AT&T's Next smartphone and tablet upgrade and no-contract plan, announced Tuesday, competes with a similar plan called Jump! from T-Mobile and another expected soon from Verizon Wireless.
Verizon is reportedly working on a no-contract plan called VZ Edge that would allow customers to upgrade to new phones once they've paid off half the balance of their current phones. The website Droid-life reported that VZ Edge will launch Aug. 25, although Verizon wouldn't comment.
All of these approaches, and possibly another coming from Sprint, are tactical responses by the carriers to fundamental, ongoing changes in the wireless industry. As the major carriers spend $20 billion over five years to upgrade their networks to faster LTE and related technologies, they must rely on an arsenal of tactics, such as more frequent device upgrades and no annual service contracts, to keep their customers from leaving.
Behind that reality is that all the wireless carriers also want to attract their future base of the most highly coveted customers -- those tech-savvy users under 35. They make up the biggest demographic group most interested in using the latest smartphones and having network access for plenty of available data. As those heavy data users age over time, all the carriers want to be first in line to serve them.
"This is going to be interesting. It's a new frontier," said Bill Menezes, an analyst at Gartner, referring to the carriers' recent moves.
Those customers wanting more frequent upgrades than the traditional one-device- every-two-years are in the minority, five analysts agreed. They tend to be early adopters of technology and mostly under 35.
The upgrade plans also tend to favor users keeping to a consistent smartphone operating system, like iOS or Android, Menezes said. Users will want to keep the apps they acquired with a specific OS on a new device running on that OS, he said.
But in coming years, carriers may work out ways to make those apps portable to most any OS as customers store more apps in the cloud, Menezes added.
IDC analyst John Weber said that until now, about 54% of consumers have waited 24 months or longer before purchasing a new smartphone or tablet, most likely because of the two-year contract model. Otherwise, they are breaking the contract and must pay a penalty of up to several hundred dollars.
"All the carriers knew things had to change, and T-Mobile drove their hands," said Patrick Moorhead, an analyst at Moor Insights & Strategy. "The entire U.S. telco system is maturing and carriers are scrambling to meet the more diverse needs of consumers."
To generalize, Moorhead said, the plans either cater to consumers who want to retain devices longer and pay lower monthly fees or the tech savvy users who "love devices and want new ones more than once every two years."
Plans like Next from AT&T "are not for everyone ... but for the segment of customers who live on the cutting edge, this is for them," said Jeff Kagan, an independent analyst. With Next, "as customers swap out and get their hands on the newest technology, they will stay with AT&T to keep feeding that hunger."
Jack Gold, analyst at J. Gold Associates, predicted that the majority of AT&T's customers won't take advantage of Next and will continue to wait two-plus years to upgrade.
AT&T didn't respond to a request to describe the motivation behind its Next plan and only issued a brief statement explaining how the plan works.
Starting July 26, AT&T will offer customers its Next plan, which provides a new smartphone or tablet every year with no down payment, activation fee, upgrade fee or financing fee. After making 12 payments of $15 to $50 apiece (depending on the device), they can trade-in the device and upgrade to a new one or keep the older one and make no further payments after 20 months.
T-Mobile last week a href="http://www.computerworld.com/s/article/9240698/T_Mobile_Jumps_to_quick_phone_upgrades"> launched its Jump! plan to allow new phone upgrades twice a year after enrolling in a program than costs $10 a month.
With all the plans, the carriers are willing to pay for part of the cost of the devices at upgrade time. Still, that amount will be less than a carrier subsidy under the existing approach, where smartphones can cost as much as $650, but carriers discount the price to an average of $200 with a customer commitment to a two-year service contract.
"The actual cost to AT&T and the other carriers [for the new upgrade plans] is relatively small when compared to the press and goodwill they get," Gold said. "These plans are a way to look more competitive, while at the same time look like they are keeping the cost low."
Gold said that consumers will need to be careful that each time they upgrade they aren't also forced to sign up for new wireless service that costs more than before. T-Mobile has said its $10 monthly fee guarantees new customer network service plan pricing. AT&T's Web site includes a footnote that says an upgrade prior to 20 months requires purchase of a new service agreement "under then-applicable terms and conditions."
This article, Upgrade plans like AT&T's Next seen as new frontier in wireless, was originally published at Computerworld.com.
Matt Hamblen covers mobile and wireless, smartphones and other handhelds, and wireless networking for Computerworld. Follow Matt on Twitter at @matthamblen or subscribe to Matt's RSS feed. His email address is mhamblen@computerworld.com.
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