily a surprise; carriers have been hinting at growth in service revenues for most of 2018.

However, a new development is that it appears that operators generally plan to remain on their current course, even during the critical holiday shopping season.

“Recent press reports (Cord Cutters News) and our own checks indicate AT&T will eliminate the $15 discount it currently offers to new Unlimited customers bundling its Wireless plans with either linear video or DTV Now,” wrote the analysts at Wall Street firm Deutsche Bank Research. The firm said the move highlights “a greater focus on improving profitability” and “a pull back from more aggressive promotional offers.”

“Early November has been mostly quiet in terms of promotions,” added Wave7 Research in a recent report to subscribers, pointing out that Verizon recently ended a BOGO offer on the iPhone while AT&T recently ended a $650 switcher buyout offer in New York, Los Angeles and Chicago.

So what are carriers going to focus on this holiday shopping season, if not promotions and pricing discounts?

“New toys!” wrote Wave7.

Specifically, almost all of the nation’s leading wireless network operators are embarking on sales of new or unique phones. For example:

  • T-Mobile just announced its new, exclusive REVVL & REVVL 2 Plus phones, just days after the company appeared to generate significant interest in its launch of the OnePlus 6T smartphone.

  • Verizon and AT&T launched the new Red Hydrogen One phone that sports a “holographic” display and $1,300 price tag.

  • And in its announcement that it is now selling the Razer Phone 2 gaming phone, AT&T boasted that it is “the only wireless provider offering the revolutionary smartphone.”

  • Finally, Verizon is the only carrier currently selling the new Palm-branded smartphone companion, a gadget clearly designed to expand Verizon’s addressable base by pairing a standard smartphone with a mini smartphone, alongside an extra $10-per-month service plan. And that gadget sits next to the Google Pixel phone that Verizon continues to have an exclusive hold over.

Such smartphone exclusives stem from AT&T’s wildly successful exclusive hold on the Apple iPhone in the early days of that device. Although AT&T eventually lost its exclusivity over the iPhone, it nonetheless served as a major selling point for the operator.

And although Apple and Samsung continue to hold a tight grip on much of the U.S. smartphone market through phones available at virtually any carrier, operators are nonetheless so far betting on exclusive smartphone offers this year—and not deep pricing discounts or other promotions—to boost interest in their offerings.