By Lisa Johnston
New products on display at the American International Toy Fair, held in N
NEW YORK — New service plans from three national carriers and AT&T’s plan to buy regional nocontract carrier Leap Wireless signal intensified competition among tier-one carriers.
These moves have the potential for a new handset upgrade-cycle war, and a new wave of consolidation as large carriers seek out underutilized spectrum held by smaller rivals, according to analysts contacted by TWICE.
New plans by T-Mobile and AT&T to offer more frequent upgrades if consumers buy an unsubsidized phone will help them gain share among consumers who want the latest devices before their contract expires, help the two carriers reduce their phone-subsidy subsidy expenses, and help reduce their churn, analysts also said.
The two carriers’ programs might also spur Verizon Wireless and Sprint to follow suit, analysts said.
The move by T-Mobile and AT&T to accommodate consumers who want to upgrade their smartphones more frequently without penalty “might kickstart upgrade-cycle wars,” creating a boon for handset manufacturers and for the second hand/used handset market in which companies such as Gazelle, eBay and ReCellular compete, said Neil Shah of Strategy Analytics.
Intense competition among handset makers, he explained, has produced “a rising wave of flagship smartphone launches from OEMs almost every fortnight in last eight months. That competition has already reduced the overall product lifecycle for major OEMs to almost seven to nine months, in turn frustrating consumers locked into 24-month upgrade cycles on a contract plan.
Rising demand for premium flagship models “have challenged operators’ profitability, which have forced some of them to elongate the early upgrade window back to 24 months. This has led to immense frustration among consumers [with] almost most of them missing at least one product refresh cycle,” he explained.
For a $10/month fee, T-Mobile’s JUMP plan lets customers upgrade to the latest smartphones twice every 12 months without any contracts. For T-Mobile, this program “will help T-Mobile differentiate, improve consumer stickiness and thus reduce churn with less shackles to upgrade to their new favorite device,” he said.
The JUMP plan “seems like a reasonable price to pay for people who always want the latest gadget and don’t want to be locked into a two-year commitment for a device,” added Susan Welsh de Grimaldo, director of mobile broadband opportunities at Strategy Analytics.
For his part, m-ecosystem analyst Mark Lowenstein said before AT&T’s announcement of a similar program that T-Mobile’s upgrade plan is “the opening volley in what is going to become a more frothy handset retail market.”
The market is “seeing an increased number of options for device procurement and ownership as operators start chipping away at the subsidy model,” he explained.
“Cheaper iPhone and Android devices, fewer subscribers in long-term contracts, a growing refurbished phone market, and a burgeoning variety of service plans and device procurement options will lead to an uptick in switching behavior and buying behavior in the coming months. This reflects the impact of an industry whose competitive index is intensifying.”
As for Sprint’s contribution to the competitive index, analyst Jeff Kagan called Sprint’s new lower-cost unlimited data/text/voice plans “a good first step” for the company after SoftBank acquired 72 percent of it and agreed to invest $5 billion into the company. “Sprint has been through the wringer in the last few years, but now that they have merged with SoftBank, “it looks like they may have another chance for a future of growth and success,” Kagan said.
Nonetheless, Kagan said, “they have quite a bit of work ahead of them. They need to rapidly invest in and update their network to offer more 4G [LTE] in more places to better compete with AT&T and Verizon.” Kagan also foresees Sprint “introducing new ideas to the marketing mix that will help them compete better against the AT&Ts and Verizons of the marketplace.”
Acting Federal Communications Commission Chairwoman Mignon Clyburn believes the SoftBank-Sprint merger will boost competition. “Increased investment in Sprint’s and Clearwire’s networks is likely to accelerate deployment of mobile broadband services and enhance competition in the mobile marketplace,” she said of the merger and Sprint’s purchase of Clearwire.
Paradoxically, although AT&T’s purchase of Leap would take a smaller, financially ailing regional competitor out of the market, it would improve AT&T’s competitive position, providing more competition among tier-one carriers as did T-Mobile’s purchase of regional no-contract carrier MetroPCS, whose subscriber base was shrinking, analysts noted.
In a growing U.S. prepaid market, said Kendall of Strategy Analytics, AT&T’s plans to maintain [Leap’s]Cricket as a prepaid brand underscores “greater engagement from AT&T” in the prepaid market. With AT&T already having established the Aio Wireless subsidiary to target the prepaid market, the Leap acquisition “represents a significant boost to its prepaid operations and a good opportunity for knowledge transfer into Aio,” he said. “To go from having no presence in this space to two brands, both of which will need significant support, may stretch AT&T’s resources, though Strategy Analytics does not expect the merger of these brands,” he added.
The Leap acquisition, like T-Mobile’s acquisition of MetroPCS, also gives AT&T access to spectrum in which it can deploy additional LTE capacity to meet growing data demand and remain competitive, he said.
“AT&T provides a good cost base from which to revive Cricket’s fortunes and compete against increasing pressure in the value segment from T-Mobile US,” Kendall said.
The acquisitions by AT&T and T-Mobile will likely spur additional purchases of smaller carriers by the tier one carriers, analyst Jeff Kagan added.
“The next wave of consolidation is beginning in wireless,” he said, as major carriers prowl for spectrum in use by smaller competitors. “Expect to see more deals with Verizon, Sprint and others,” he said. “There are many other carriers that are ready for acquisition.”
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