AT&T's Tricky Plan Won't Tempt iPhone Fans
Jul 18, 2013 5:00 AM PT
AT&T's new smartphone service plan -- which is designed to encourage smartphone owners to upgrade to a new model every year, rather than stay locked into a device-subsidized two-year contract -- is misguided and dumb, at least for iPhone owners.
Still, I'm quite pleased to see AT&T's plan. Let me explain.
Anything that decouples the cost of an iPhone from a long-term contract and service plan is good for the industry. Consumers need to know that smartphones don't cost US$199. They also need to know that the only business model isn't one that has you pay a low cost up front in favor of big monthly payments tied to a two-year contract.
T-Mobile started down this path first -- at least, among the large U.S. carriers -- by letting customers make a down payment on their smartphone, followed by monthly payments. After T-Mobile's cost of the smartphone was covered by the payments, a customer would not have to continue making them -- potentially reducing the customer's cost of smartphone service for each month they used an "old" phone. It's kind of like buying a car, paying it off, and enjoying a period of time where you don't have to make a car payment. Definitely good for consumers.
'Early' Upgrades Are Great if You Just Open Your Wallet
T-Mobile also has a plan that lets customers upgrade their devices twice a year, and it costs an extra $10 a month for the option.
AT&T's installments will range from $15 to $50 depending on the device, but they do not require a down payment. Consequently, a 16 GB iPhone 5, which retails for about $650, could be had for zero down and about $30 per month.
Sounds good, right?
No. As near as I can tell, this plan doesn't change the overall service and data plans that you pay each month , which are already artificially inflated so that money can be earmarked to subsidize (pay) for the smartphone.
That means for the privilege of being able to upgrade "early," pretty much every scenario I run through results in the consumer spending more -- sometimes significantly more -- money.
The problem with a pay-as-you-go model for hardware, even when the hardware cost isn't connected directly to the service costs, is that early upgrades mean the hardware isn't yet paid for. The carrier (which is carrying the "loan," basically) can't let you upgrade and end up losing money as it tries to refurbish a potentially abused smartphone.
Perception vs. Reality
The problem I see with AT&T's plan is that so far -- it's slated to officially debut late this month -- it does nothing to share with the consumer the real cost of owning a smartphone. It provides new choices and options, with very little monetary benefit to the consumer. AT&T doesn't have to call it "AT&T Next." No, the company should just call it what it is, the "You Can Get a New Smartphone Easy If You Just Pay More Every Month Plan."
I don't know anyone who feels their cellular service plan is at all connected to the cost of doing business -- and to the cost and investment related to the technology and infrastructure needed to send us email and texts and video while we're out strolling through parks or driving across the country.
While this ability to communicate on the go is a wonderful sort of magic, the cost of it still feels like a bunch of artificially created plans that offer additional features for additional costs with odd penalties associated with whatever choice you make.
Get 250 MB of data, get burned for going over. Get a mobile share plan, pay for way more than you need, and then still get burned for going over when you need it most. With most carriers and plans, it seems like the working metaphor is "out of the frying pan and into to the fire."
By going after smartphone owners who have short attention spans and lust for shiny new things every six months, AT&T risks alienating the rest of us who see these new plans as just another tangled web designed to ensnare us -- or ensnare our nation's youngsters.
Either Way, iPhone Owners Don't Need a New iPhone Every 6 Months
When it comes to Apple iPhone owners, this sort of plan isn't particularly compelling at all. For starters, iPhone owners are loyal to Apple and to iOS, so their options are far more focused. If I have an iPhone 5, do I really need the next generation of smartphone? Only if it provides a significant hardware form factor boost, like a much better camera, a much better screen, a much better battery life or speaker phone -- something truly compelling.
Apple knows this. If it wants someone to upgrade within a year, Apple knows it has to produce something freaking awesome -- but that's not the foundation of Apple's business.
Apple's business is about moving its entire customer base forward, all the time -- not just the 35-and-under demographic of high-spending geeks.
Every time Apple introduces a new iPhone, Apple rolls out new iOS features and provides goodies to its customers who aren't buying new hardware. No one gets left out. That's just how Apple rolls.
Consequently, an iPhone user isn't sitting around like an Android user wondering why the heck the manufacturer or carrier hasn't yet enabled an upgrade to the Android OS. Sure as heck seems easier just to buy a whole new device, doesn't it?
If I were an Android user, I'd like the AT&T plan, because it would let me jump around to the latest best new device -- from whomever -- and get rid of it again before it started acting up or got left behind the latest OS releases. Plus, I'd be more likely to have less affinity with a manufacturer, so why not see if Motorola got its mojo back?
Downside of Stagnant iPhone Sales?
If iPhone owners really are less likely to upgrade their smartphones on what seems to be an increasingly fast cycle, isn't that bad for Apple's business? If Apple's revenue is so closely tied to iPhone manufacturing, shouldn't Apple be making iPhones that self-destruct after 27 months?
That's not really Apple's business. Apple's core business is more about creating an entire ecosystem of products, of creating customers that love their Apple experience and keep investing in all sorts of Apple offerings.
In fact, I would say the most important business goal for Apple should be managing customer loyalty. Apple has more than half a billion iTunes customers with Apple IDs that are connected to credit cards. Selling more iPhones on a faster cycle -- that's not necessarily the most important way to run a business. Sorry. Apple's assets aren't its iPhone production line -- Apple's assets are its customers, and if they're using Apple's ecosystem, that's a win.
AT&T sells a lot of iPhones, but geez, it's hard for me to see this program enticing many iPhone owners, and hence the disparity between a company like Apple and AT&T. AT&T still doesn't know how to charge premium prices so that its customers appreciate what they get.