Subsidy vs. Installment Models-Companies
In the United States, AT&T and Verizon abandoned subsidy plans in favor of monthly installment plans in the purchase of mobile devices. On the other hand, Canadian wireless phone carriers Rogers, Telus, Freedom, and Bell all offer subsidy payment models in the sale of their mobile phones. A detailed look at the phone sale plans for the above mentioned United States and Canadian wireless phone carriers follows below.
UNITED STATES WIRELESS PHONE COMPANIES
- According to Statista, in 2018, the top four U.S.-based wireless telecommunications providers by revenue were AT&T — $170.72 billion, Verizon — $130.86 billion, T-Mobile U.S. — $43.31 billion, and Sprint — $33.6 billion.
- Below, we have looked at the financing plans for two of the biggest U.S.-based wireless telecommunications companies.
- Currently AT&T uses a financing plan that is called AT&T Next.
- With the AT&T Next plan, customers can pay for phones in monthly installments over a period of between 24 and 30 months depending on their credit.
- The monthly installment pricing options vary according to device with the current lowest price @ $5.10 per month and the highest at $66 per month.
- AT&T stopped its two year subsidy plan on January 8,2016, in favor of the AT&T Next plan.
- AT&T switched to a financing plan after its subsidy plan started to see a decline in adoption rate in 2014 i.e. from a rate of 75% in the first quarter of 2014 to 56% in the second quarter of 2014.
- Additionally, the subsidy plan had a higher churn rate of 1.02% as compared to the AT&T Next plan, which has a churn rate of 0.86%.
- AT&T also reported that the average customer lifespan under the subsidy model was 98 months while under the AT&T Next model, the lifespan increased to 116 months. This is another reason why the company decided to shift from the subsidy to the installment model.
- Currently Verizon uses a financing plan in the payment for its phones.
- Through this plan, customers can pay for phones in monthly installments over a period of 24 months.
- The monthly installment pricing options vary according to device with the current lowest price at $5 per month and the highest at $54.16 per month.
- Verizon stopped its subsidized plan in 2015 in favor of customers either buying phones outright or signing up for monthly payment plans.
- Verizon's reasons for a shift from subsidy to installment plans include "higher customer life, greater customer lifetime revenue, and lower subsidy cost per upgrade."
CANADIAN WIRELESS PHONE COMPANIES
- From the information that is present on Rogers' corporate website, the company uses a subsidy model for selling phones. However, the company does provide a monthly option, but indirectly discourages customers from it with the tagline "Pay less for your phone upfront, Pay more on your plan per month."
- Rogers' offers three subsidy plans namely Ultra, Premium +, and Premium.
- With the Ultra plan, customers save up to $1,000 off the upfront cost of a phone.
- With the Premium + plan, customers save up to $700 off the upfront cost of a phone.
- With the Premium plan, customers save up to $500 off the upfront cost of a phone.
- On the other hand, customers can also choose a monthly plan that starts from $75 on no term.
- From the pricing information that we found after sampling phone purchase plans for the Samsung Galaxy S10+, we concluded that Telus offers a subsidy payment model to consumers.
- Telus offers four types of subsidy contracts i.e. Platinum, Premium +, Premium, and Standard. These plans are in addition to the Retail plan where customers can choose to purchase a device outright.
- For the 128 GB version of the Samsung Galaxy S10+, customers can choose to pay:
- $150 under the Platinum plan with an additional spend that starts at $115 per month on a 2-year plan.
- $310 under the Premium + plan with an additional spend that starts at $105 per month on a 2-year plan.
- $550 under the Premium plan with an additional spend that starts at $95 per month on a 2-year plan.
- $750 under the Standard plan with an additional spend that starts at $85 per month on a 2-year plan.
- Telus' retail outright purchase price for the 128 GB version of the Samsung Galaxy S10+ is $1,575.
- The Platinum and Premium + plans also come with a Bring-It-Back option that further subsidizes the purchase of the S10+.
- From the product purchase page of the S10+, we established that additional spend noted above was on either non-shareable or shareable data plans. The price of these data plans varied depending on the subsidy plan selected i.e. either Platinum, Premium +, Premium, or Standard.
- For instance, on the Platinum plan, non shareable data cost was $115 per month for 10 GB of data, $135 per month for 20 GB of data, and $165 per month for 50 GB of data.
- On the other hand, shareable data cost on the Platinum plan was $100 per month for unlimited nationwide calling and $115 per month for Canada-US.
- We also noted that the prices of non shareable and shareable data plans went down as we moved to the lower plan options from the Platinum plan.
- Freedom also offers a subsidy payment model for phone purchases.
- One way "Freedom Mobile wants to lure in new customers is to offer maximum subsidies across all smartphones offered, resulting in the 'free' or $0 upfront payment, through MyTab Boost subsidies."
- Freedom's payment model is still favored by some Canadians because they get to pay $0 upfront for the latest smartphones, even if "their high monthly plan pays for subsidies over two years".
- Essentially, Freedom's phone payment model is similar to the model for Telus that has been discussed in detail above.
- This can be practically seen here, where to purchase the Note 8, customers save between $460 and $100 with upfront fees that range from $0 to $600.
- Like Rogers, Telus, and Freedom, Bell also uses a subsidy plan in the sale of its smartphones.
- Most of the phones sold by Bell start from $0 upfront with subsidy plans that include the Premium Ultra and Premium Plus plans.
- Bell launched the "Pay Less Upfront" program in 2019 so as to provide extra subsidies for smartphones.
- According to Bell’s website, "the program allows Premium Smartphone Plus or Premium Smartphone Ultra Plus subscribers to purchase a smartphone on a two-year plan with the option to return the device at the end of the term, or keep the device by buying a deferred amount."
- For example, a Samsung Galaxy Note 9 smartphone that is priced at $1,379.99 would cost $99 with a two-year Premium Smartphone Ultra Plus plan. However, the phone would cost $0 if purchased through the Pay Less Upfront program.