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AT&T, Verizon Push Free iPhone for long-term customers

The wireless contract is back.

US mobile phone operators have been offering their most generous discounts in years, providing some customers with brand new devices with no money or small monthly payments spanning many months. Discounts from AT&T Inc.,

T 0.14%

Verizon Communications Inc.

VZ 0.56%

and T-Mobile USA Inc.

TMUS 1.54%

require customers to make long-term commitments that give carriers the stability they need to reassure investors as they increase the cost of upgrading a 5G network.

AT&T launched the trend in October by offering high-end smartphones such as the iPhone 1

2 for free with a suitable trading device. Later, its discount dropped to $ 700, covering the full price of the iPhone 12 Mini and most of the standard iPhone 12, among other gadgets.

Verizon followed suit on Tuesday, hanging $ 700 exchange credits for new iPhones and $ 800 for high-end Android phones. The most generous offers from both companies require customers to adhere to an unlimited data plan for a certain period of time.

“This is essentially a contract,” said Jeff Moore, head of telecommunications company Wave7 Research. “We see carriers locking themselves into the customer base they have, instead of promoting switches.”

The strategy for toll-free phones is to return to the wireless market a decade ago, when US carriers subsidized the price of most new smartphones in exchange for monthly payments guaranteed by subscribers.

The status quo changed around 2013 and operators began running wireless plans without a contract for customers who had purchased their own devices.

Subscribers can also pay for a new smartphone through monthly installments added to their accounts.

AT&T and Verizon are already building most or all of these purchases in exchange for reliable revenue. Verizon’s free phone offer requires a two-year commitment. AT&T on Friday extended its 30-month payout plan to cover three years. Both companies offer deals to existing customers, not just new ones or those who add a new phone line.

T-Mobile offers exchange credits worth up to $ 1,000 for new smartphones paid for in two years. Its offer covers a wider range of mobile data plans, but only applies to customers activating a new telephone line.

Each carrier covers the price of the smartphone through monthly credit bills equal to what regular equipment installments would be. More expensive devices like the iPhone 12 Pro Max – priced at $ 1100 – give low monthly fees. Verizon’s $ 700 to $ 800 offer also offers a $ 300 gift card for new customers. Discounts require uninterrupted wireless service for at least two years; otherwise, customers have to pay the rest of the purchase of a smartphone.

Wall Street analysts say offers for existing customers of AT&T and Verizon affect a much wider range of eligible customers than previous promotions. Paying to equip new and existing customers with new smartphones has already cost AT&T up to $ 2 billion a quarter, according to industry researcher MoffettNathanson LLC.

Verizon’s free phone offer requires a two-year commitment.


David Paul Morris / Bloomberg News

The distribution brought AT&T the sharp growth in subscribers that investors are willing to reward. The Dallas-based company added nearly 1.4 million subscription phone connections to its base in the six months ended March.

David Christopher, executive vice president of AT&T’s wireless division, said device loans are more like interest-free financing than a long-term wireless service contract. He said the carrier has begun offering subsidized financing as the price of the sticker on the best smartphones has risen from $ 600 a few years ago to $ 1,000 or more today, and buyers want more ways to cover the purchase.

“Our customer base is very valuable and the low outflow is represented by customers who vote to stay at AT&T,” he said. “It affected the market. We like the formula. “


Would you agree to a long-term telephone contract in exchange for a free telephone? Why or why not? Join the conversation below.

Industry leaders also say the generous phone deals reveal stronger competition in the wireless market, which has shrunk to three national operators following T-Mobile’s takeover of rival Sprint Corp. in 2020. Satellite operator Dish Network Inc.

received the ingredients for a fourth national system through the Ministry of Justice, but its first cell towers will launch by the end of this year.

Consolidation has not yet led to sharply higher service charges, although monthly rates have not fallen either. MoffettNathanson estimates that the average subscription revenue per user, which operators estimate for reliable monthly payments, has been around $ 47 over the past three years.

Comcast cable internet providers Corp.

and Charter Communications Inc.

add to the conflict with their own low-cost wireless plans. These transactions are only available in the fingerprints of cable providers, where they have arrangements to provide cellular services through the Verizon network.

“We see a competitive, healthy market there,” T-Mobile CEO Mike Sievert said last month. “When more people start entering the switch pool, you have more people who are jumping. And when more people are jumping, T-Mobile tends to do well. “

Extremely fast 5G speeds are here, but they are not as useful for the new 5G smartphones. WSJ’s Joanna Stern packed a trunk at home to see if the connection could power all of her connected devices and explain the confusing world of 5G along the way. (August 2020) Photo illustration: Sharon Shea

Verizon, meanwhile, relies on customers with a cheaper wireless service to upgrade to its most expensive plans for unlimited data, which include high-speed 5G access and subscriptions to media services such as Disney +. The carrier said that about one-fifth of its subscription accounts with a subscription payment have subscribed to these premium unlimited plans by the end of 2020, the shareholders hope to increase to about 50% by the end of 2023.

AT&T’s offerings relate to several wireless plans, but its executives have highlighted their ability to sell customers first-class services packaged with other bonuses such as HBO Max. The telecommunications giant recently revealed plans to spin off HBO owner WarnerMedia into a new company combined with rival Discovery. Inc.

The carrier has not described in detail its plans for HBO Max after the deal, but said the Hollywood business will remain part of AT&T until mid-2022.

All three national carriers are working to strengthen their customer bases as they increase the cost of 5G infrastructure. U.S. companies were bidding about $ 81 billion earlier this year to secure new federal spectrum licenses that maintain high-speed connections, adding to the sector’s total debt. Executives said these advance payments would bring benefits as their customers began to notice the faster speed of the 5G Internet in the coming years.

Until then, AT&T and Verizon could continue to struggle in the market with discounts to avoid bleeding subscribers.

“It’s a dead end,” said Craig Moffett, an analyst at Moffett Nathanson. “History says it’s much easier to start these kinds of price wars than to end them.”

Write to Drew Fitzgerald at andrew.fitzgerald@wsj.com

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