Big Three reluctant to finance smartphone purchases

Executives from BCE Inc., Rogers Communications Inc. and Telus Corp. said Tuesday they are not interested in offering the type of smartphone leasing or financing plans that are increasingly available to customers in the U.S., though they’re willing to consider the option if others move that way. “If the market changes, we’ll change with the market,” Bell CEO George Cope said during the Bank of Montreal media and telecom conference from Toronto. “We’ll see how it evolves.” Last week, Apple Inc. announced that it will offer begin offering financing for iPhones. According to its website, the iPhone Upgrade Program will be available in U.S. stores and allow customers to upgrade to a new iPhone every year with payments that start at $32.41 US a month. The company did not respond to questions about whether such plans will be available in Canada Tuesday. U.S. carriers have also begun offering equipment-installment plans (EIPs), which don’t require customers to make a down payment on a phone like the subsidy plans prevalent in the Canadian market. For instance, T-Mobile US Inc. customers can sign a two-year financing agreement and pay off the cost of their phones in monthly payments. They can pay off their balance any time by making a bigger payment, the T-Mobile website specifies. “We obviously have watched the programs going on in the United States by the other carriers,” Cope said. He added that in Canada, carriers “subsidize phones for roughly $300 to $350,” meaning that customers end up paying around $200 in a down payment. “Really, what people are looking at is: Do you finance that $200 to make the person pay nothing up front to drive it?” The current model, which requires customers to pay some money up front to buy a product, makes for a “very healthy market,” he said. Rogers’ chief financial officer Tony Staffieri said his company has “looked at it. We continue to look at it,” but that Rogers hasn’t seen a reason to begin offering EIPs. “For us, it just doesn’t pass the so-what test. Why would we do it? We just see it as cash-dilutive for us, and eventually the industry if everybody does it,” he said. “So, we’d see it as something if the market moves that way, then we’d look at it reactively, but it isn’t something that we see is going to be helpful for our customers and the industry,” he said. Telus chief financial officer John Gossling said such plans are “a big working capital hit in terms of what you’re investing. A customer can now walk out of the store with a free phone. In effect, they’re going to pay for it over time, but no money down, versus $200, $300, $400, depending on what phone you’re talking about. I just don’t see as something that is all that appealing.” Both Staffieri and Gossling noted that their companies offer installment plans for tablets. Additionally, some smaller wireless players, including Wind Mobile, and the Big Three’s flanker brands, offer “tab” models that allow customers to pay off portions of the cost of their devices in their monthly bills. Gossling said the subsidy model has worked well for Telus thus far, and customers aren’t asking for EIPs. “It doesn’t seem like there is a big customer demand for a zero-dollar-down kind of phone, especially not in a higher-quality customer, which is what we’re focused on. I think, sure, if you look at a lower-credit customer, a subprime type of customer, you may have a huge attraction there, but I think that’s a very risky proposition,” he said. Like his competitors, Gossling said Telus is “not looking to lead at all on any kind of handset financing,” though it is “watching it very carefully.” The U.S. market is different than the Canadian market, he said, because the U.S. market is made up of two very large wireless companies and two “challengers.” “We don’t have that situation here, so we don’t have a T-Mobile, who has a base of 56 million customers and a lot of cash flow, so they can afford to do these kinds of things,” he said. “You have to remember in the U.S., you can finance almost anything. You can buy a plane ticket and finance it. We just don’t have that model in Canada, that mindset here that everything can be financed from Day 1." BMO Capital Markets analyst Tim Casey said in a call with journalists following the conference that Wind also addressed the question in its session Tuesday, which was not accessible to media by webcast. “When we talked about that with Alek Krstajic ... his message was that ‘we are not going to be disruptive in this market. We are going to price towards the incumbents,' ” he said. “Coming out of today, I would think the likelihood is, based on all their answers, that are not coming up here any time soon.” — With reporting by Anja Karadeglija at akarad@thewirereport.ca and editing by Derek Abma at dabma@thewirereport.ca

Big Three reluctant to finance smartphone purchases

News | September 15, 2015

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