- Device Financing Overtakes Subsidies in US Wireless Market
BOSTON, July 29, 2015 /PRNewswire/ -- Smartphone and feature phone Equipment installment Plans (EIPs) and lease arrangements now account for well over half of postpaid device activations in the US, putting customers more in control of their service experience and allowing carriers to better match costs to value opportunities in the market. The latest report from Strategy Analytics' Wireless Operator Strategies (WOS) service, "Global Momentum for Equipment Installment Plans as Verizon/AT&T See Further Growth", recommends more operators adopt de-coupled business models as a means of better targeting preferences across diverse customer segments by increasing device choice and upgrade opportunities.
EIPs and leases accounted for 54% of postpaid device activations in Q1 2015 in the US, with further momentum seen in Q2 results at AT&T, Verizon Wireless and T-Mobile US (Sprint will announce results August 4 and is expected to continue its growth trend in leasing uptake);
With the majority of operators booking the full value of EIP payments when the device is sold, to coincide with the cost of goods sold, there are EBITDA gains over the subsidy business model. For example, Sunrise Switzerland recorded 13% growth in its postpaid EBITDA contribution between Q1 2014 and Q1 2015 after its switch to EIPs;
While offering greater flexibility to postpaid device purchasing, EIPs can be extended into prepaid and SIM-only channels, where operator device sales options have either been limited or non-existent. France and Brazil have enjoyed success with this approach.
Susan Welsh de Grimaldo, Director, Wireless Operator Strategies, said, "By giving users greater ownership of their device upgrade timing, EIPs meet the needs of both those with rapid device upgrade requirements and those happy to keep the same handset for 3-4 years. We have also seen healthy growth in lease plans in recent quarters with Sprint Lease and T-Mobile's Jump! On Demand targeting the rapid upgraders."
Phil Kendall, Executive Director, Wireless Operator Strategies, commented, "With fewer subsidies, EIPs and lease plans put more device selection choice back in the hands of consumers. Device vendors should be aware of the risk of polarization of device portfolios in EIP markets and, more importantly, work on clear messages about the benefits of their models and their specific device features as customers are weaned off chasing subsidies in the market."
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