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August 19, 2015

Everything Old is New Again

How is a Smartphone like beer? The answer is that you never own it; you just rent it.

The announcement that Sprint was eliminating two-year contracts and going to a straight leasing model feels like the wireless operators are returning to the model that the wire line companies had to abandon -- or at least offer alternatives -- after the Carterfone decision (which manually connected a two-way radio system to a telephone system, allowing someone on the radio to talk to someone on the phone).

The funny thing is, this is in response to the regulators’ goals of enabling competitive markets’ device markets.

Sprint joins T-Mobile and Verizon in this practice, which may indicate that there is a real shift of power to the smartphone manufacturers.

Putting a full price lease on a smartphone suggests that the carrier is no longer feeling like they get the benefit of differentiation. Apple now is everywhere; all the Android folks are hard to differentiate. Why add to the commitment to the device manufacturers if there is no buying power to be had as an operator.

Now, for some companies like Samsung, this change may have a more immediate impact as they have been tweaking their product line to get back to dominance. For others like Apple, the change probably supports their retail store model.

Sprint’s iPhone Forever plan may be the best strategy for a carrier that still wants to grab market share by being consumer-friendly. Per The Wall Street Journal, the plan works like this.

Paying $22 a month and getting a new phone every year means a customer will effectively pay about $264 for a year’s use of a 16 gigabyte iPhone 6, which has a $649 retail price. To qualify for the upgrade, customers must trade in their current device and it must still work. Customers will still be able to buy the iPhone outright if they would like to keep it.

The implications are to me that the market has gotten incredibly stable and new entrants are going to have a harder time breaking into the market.

I still believe that Microsoft can capture significant share, but it may have to be the subsidizing company and utilize creative retail strategies.

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