Enrollment in smartphone upgrade plans among U.S. consumers has more than quadrupled since September 2013, going from 7 to 31 percent by the end of the first quarter of 2014, according to a new report from the NPD Group. The report is yet another data point indicating a major shift in how Americans pay for their cell phones.
The NPD report found that there is high awareness among consumers about the upgrade plans, which were kick started in the summer of 2013 by the T-Mobile US (NYSE:TMUS) Jump Plan. According to NPD, 73 percent of mobile phone owners who were asked if they were aware of the early upgrade plans being offered were "somewhat" or "very aware," with about half of these people being very aware.
AT&T Mobility's (NYSE: T) upgrade plan is called Next, Verizon Wireless' (NYSE: VZ) plan is called Edge and Sprint (NYSE: S) offers its Easy Pay option. The plans vary in details but generally let customers pay off devices in monthly installments instead of getting a subsidized device tied to a two-year contract--the plans also let customers upgrade to a new phone earlier.
AT&T on Tuesday pointed to continued momentum with its Next plan. The carrier said it expects around 3.2 million AT&T Next smartphone sales in the second quarter, compared to 2.9 million in the first quarter. AT&T said Next sales have been rising throughout the second quarter, and are expected to be around 50 percent of all sales in the second quarter. That compares to around 40 percent in the first quarter (or 35 percent when taking out accelerated upgrades).
Verizon has said the adoption rate of Edge in the first quarter was less than 15 percent but the company expects that to potentially double into the second quarter with the launch of Edge in Verizon's indirect channel.
T-Mobile said in the first quarter that the attach rate to Jump is now at 81 percent, and the company had more than 5.3 million total customers sign up for Jump as of the end of the first quarter. Sprint has not detailed its Easy Pay figures.
"As one might expect, older consumers are less interested in frequently upgrading their phones; but, surprisingly, Android smartphone owners are as interested in upgrading as their iPhone counterparts," NPD analyst Stephen Baker said in a statement. NPD found that that 22 percent of Android and 25 percent of Apple (NASDAQ: AAPL) iPhone owners are "extremely interested" in upgrading their phones more frequently.
Tier 1 carriers have increasingly embraced such plans, which shift revenue from service revenue to equipment revenue by removing the up-front cost carriers pay to subsidize smartphones. However, smaller carriers such as U.S. Cellular (NYSE:USM) have also embraced installment plans--indeed, regional player nTelos Wireless intends to launch an installment plan this summer.
- see this NPD release
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