AT&T not threatened by Apple's handset installment plan

A top AT&T (NYSE: T) executive put a positive spin on Apple's (NASDAQ: AAPL) handset installment plan that the company announced earlier this week that will let customers pay Apple directly for their devices. Speaking at the Bank of America Merrill Lynch Media, Communications & Entertainment Conference and reported in a Seeking Alpha transcript, AT&T SVP & CFO John Stephens said that he believes it might be a good thing for carriers because customers will be able to differentiate between what they are paying for the device and what they are paying for the service.  

Stephens admitted that AT&T currently sells the majority of its handsets through its company-owned retail stores and authorized agents and dealers. "In reality the stores of the handset manufacturers don't really sell a high percentage of our phones," he said. That could change, however, with Apple's new installment plan. "I think this might help them sell more new phones," Stephens noted. However, he added that he thinks this may present an even bigger opportunity for pre-owned phones, which are often sold at a discount to consumers who opt for the company's prepaid services or in other markets, such as Mexico. "Is this going to help us in Mexico?" Stephens asked. "Those things can all be very positive for us."

Despite analyst speculation that Apple's handset installment plan could drive traffic away from AT&T's stores and potentially cause higher churn because customers will now have unlocked phones making it easier for them to switch from one operator to the other, Stephens said that with 90 percent of AT&T's customers on value plans -- whether it's a Mobile Share value plan or a family plan, the carrier has "stickiness" with its customers. "My expectation would be that most customers, a high percentage of customers are going to want to stay right there," he said.

Interestingly, Stephens also said that while the operator has experienced success with its equipment installment plans (EIP), it might consider a leasing plan for handsets similar to that offered by competitor Sprint (NYSE: S). Last month Sprint CEO Marcelo Claure announced that the carrier is going to move entirely to a device leasing model by the end of the year and do away with two-year contracts.

Stephens said that if customers want handset leasing and there is demand for it, AT&T would be open to offering handset leasing. Stephens noted that when customers lease their handsets, they do not pay sales tax upfront but instead pay it every month. With an EIP plan, the customer buys the phone so they pay sales tax upfront.

Earlier this month, Macquarie Capital analysts Kevin Smithen, Ben Schachter, Will Clayton and John Merrick said that they expect "smartphone leasing to continue to replace subsidies and eventually EIP plans in the U.S., especially at market share gainers" T-Mobile (NYSE:TMUS) and Sprint.

For more:
- see this Seeking Alpha transcript

Related articles:
Apple counters carriers' EIP with iPhone Upgrade Program: new phone every year starting at $32/month
Apple's iPhone 6S launch will put spotlight on leasing and EIP pricing -- and promotions
Analysts: Verizon, AT&T could embrace leasing over EIP, might partner with Apple on leasing ventures

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