July 16 (Bloomberg) -- AT&T Inc., the second-largest U.S. wireless carrier, will start selling phones and tablets on an installment plan with the option to upgrade yearly, mimicking a strategy adopted by rival T-Mobile US Inc. in March.
The new package, called AT&T Next, lets customers buy a new device for a monthly installment, depending on the price of the phone, with no down payment or activation fee. After 12 payments, customers can trade in the phone or keep the device after 20 months of installments, Dallas-based AT&T said in a statement today.
T-Mobile was the first major U.S. carrier to introduce an installment plan as part of a campaign aimed at breaking from the industry’s focus on two-year contracts, which subsidize the cost of phones for customers. Last week, the Bellevue, Washington-based company announced a service called Jump, giving users the option to upgrade phones twice a year for a $10 monthly fee.
“The benefit of these plans has much less to do with acquiring customers than it does with retaining them,” said Michael Cote, an industry strategist with the Cote Collaborative in Chicago. Customers on installment plans tend to be more loyal because they are paying every month for their next upgrade, said Cote.
The tactics have struck a chord with some T-Mobile customers. The fourth-largest U.S. wireless carrier reversed a three-year streak of monthly subscriber losses last quarter, reaching a key milestone in its turnaround plan, according to two people familiar with the company.
AT&T’s new service, which starts July 26, requires customers to pay a monthly installment of $15 to $50, depending on the device selected. For example, an Apple Inc. iPhone with 64 gigabytes of storage, which costs $849 without a two-year contract, would be about $42 a month for the first 12 months.
“It’s a very competitive market -- you continually have to innovate,” Ralph De La Vega, head of AT&T’s mobile business, said in an interview. “Our customers tell us they want the capability to get a new device every year. This makes the highest of the high-end phones available to anyone.”
As the wireless industry endures a slowdown in subscriber growth, AT&T has been looking to expand into other areas, including the pay-as-you-go market. Last week, it agreed to buy Leap Wireless International Inc. for about $1.2 billion. The move would give AT&T 5 million prepay customers and additional airwaves to bolster service in more areas.
T-Mobile said AT&T is just playing catch-up with the installment-plan program.
“AT&T rushed a response to what they’ve seen at T-Mobile, but this isn’t a strategy,” Chief Marketing Officer Mike Sievert said in an interview. “They aren’t studying the things that bother customers.”
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