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John Stephens, senior executive vice president and chief financial officer for AT&T, spoke during an appearance at the Goldman Sachs Communacopia Conference and discussed the many changes occurring at AT&T, the trends in the mobile smartphone market and how they affect their profit and loss. One of the biggest trends, as if customers have any real choice, is their gravitation and quick adoption toward equipment installment plans (EIP) or AT&T’s Next program where the customer pays for their device separately from their monthly Mobile Share Value plans. AT&T claims that during the second quarter of 2015, 68-percent of postpaid customers that purchased smartphones opted for Next plans and they indicated, as have other carriers, that they expect to eventually stop selling subsidized smartphones with the two-year contracts.
Stephens acknowledged that there are some customers on their Mobile Share Value plans that are not on Next – meaning they have a subsidized device and are still receiving discounted service pricing. But said, “We should have a continuing increase in the number of customers going on Next, which will have a positive impact on AT&T’s equipment revenues and monthly billings per customer.” Now that customers are viewing a monthly cost for a smartphone and a monthly cost for service as two separate fees, he notices there are many customers holding on to their devices past the 24 month repayment time period. It is like finally paying off your car and now you can enjoy some time with no car payment. Customers that choose the Next program get $15 to $25 per line discounts depending on what plan they enrolled and can pocket that equipment fee savings each month.
Stephens has also gone on record to say that AT&T has the ability to start smartphone leasing if their customers lean in that direction. However, unlike the Next program, customers would always have that equipment leasing payment, just like leasing an automobile – you could have a new device every year, but would constantly be making a ‘car payment.’ Just like any lease payment, the customer would be paying sales tax on each payment and not once, up front like when they purchase a device. It would be similar to what Apple has done with their get a new iPhone every year program where the service starts out at $32 per month for a 16GB iPhone and goes up to $45 a month for the 128GB model. Stephens already has his sights set on purchasing those slightly ‘used’ iPhones for insurance programs, their prepaid market or even to resell to its Mexican market. With Apple’s program in place, it takes the financing burden off of AT&T.
Stephens also touched on AT&T’s recent acquisition of DirecTV and its video strategy and he feels that they have a distinct advantage over Verizon Wireless’ soon-to-launch Go90 over-the-top mobile video service as well as Dish Network and its OTT Sling TV service. He believes their economies of scale will allow them to do and offer more options than the others. It is part of AT&T’s “…overall video and entertainment strategy [and] mobility is absolutely an important part of that.”