Late last week, AT&T (NYSE: T) launched a new version of its Next equipment installment plan that lets customers make a 30 percent down payment on a device and then upgrade to a new phone after 12 monthly payments.
The carrier confirmed the new plan, called "AT&T Next 12 with Down Payment," which was first reported as a rumor last month by the blog Droid Life. Under the plan, customers must pay 30 percent of the smartphone's cost upfront at the point of sale, and then the remaining device cost is financed over 28 months. However, customers can upgrade to a new phone after 12 monthly payments.
With all of AT&T's other Next EIP options, customers are not required to make any down payment at the point of purchase. Droid Life said the new option is designed for customers who wouldn't normally qualify for AT&T Next. Having customers provide a 30 percent down payment likely reduces the financing risk for AT&T.
"We are introducing AT&T Next 12 with Down Payment, so even more customers will now be able to receive the benefits of AT&T Next, which offers great value when combined with a Mobile Share Value plan," AT&T said in a statement to FierceWireless.
556 Ventures analyst (and FierceWireless contributor) William Ho said he thinks those who choose the Next 12 option "are likely AT&T high-value customers, and may likely be upgraders anyway for the latest and greatest" smartphones. He also told FierceWireless that the "0 percent down with Next is fine but this demographic should be able to shell out the 30 percent additional for the down payment." At the same time, Ho noted, the new option "may be ideally suited for individuals or selected members in a family plan."
AT&T may get more equipment revenues recognized under the new option compared to options without the 30 percent down payment, Ho noted. "If AT&T positions it with early upgrade, it can help build buying psychology when the next iteration of halo devices are released," Ho added, citing this year's expected iPhone release and smartphones that debut in the third and fourth quarters.
AT&T said 65 percent of its postpaid smartphone gross adds in the quarter came from its AT&T Next plans, up from 58 percent in the fourth quarter. Further, AT&T has said that more than 30 percent of its postpaid smartphone base was on AT&T Next at the end of the first quarter, and that 62 percent, or 35.4 million, of its postpaid smartphone subscribers were on no-device-subsidy Mobile Share Value plans. Those plans typically have discounted service pricing.
Other carriers have recently made changes to their EIP plans. As of yesterday, Verizon Wireless (NYSE: VZ) changed its Edge plans so that customers will need to pay off the full cost of their devices before they upgrade. However, customers will now be able to do so at any time and will be able to keep their smartphones once the device is fully paid off instead of having to turn them in.
Previously, Verizon said customers needed to wait 30 days after they purchased their device to upgrade, and only needed to pay off 75 percent of the device's cost. Customers also needed to turn in their device when upgrading. Now, although customers will need to pay off more of the device's cost before upgrading, those restrictions are dropping away.
T-Mobile (NYSE:TMUS) started the trend to EIP programs more than two years ago. At the end of the first quarter, 92 percent of the carrier's branded postpaid customer base was on a no-contract Simple Choice plan, which do not come with subsidized devices.
Sprint (NYSE: S) said 53 percent of its postpaid smartphone sales were on an equipment installment plan or a leased plan in the first quarter, up from 46 percent in the fourth quarter. In the first quarter, Sprint said 37 percent came from leasing and 16 percent came from installment billing.
- see this Droid Life article
Verizon: Edge customers now must pay off smartphone before upgrading, but get to keep old phone
Report: AT&T to abandon 2-year contracts at national retailers and local dealers
AT&T subscribers flock to Next installment plans in Q1, making up 65% of all smartphone sales
Analysts: As equipment installment plans boom, carriers likely to focus on tighter credit standards
Verizon, AT&T, Sprint and T-Mobile likely to finance $37B in devices this year, analysts say