U.S. carriers are increasingly moving away from two-year contracts and subsidized handsets in favor of equipment installment plans and leased devices. But in Verizon's case, at least, customers aren't always following.
"The EIP take rate has an impact on what the current-year earnings are," Verizon CFO Fran Shammo said this morning at an investor conference. "And we had anticipated that we would get to around 75 percent, 76 percent by the end of the year. And what's actually happening is we're not getting there."
In fact, Shammo said, only 68 percent of Verizon's new phone sales were made via an installment plan in April, and that figure appears to be flattening. So it's likely indicative of what the carrier will see for the entire second quarter.
The nation's largest mobile carrier killed two-year contracts for new customers last year, but allowed existing customers to renew their contracts and buy subsidized handsets. The move came amid an industry-wide trend away from contracts that began when T-Mobile abandoned contracts in favor of EIPs in 2013, effectively separating the cost of the handset from the cost of service. Customers generally pay for their phones in monthly installments, which are separate from their wireless service bill, under an EIP model.
Interestingly, though, Shammo said customers on contract plans are largely opting to re-up rather than move to an EIP.
"The pressure for us on the installment take rate (is that) we are still allowing our base to choose the subsidized model, and on upgrades, believe it or not, a majority of the people are still upgrading and selecting the subsidized model," Shammo said. "That's why we're having the pressure on the installment plan."
And like its competitors, Verizon is seeing lengthening phone upgrade cycles as customers hold on to their phones longer. But with Apple likely to launch a new top-of-the-line iPhone later this year, it's too early to determine whether users are really happy with their older handsets or whether they're hoping for a compelling new phone to come to market.
"It's actually too early to tell because we're just coming up on the maturity (of the launch of EIPs two years ago)," Shammo said. "It's hard to determine whether they're saying, 'Nope, I'm satisfied, I'm going to keep this phone for another year or two because I had a reduction in my bill,' or are they just waiting to see what's coming."
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