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Summary:

AT&T is aligning its upgrade policy with its 24 month contract terms: No more early upgrades for fully subsidized hardware. The move pushes out AT&T’s subsidy costs by several months and follows a new $0.61 monthly administrative fee.

iPhone with AT&T logo crossed out

AT&T seems to be in cost-cutting mode of late. Following news of a new $0.61 monthly administrative fee on May 23, the carrier has modified its rules for subsidized phone upgrades. On Sunday, AT&T changed its policy and now customers must wait a full 24 months before becoming eligible for a handset upgrade at the lowest subsidized price.

This  allows AT&T to recoup another 4 to 6 months of handset subsidies before providing the next one to a customer. The company says “it applies to any customer whose agreement expires in March 2014 or later,” so it retroactively applies to AT&T subscribers that signed a two-year contract during or after March 2012.

iPhone 5 upgradeIronically, my wife’s contract with AT&T is up this October. And under AT&T’s eligibility rules before the change, she can actually upgrade now at the fully subsidized cost, i.e.; an iPhone 5 for $199, for example. But when she does that, she’ll sign a new two-year agreement and will have to wait the full 24 months under the new rules.

AT&T says that early upgrades are possible after six months of a contract, but “you qualify for partial discount off the full retail price.” And you’ll have to sign a new two-year agreement at that point. For those that don’t like their handset or get bored with it in the first few months, that’s a reasonable out. Don’t expect the lowest price for your new phone at that point, however.

It does make logical sense for handset upgrades aligned with contract lengths. AT&T is doing anything nefarious in that regard. It’s simply taking something away that consumers could take advantage of.

Ideally though, the carrier would follow in the footsteps of its peer, T-Mobile, and simply abolish contracts while decoupling device costs from voice and data services. (Note: AT&T says you can bring your own phone and it will provide contract-free service, but there’s no mention of lower monthly costs.)

Then consumers could be in control of their own hardware costs and upgrades. Instead, in this generally saturated market, AT&T is looking to grow revenues from fees and slower upgrade cycles.

  1. This actually could lead to more subscriber churn. Under the old rules if I wanted the latest and greatest phone for 6 months I could only upgrade with AT&T without paying termination fees. Now when I am up for upgrade I can look at other carriers also because my contract expires at the same time. This may not be such a good move in the age of instant gratification, but that is just my opinion.

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    1. I agree Bill. I’m curious to see how T-Mobile’s new pricing strategy plays into all of this over the next 6-12 months.

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  2. Randy Hudson Monday, June 10, 2013

    The business reason AT&T started offering fully-subsidized upgrades before the actual contract expiration was to retain their existing customers.

    Once the contract runs out, an AT&T customer can get a new handset from anyone, and AT&T had felt the cheapest way to retain their existing customers was to re-sign them before those customers started comparing phones and plans across competitors. The change now suggests that AT&T views customers as less likely to change carriers, due to other factors.

    Some of those factors are Family plans, which make the transition to a new carrier logistically difficult and temporarily expensive; the lack of price competition for contract plans, and the weak differentiation among currently-available handsets.

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  3. William Bergmann Thursday, June 13, 2013

    I’m pretty glad I don’t have to worry about any of that with my T-Mobile plan.

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