AT&T CFO Unfazed by Apple iPhone Upgrade Plan

Apple's new iPhone Upgrade upends the traditional model of carrier-controlled service plans -- a model that has changed significantly during the past year -- but AT&T's CFO appears unfazed about what it will mean for carriers and even managed to find some upsides for his company.

Along with the new iPhone S6 and 6S+, Apple Inc. (Nasdaq: AAPL) this week announced a new iPhone Upgrade program that will let consumers purchase their phone directly from Apple for $32 to $37 per month for two years (plus Apple Care warranty) and upgrade their device each year. Rather than buy a service plan from an operator, the phone will be unlocked, allowing the consumer to choose their provider, while Apple would own that customer relationship. (See Apple iPhones Add More LTE & Ways to Pay.)

In a nutshell, Apple is seeking to sideline the operators.

But John Stephens, AT&T Inc. (NYSE: T)'s senior executive vice president and CFO, doesn't expect many consumers to take advantage of the offer. Speaking at an investor conference Thursday, he gave several reasons why this move by Apple could be even be positive -- or at least neutral -- for mobile service providers:

  • 1. Simplicity: While the amount consumers pay AT&T each month will be less, they will better understand the split between equipment and service fees and view the service more positively.
  • 2. It's not a revolutionary offer: The 12-month upgrade eligibility part of the announcement has been around for years from the wireless operators, so Apple is just another third-party offering it.
  • 3. It could boost "used" device inventories: Apple's offer could help the device-maker sell more new phones and, as a result, could give AT&T access to slightly used phones for its prepaid market and in Mexico;
  • 4. Less hassle for AT&T: Apple is taking responsibility for the customer and initial cash investment.
  • 5. It's no big deal: Stephens doesn't expect many consumers to take advantage of the offer anyway.

"In reality, the stores of handset manufacturers don't really sell a high percentage of our phones," he said. "We sell our phones generally through our 23,000 company-owned retail stores and through our authorized agents and distributors. That's a much, much higher -- extensively higher -- percentage than what we sell through handset manufacturer stores."

When asked about the potential risk of higher churn, Stephens pointed out that AT&T reported record churn last year in a "noisy environment." Further, he said, 90% of its customer base is on some kind of value plan, whether it be Mobile Share, a family plan, or business bucket. These customers get the best prices on AT&T services, he said, so he doesn't expect them to jump ship to Apple.

"Time will tell. We feel real comfortable about this not being a significant item because we spend so much time building value plans," he said.

For more on notable smartphone launches, visit the dedicated mobile device content section here on Light Reading.

T-Mobile US Inc. and Sprint Corp. (NYSE: S) were also quick to respond to the new plans, both praising the move and pointing out they had cheaper monthly rates if consumers go through them. T-Mobile CEO John Legere tweeted after the announcement: "This is awesome and will benefit smaller carriers and enhance ability to switch from @ATT and @verizon to @TMobile!!!"

He followed up Thursday with an announcement that T-Mobile customers will be able to get the iPhones 6s for $20 a month for 18 months with JUMP On Demand and the iPhone 6s Plus for $24 a month without any up-front costs. In addition, it's letting customers with either phone try T-Mobile and switch at any time with no fee to leave and get their money back if they leave within the first month.

Sprint also sent out a reminder that new and upgrade-eligible Sprint customers can lease the new iPhone for just $22 per month with iPhone Forever and upgrade at any time, although its cost does not include insurance.

As Stephens notes, it remains to be seen how Apple's iPhone Upgrade plan fares in the market. Apple's hope is that it will lock more customers into the iPhone -- and into Apple -- for life, and it will get them upgrading every year rather than the traditional two years or more. The actual cost of doing this will depend on how much consumers can get by turning in a phone every year.

Apple's program may not necessarily be the best deal, but it could have appeal that spreads beyond just its biggest fanboys and fangirls. If so, the operators will have many reasons to worry.

— Sarah Thomas, Circle me on Google+ Follow me on TwitterVisit my LinkedIn profile, Editorial Operations Director, Light Reading

danielcawrey 9/11/2015 | 7:29:25 PM
Re: AppleCare doesn't cover loss/theft... I think the Apple subscription program for phone will appeal to a certain subset of people who want to pay for the latest and greatest. 

But people are still going to need to rely on the carrier in some ways – there just isn't any way around that. So we'll see, but I don't think it will affect the wireless providers that much. 
mhhf1ve 9/11/2015 | 3:03:02 PM
AppleCare doesn't cover loss/theft... One of the biggest differences that I think consumers might care about -- is that AppleCare doesn't cover loss or theft, whereas the carriers offer insurance plans that do (with some deductible amount).

So the Apple upgrade plan is actually fundamentally different in that one aspect -- which I think users care about. I think people who buy any kind of phone insurance from their carrier want the loss/theft coverage that Apple doesn't provide.
KBode 9/11/2015 | 10:02:53 AM
Re: the cost of upgrading I think he's taking the long way home in simply stating that "we make all our money now on capped data plans and overages, so we'll be making a killing no matter what Apple or anybody else wants to do."
Sarah Thomas 9/10/2015 | 6:03:29 PM
Re: Verizon responds Yeah, I don't come across many "Verizon-heads" "VZW-or-diers," but the network is not a reason to support why they would choose Verizon over Apple. They get both when they got with Apple! It may keep them from switching to Sprint with their unlocked phone, but I think Apple will still give them a run for their money in terms of the monthly bill.
Mitch Wagner 9/10/2015 | 5:55:37 PM
Re: Verizon responds SarahReedy - I started to roll my eyes at the reference to "die-hard loyalists." Consumers hate their phone companies; customer sat ratings are notoriously low. 

But then I stopped my eyeroll. The point about reliable networks available on a broad geographic basis is a good one. Frequent travelers in particular need phone service in a broad variety of geographical locations. In the US, that means Verizon and AT&T and that's about it. 

Still, Verizon and any other phone company is kidding itself if it thinks it can compete with the loyalty engendered by Apple. Or Google, for that matter. 
Sarah Thomas 9/10/2015 | 4:41:18 PM
Verizon responds

Here's Verizon's official response, from a spokesperson: 


"The phone makers are trying out new ways to engage customers.  Phones have fans, for sure, but a reliable network that works well everywhere provides the value that wins die-hard loyalists.  Verizon's ability to mix the best wireless network with a wide selection of great devices is our strength. People join and stick with Verizon because any device they use on our network performs better – and better matters."

Sarah Thomas 9/10/2015 | 4:40:45 PM
Re: the cost of upgrading I think the reason they don't is Apple has never had a program like this before! I wouldn't personally think to go to Best Buy for a device, but I would to Apple now.

That's the other -- the major Apple upgrades typically come over two years, so there's no need to upgrade every year unless you really have to have the latest and greatest (as a lot of people do, of course).
Mitch Wagner 9/10/2015 | 3:33:24 PM
Re: the cost of upgrading Stephens is doing a little sleight-of-hand when he says that typically manufacturers don't sell a lot of phones for AT&T. Is that true for the iPhone as well as other phones. 

Great Lifehacker article on upgrading your phone. I haven't done enough to resell my old gear. I need to be more aggressive about that. 

I did some mental calculations yesterday and concluded I can probably afford to upgrade to the 6S/6+ this year. But then I decided I don't want to hassle with it. Typically, there isn't a lot of difference between iPhones one year to the next -- the differences need two years to accumulate to something tempting. 
Sarah Thomas 9/10/2015 | 2:20:07 PM
the cost of upgrading Lifehacker (a great website) breaks down the numbers for you if you're trying to figure out how often to upgrade your phone and on what plan: http://lifehacker.com/how-often-should-you-upgrade-your-iphone-an-experiment-1729328617. There is definitely a segment of people who do want to get a new iPhone every year who will likely go for this regardless of carrier offers. I'm more of an every-other-year or untl it breaks girl, myself. 
Sign In