AT&T Mobility (NYSE:T) will now make customers wait 24 months instead of 20 months to upgrade to a new, subsidized device. The move mirrors one that rival Verizon Wireless (NYSE:VZ) announced in April.
The change affects any AT&T customer whose contract expires in March 2014 or later. "Today, we're announcing a 24-month upgrade policy across all of AT&T's wireless products and services," the company said in a blog post. "This aligns device upgrade eligibility with our standard two-year wireless agreement."
AT&T's move, like Verizon's, is likely being done to increase margins at the carrier. AT&T said last week that it expects its second-quarter wireless EBITDA margins to be similar to those from the first quarter of 2013, which would be lower than in the year-ago period. AT&T said its margins will take a hit in the second quarter thanks to promotions, higher gross additions and more smartphone upgrades.
The change in policy was previewed to financial analysts at a meeting last Thursday. According to a research note from New Street Research analyst Jonathan Chaplin, AT&T executives "suggested that there are a host of factors that could drive lower subsidy expense and higher margins, including: extending the upgrade rate as Verizon has done; shifting the mix; declining handset ASPs; and 'other factors' still to be announced."
Verizon has said it will begin implementing the change in its upgrade policy on customers whose contracts expire in January 2014.
Most carriers offer phones at hundreds of dollars below their actual cost and lock customers into a two-year service contract in order to recoup the cost of that phone subsidy. However, those subsidies can cut into wireless carriers' profits. Extending the time it takes for customers to get a new subsidized device spreads those costs out for carriers and improves their margins.
Sprint Nextel (NYSE:S) still offers a 20-month upgrade policy, and T-Mobile US (NYSE:TMUS) has moved away from service contracts entirely with its Simple Choice plans. Under those plans, customers are responsible for paying the full cost of their devices, either in a lump sum or through monthly payments after a down payment.
- see this AT&T blog post
- see this The Verge article
- see this AllThingsD article
- see this CNET article
AT&T expects to add 500K postpaid subs in Q2, but margins will be hit
AT&T set to rake in millions via new 61-cent administrative fee
T-Mobile to change 'deceptive' no-contract advertising under settlement with Washington AG
Verizon tightens handset upgrade policy
Verizon's Shammo: Device subsidies will drop over next 2-3 years
Verizon to add $30 upgrade fee for new handsets