It’s bad enough that AT&T customers have to sign a two-year contract to get a subsidized mobile phone or tablet from the company. Now Ma Bell is making that already odious contract even less consumer friendly. During the weekend, AT&T announced that its customers now have to wait two years, instead of only 20 months, to get fully-subsidized prices on new devices.
The policy, which went into effect on Sunday, applies to all new customers and exisiting customer with contracts that expire in March 2014 or later.
It’s probably no coincidence that AT&T’s move follows a similar step by Verizon Wireless. In April, Verizon said in a blog post that its customers have to wait 24 months instead of 20 months to upgrade devices at significantly lower subsidized rates.
The economics of the moves are simple. An iPhone 5 that costs carriers around $650 is sold to customers for roughly $200 as long as the customer signs a two-year contract that includes a substantial penalty, know as an early termination fee (ETF), for breaking the contract. This system works well for the carriers because they are guaranteed at least two years of revenue from that customer, which more than makes up for the customer’s discounted device.
In the past, the typical waiting period had been 20 months. Since the customer is already locked in for 24 months, the carrier might as well stretch out the period between upgrades, because customers aren’t likely to switch carriers so close to the end of their contracts. Although four months isn’t all that long, it translates into substantial savings for the carriers.
In AT&T’s case, the new policy includes a wrinkle I hadn’t heard of before. From AT&T:
"Once you’ve completed six months or more of your Service Commitment, you qualify for partial discount off the full retail price when you sign a new two-year wireless agreement."
The announcement doesn’t give any more details on the partial discount, but I’ll update this post when I find out more specifics.
Last month, AT&T essentially raised wireless charges by 61 cents a month. That's not a lot of money, but as I wrote the other day, it means an extra $350 million in the company’s coffers this year. I'm not trying to single out AT&T, but every time I turn around I hear about another annoying policy change or rate hike from the carrier.