2010 has been a great year for smartphones with several high profile device launches. Besides the great line-up of devices, US carriers have been wholeheartedly promoting the devices with attractive rate plans and lenient upgrade policies. AT&T's early upgrade policy coincided with the launch of the iPhone 4 last summer was a smash hit with total sales over 5.8 million in Q3 2010, a 66% jump over the same period last year. Similarly, the $15/ month entry smartphone tariffs (although with cap restrictions) proved to be very popular among first time smartphone customers.
Well, 2011 is turning out to be a slightly different story. While carriers are keen to drive smartphone penetration, they are getting a bit more selective in addressing their target markets. See the recent announcements from VZW and Sprint.
- VZW stopped their "New Every Two" program, which allowed customers $30-100 credit toward the purchase of a new phone at the time of contract renewal. The carrier also made changes in the Early Upgrade policy. Prior to the change, customers had the option to upgrade the device after 13 months into a two year contract. And now the wait got a bit longer to 20 months.
- At Sprint, starting Jan 30, all new smartphone activations will come with a $10/month data surcharge.
The termination of "New Every Two" and "Early Upgrade" will have impact on Verizon's replacement and upgrade sales. So far, both programs had served as effective churn management tactics by offering the latest and greatest devices for the most demanding customers. But with the iPhone already under the VZW portfolio, they are not going to worry too much on the churn metrics - hence the bold move.
The impact of Sprint's $10 surcharge on smartphone lines are going to be at a different place. Sprint premium device customers such as the EVO and EPIC already pay a $10 premium, and now that has been extended across their portfolio - super and regular smartphones alike. No doubt, with the change, their featurephone bundles look a lot more attractive than before and will gain at the expense of smartphones. Rather than milking the smartphone base till the last drop, they should have added more options (lower smartphone tariffs/entry smartphone) and develop a migration path for their featurephone base to smartphones.
The VZW approach is farsighted, and the changes are not going to affect their long term strategy in tapping first time smartphone subscribers and at the same time trying to get more mileage out of their existing smartphone base. However, without an entry smartphone plan, Sprint is going to be left out from the next wave of smartphone customers.