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Retailers Wait For Carriers' Trade-Up Programs

10/20/2013 08:00:00 PM Eastern

NEW YORK – AT&T, Sprint and Verizon Wireless are putting retailers at a competitive disadvantage by not giving the indirect channel an opportunity to provide installment payment plans and trade-up programs for unsubsidized smartphones and tablets, retailers agree.

The three national carriers offer such plans through their own stores.

Many retailers and analysts contacted by TWICE, however, believe the three carriers, like T-Mobile, intend to make the programs available through indirect channels but have been stymied by the complexities of rolling out the programs to indirect channels.

Sprint and Verizon have told TWICE that they plan to roll out their programs to indirect dealers but haven’t said when.

Verizon said, “We are exploring the ability to make available the EDGE device-payment plan to interested agents and retailers as soon as possible.”

T-Mobile was the first carrier earlier this year to launch no-subsidy installment plans and a trade-up program as part of its uncarrier strategy, which eschews two-year contracts. The carrier’s installments plans and trade-up programs are available through most indirect outlets, T-Mobile president/CEO John Legere said earlier this year, but the programs aren’t yet available through national retailers.

While they await the carriers’ rollouts, dealers are fielding proposals by third-party finance companies that are trying to create their own trade-up programs for the indirect channel, said Mike Mohr, .president of Los Angeles-based Celluphone, which owns 48 stores and serves as master agent for more than 300 independent dealer locations.

The carriers’ delay, however, is costing indirect retailers only a small percentage of their handsetsales potential because the three carriers’ trade-up programs are targeted to the small percentage of smartphone users who want to change phones frequently, don’t mind paying a premium for the opportunity, and who generate higher than average ARPU for carriers, Mohr and analysts said.

Not having the programs “is not a huge disadvantage” for indirect retailers, Mohr said, but he added, “We are losing a percentage of sales that we would prefer to have.” That percentage of sales not only includes smartphones but also the warranties, cases and other accessories that generate considerable profit dollars for retailers, he and other retailers said.

Informa senior analyst Kristin Paulin agrees that indirect retailers aren’t being hurt much by the incomplete rollout. “It is too early to really see how popular the trade-up programs are,” she said. “It seems like a nice-to-have feature but not integral to the operators’ success. Therefore, it’s probably not a big deal that the programs aren’t extended to all indirect channels. “

In fact, Paulin continued, “Verizon’s CFO even said he doesn’t believe there will be huge interest in EDGE [Verizon’s installment-plan/trade-up program], and AT&T and maybe Sprint would echo the sentiment. This is because they still offer the classic subsidy model [with subsidized phones sold under two-year contract, in contrast to T-Mobile]. At least in the case of AT&T and Verizon, they introduced EIP/trade-up programs to keep their more techie customers happy.”

Those techie customers, she pointed out, used to be able to upgrade to a new subsidized device in 13 months, then the trade-up period was pushed out to 20 months and then eliminated, requiring subscribers to wait a full 24 months before they could get a subsidized phone upgrade. The changes helped carriers cut costs.

As for T-Mobile, Paulin said, “I think T-Mobile considers its trade-up program, JUMP, far more integral to its [uncarrier] strategy [in which no phones are sold with contracts].”

Gartner analyst Hugues De La Vergne called the trade-up programs “a niche, but a very important niche for operators.” The programs might attract less than 10 percent of total subscribers, but those subscribers are “very attractive subscribers for operators” because “early adopters tend to be higher ARPU subscribers,” he said. For the indirect retailers, he noted, not being able to offer a carrier’s trade-up option “is not a tremendous disadvantage.”

One multiregional retailer, nonetheless, cited a need for indirect retailers to offer the programs. “Indirect has to be aligned with direct in order to not be at a disadvantage,” the dealer said.

The potential loss of sales isn’t the only impact that the carriers’ programs are having on the indirect channel, Celluphone’s Mohr added. Not being able to offer the plans “reduces your credibility” because people, driven by carriers’ heavy advertising, come in asking for the programs, “and it looks like we don’t offer all of the programs that the carriers market.”

In addition, indirect-channel salespeople have to spend more time with customers who have become aware of the programs. However, dealers are able to explain that the programs’ high costs “make it a very bad deal for the vast majority of customers.” He likened the programs to car-lease programs. “You’re paying a premium for these programs,” he said.

Surveyed dealers, including Mohr, don’t believe the carriers are deliberately withholding the programs from them but are stymied by the complexity of a rollout. Like other retailers, Mohr believes AT&T, Sprint and Verizon want to roll out the programs to dealers, though Mohr and other retailers told TWICE they have no direct knowledge of the carriers’ intentions.

Said one dealer,” I think the T-Mo offer caught them [AT&T, Sprint, and Verizon] off guard. T-Mo is fully a year ahead of the others. Their finance guys all love it as it frees up a lot of cash. But it is operationally a nightmare to figure it all out. The reason it is so hard is that a bank is now involved. You have the retailer, the customer, the carrier and now a bank. You have regulatory issues in 50 states to get figured out. There’s a lot to get right.”

On top of that, the dealer said, “Verizon, AT&T and Sprint are still fine-tuning their packages. Their offers are not nearly as compelling and still have a lot of work to be completed. When they have their offers tuned, they will roll them to indirect, I believe.”

Ovum analyst Sara Kaufman agreed that the carriers want to go slow in bringing the programs to dealers. “Introducing a new program requires an education period, and they have to interact with retailers’ systems and make sure everyone is trained properly,” she said. Carriers won’t “roll out the programs en masse without carefully testing it and educating the sales channel about it.”

Some retailers, said Informa’s Paulin, could opt to create their own trade-up programs, but they would have to be large retailers, such as Best Buy, which have “the scale necessary to negotiate with operators to opt in such a program.” Best Buy is not far off from offering such a program, she added, because it already offers 18- or six-month financing options for unlocked mobile devices via its Best Buy credit card. No interest is assessed during the selected term. Best Buy’s credit card offers cash-back rewards, and the chain offers trade-in incentives in the form of Best Buy gift cards, she noted.

A U.K. phone retailer, Phones4U, developed its own trade-up program, she noted.

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