AT&T's Embrace of No Contract Shows an Industry Willing to Adapt

 
 
By Michelle Maisto  |  Posted 2013-12-05
 
 
 

AT&T introduced Mobile Share Value plans Dec. 5 that seem to signal real change in an industry that's been called "stupid, broken and arrogant."

Those descriptors came from T-Mobile CEO John Legere, who said in July that he wants to "redefine" the industry.

He started with T-Mobile—which this year ended two-year contracts, introduced monthly hardware financing plans and divorced device costs from service costs, among other major changes. And while Legere may have been content to smarten up, fix and humble T-Mobile, it's the larger industry that has indeed begun to redefine itself.

AT&T, Verizon Wireless and Sprint have all followed T-Mobile in offering monthly device financing plans, and in allowing customers to upgrade their devices more regularly than every two years.

With its Mobile Share Value announcement, AT&T moved into the territory of offering a no-annual-contract option—"Say 'Good-Bye' to the Annual Contract," it urged in a blue-and-orange infographic. The Value plans incentivize subscribers to choose unsubsidized devices, paid for in low monthly sums, over subsidized devices tied to long-term contracts—a definite first for AT&T.

"I think carriers around the world are wising up to the idea of being more transparent about the cost of data and the cost of hardware subsidies," Carolina Milanesi, a research vice president with Gartner, told eWEEK.

"With more value coming from software and less from hardware upgrades, I think it is smart to enable users to spend their money on data rather than hardware," she added. "This allows them also to lower their investment in subsidy while shifting the value to something they actually can directly control: service."

Ken Hyers, a senior analyst with Strategy Analytics, agrees, saying that the no-subsidy plans help carriers to reduce their equipment costs, and that AT&T's new plan puts it more in line with T-Mobile's plans—which consumers have positively responded to.

"I expect the other operators to follow AT&T's (and T-Mobile's) lead and introduce similar plans," Hyers added. "Given the way the industry is structured, with all of the carriers offering similar services and products, none can afford to ignore a popular service plan introduced by their competitors.

After T-Mobile first announced, in January, that it was ending two-year contracts, AT&T CFO John Stephens commented during an earnings call that the strategy was something AT&T has considered "on several occasions ... It will be something we're going to be watching [to see] how it is received in the market place."

"Finding ways to reduce the upfront charge of acquiring an iPhone 5S or Galaxy Note or Galaxy S4 helps carriers hide the specter of increased perception from consumers that their mobile plan is too expensive," Jack Narcotta, an analyst with Technology Business Research, told eWEEK.

"'You mean I have to pay $80 a month and buy the phone for $200?' versus 'I get an iPhone 5S and a two-year service plan for about $90 a month?'" Narcotta continued. "The consumer is more likely to see the $10 difference as a better bargain."

T-Mobile, however, is unimpressed by AT&T's new plan.

"While imitation is the most sincere form of flattery, AT&T's 'me-too' off-contract rate plan misses the mark—it's still confusing and expensive," T-Mobile marketing executive Andrew Sherrard said in a statement.

"T-Mobile continues to be the most affordable and hassle-free way to buy and use smartphones. A family of four can save more than $600 in the first year with T-Mobile's Simple Choice plan," Sherrard continued. "It's also worth noting that AT&T is raising prices on many families, just in time for the holidays. After you do the complicated math, in multiple cases, these new plans are actually a price hike for customers."

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