Rethinking the Upgrade Cycle: Why Smartphone Providers Are Ditching Subsidies

According to recent stats, smartphone users are upgrading at slower rates than they did a few years ago. But that isn't stopping the mobile industry from adjusting its approach so they'll upgrade every six months. How could this affect the BYOD trend?

In the last couple of weeks, it seems that mobile carriers have caught up with the tech blogs that obsess over their every move.

You know the blogs I’m talking about—the rumor-driven media outlets that treat every hardware and operating system upgrade like honeyed wafers floating from above into savvy techies’ hands. The sites that treat obscure patents like documents transported back from the future that could help tech-hungry consumers enjoy the latest and greatest innovations now. The ones with articles written as if you upgrade your phone every couple of weeks.

And I fully admit to being one of those tech-hungry consumers, at least some of the time. I got sick of waiting to hit my two-year upgrade date earlier this year, and in an effort to work around a contract limitation (read: I wanted to keep my unlimited data plan), I paid full price for an iPhone 5.

But I’m not normal, and that’s not normal, either. Dropping nearly $800 on a phone to upgrade a little more quickly isn’t something that people with kids, mortgages, and car payments usually do. (I have none of the above at the moment, so I’ll probably approach things differently when I do.) That’s why mobile carriers are suddenly trying to make faster upgrades just a little easier on consumers. If the plan works, you might see the bring-your-own-device (BYOD) trend kick into hyperdrive.

If this mindset change takes off, it could be great for the user, who gets more freedom out of the deal.

From Contracts to Installments

Shockingly, T-Mobile originated the idea.

The market’s fourth-place carrier, which only started selling iPhones this year (nearly six years after Apple introduced them), used its also-ran status in the market to its advantage.

Corresponding with its “Uncarrier” marketing campaign, the company launched a plan to allow consumers to buy new devices without contracts, pay a little upfront and a little more month to month, and upgrade their phones after just six months.

So, come January, the company is hoping you’ll think like this: “My Galaxy S4 was so six months ago. Better replace it with something new before Samsung’s even done announcing it!”

Coming from the smaller-scale T-Mobile, a plan like that is interesting, but not eyebrow-raising. What was eyebrow-raising is that two of its larger competitors, AT&T and Verizon, followed suit with similar pricing models within days of T-Mobile’s announcement.

Each of the  deals has its individual perks:

  • With T-Mobile JUMP!, you pay an upfront cost along with installments for the full price of the phone, but you can upgrade after six months, up to twice in a year. The downside is that T-Mobile’s network is weaker than its larger competitors’; the upside is that its monthly plans are cheaper than theirs, so you come out a little better in the end, according to TechHive.
  • AT&T Next, meanwhile, allows you to get a phone without a downpayment using the installment plan, but you won’t be able to upgrade for a year.
  • Verizon’s Edge plan falls halfway between the other two, allowing you to upgrade after six months without a downpayment, but only after you’ve paid off 50 percent of the price of the phone.

This all sounds great for people who want to chuck their devices or who read the tech blogs like the ones I mentioned above (and—side note—it’s a great example of an industry flipping a business model on its head), but does this actually reflect where consumers are with phone upgrades?

According to a recent report by the Wall Street Journal, it’s not.

Upgrade Rates: Not So FAST

While 68 million U.S. consumers upgraded last year, that’s down 9 percent from 2011, according to stats from analyst UBS AG. Now, let’s not oversell that dip too much: 68 million upgrades is nothing to sneeze at. But it appears that many consumers are OK with sticking with an older device for a little while.

As a recent Gartner report showed, mobile device sales are still growing but at a much slower pace than those of their tablet siblings. The market, simply, is maturing. And the better your phone works, the less likely you are to chuck it in favor of the latest model.

However, some of this could  be on the shoulders of the carriers themselves, which until now have made it difficult for users to upgrade. Since 70 percent of current mobile subscribers already own a smartphone of some kind, the revamping of carrier plans could be seen as a correction of sorts. Here’s why: Carrier subsidies end up costing mobile providers a bundle, but that bundle was worth it when users were throwing out their RAZRs in favor of … well, other RAZRs. But letting users upgrade from an iPhone 4S to an iPhone 5 under the subsidy model isn’t worth it for the carriers.

Where Does I.T. Fit Into the Equation?

By directly handing the cost of a $700 phone to consumers in exchange for faster upgrades, carriers avoid having to pay out expensive subsidies—and make a little more cash off of the consumer. It’s arguably refreshing that the costs are a little less hidden. (There’s still one hidden cost, however: If consumers drop their provider before paying off the phone, they’re still on the hook for the device’s full cost.)

If this mindset change takes hold, it could be great for the user, who gets more freedom out of the deal. But my question is, where does this put the IT staffs who might find employees upgrading more quickly under these kinds of plans? I could see this as half-blessing, half-curse for industries that are well entrenched in the BYOD trend.

So, my question for you guys: Do you see these kinds of deals  as worth it for your association’s employees, and how quickly do you upgrade your own phones? Let me know your thoughts on the matter below.

T-Mobile's John Legere announces the company's JUMP! plan, which allows users to upgrade as often as twice a year. (T-Mobile press photo)

Ernie Smith

By Ernie Smith

Ernie Smith is a former senior editor for Associations Now. MORE

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