Smartphone Leasing Replacing Contracts as Most Popular Pricing Plans

by Matt Klassen on October 8, 2015

Mobile operators and smartphone vendors must be squealing with delight, as research released from consulting firm Kantar this week shows that mobile phone instalment plans, ostensibly smartphone lease programs, are on the rise, now linked to almost half of all smartphones sold in the U.S.over the last quarter.

During the three month period ending August 31, 47 percent of all smartphones sold in the U.S. were on some sort of instalment plan, Kantar research chief Carolina Milanesi said, with the standard post paid contracts now accounting for only 20 percent, with the remainder linked to prepaid deals.

But as I’ve said before, smartphone leasing is one of the biggest marketing scams perpetrated on the mobile consumer, locking users into a cycle of perpetual payments that makes two year contracts look like a vacation. That said, whether forced or not, consumers are gravitating towards this new payment strategy, and I would guess carriers couldn’t be happier.

According to the study, when the number are broken down into popular smartphone brands, it seems there is virtually no difference among iPhone or Android buyers when it comes to choosing the instalment route, verses standard contracts or prepaid options. From June through August, 51 percent of iPhone sales were made through some sort of leasing or off-contract plan, 37 percent went the traditional contract route, and 12 opted for prepaid.

Over the same period, 46 percent of Android phones were sold through an instalment or lease plan, 15 percent via contract, and 39 percent were prepaid.

However lamentable these numbers may be, particularly for today’s cash-strapped, credit laden public, they really come as no surprise, as all four major American carriers—Verizon, AT&T, T-Mobile and Sprint—all encourage (or sometimes force) you to accept leasing options, offering the enticing option to upgrade to a new phone after a certain period. Of course such options either demand you pay for the phone in full up front, or shell out a monthly sum, which, when coupled with early upgrades, equals a never-ending payment on a phone you’ll never truly own.

Now of course the safe bet with this new instalment strategy would be to buy the phone in full rather than opt for the cheaper subsidized price, but let’s face it, that was never going to happen, and as Kantar’s data shows, the opposite is in fact happening as consumers flock to monthly instalment options, particularly on the most expensive phones.

For example, during that same time period 55 percent of iPhone instalment plans were for an iPhone 6, while 22 percent when associated with an iPhone 6 Plus, while the same held true for Android’s top phones, 36 percent for the Galaxy S6 and 12 percent for the Galaxy S6 Edge.

About the only thing strange about Kantar’s numbers was the lukewarm reception of Apple’s own iPhone Upgrade plan, which the study found to account for a relatively small number of smartphone instalment sales.

“Given that only 8 percent of iPhone sales went directly through Apple in the three months ending in August, this program might not be the threat to carriers some imagined, but it will offer Apple a way to strengthen its relationship with customers,” Milanese said. “The program also will help Apple get more of the previous generation’s devices into the refurbished market.”

All that to say, despite what common sense would tell you about financing a smartphone, that paying to actually own something is infinitely better than paying someone else to not own anything, consumers are flocking to smartphone instalment plans, choosing just one more perpetual payment on top of that already huge mountain of credit debt.

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