Hardly a week goes by without one of my friends complaining about the complexity of wireless service pricing in the U.S.
Just last week, a friend relayed a story about spending two hours in a carrier retail store trying to understand all of the many pricing options. Well, I’m sorry to say that things are going to get more and not less complicated going forward.
Mobile Device Financing, Installment Payments, & Leasing Programs
The recent industry shift to mobile device financing, installment payments, and now leasing programs is introducing us to a whole new world of footnotes, asterisks, and other fine print. And, with Apple’s new iPhone upgrade program, consumers have even more options to consider.
One of the co-founders of HYLA Mobile once said that buying a cell phone is the third most complicated transaction in a consumer’s life, right behind purchasing a house and a vehicle. With all these new plans, a cell phone purchase might actually become more complicated than buying a car.
As carriers and Apple angle to advertise the lowest price for a new iPhone, they are employing a variety of tactics which only add to these complexities: varying payment periods, residual values, upgrade periods, insurance requirements…the list goes on and on. Consumers will have to go to school in order to determine not only which rate plan is best, but also which phone payment plan is best.
Sadly, in this short space I don’t have time to sort through all the complexities. I do, however, want to highlight one of the most important variables that is emerging: mobile device residual value. Many programs now require consumers to return their mobile phones when they upgrade to a new one, either at the end of the lease or to avoid having to pay off the remaining balance when upgrading early. By offering these options, Apple and the carriers are making implicit assumptions about what the residual value of a used device will be, just as car manufacturers do when leasing cars. The expected residual values are not the same, meaning some deals will be better than others.
How Residual Value Impacts the Consumer
In the table below, we have created an example of the difference in residual values between different carriers. We’re comparing the value consumers will receive if they choose to upgrade after 12 or 18 months, across the programs offered by AT&T (Next), T-Mobile (Jump on Demand), Sprint (iPhone Forever) and Apple (Annual iPhone Upgrade Program). Note, Verizon doesn’t offer consumers an option to upgrade early.
As you can see, there are major differences amongst these plans. Consumers who want to upgrade before fully paying off their device get more value from some players than from others.
We are at the front end of a new battlefront in wireless: the battle for maximizing mobile device residual values. The higher the mobile device residual value, the lower the lease payment for the consumer. HYLA Mobile is pioneering risk management solutions to help wireless carriers and device OEMs successfully navigate and win in this new competitive dimension. Our in-house data sciences team has created the first commercially available residual value forecast platform for the wireless industry. The insight gleaned from our forecasting platform can help carriers – avoid walking into minefields as they attempt to solidify their footing in this new mobile device upgrade program(s) dynamics.
In our next blog, we’ll talk about the new risks carriers and OEMs face in managing mobile device residual values and how creating billions of dollars in mobile phone leases poses sizable new risks to future earnings and balance sheets.
What do you think? Is the complexity in wireless getting better or worse? How are these new financing plans affecting you?
In addition to discussing the value of wireless services, take a look at the latest mobile trade-in industry trends, to find out the trade-in value of your mobile phone.