Phone Installment Plans Turn Out to be Revenue Neutral for Mobile Operators

When unsubsidized mobile phone plans first were introduced, there was some concern about the impact on consumer adoption of advanced smartphones, which could have slowed mobile data revenue growth.

In practice,  installment plans seem to operate pretty much as before, the only difference being that mobile service provider cash flow arguably is better when most customers are on installment plans.

Importantly, there has been no significant negative impact on adoption of smartphones and sales of data plans.

That is the Verizon Wireless experience, at any rate.

“From a pure financial perspective, the profitability of a customer is exactly the same under the subsidy model in some models over a two-year period of time,” said Fran Shammo, Verizon CFO. “So there’s no different in the profitability of what that customer generates.”

There is a difference in cash flow and a shift of revenue between accounts. Equipment sales revenue is higher, and recurring service revenue is lower. A device sold on an installment plan might mean the total cost of the device is booked as revenue, even if the actual payments and receipt of cash will e booked over a year, two years to 30 months.

In most cases, though, total revenue from a customer on a traditional contract featuring a subsidized device, and total revenue from a customer on an installment plan, will be about the same, Shammo said.

On an “average revenue per account” basis, including both recurring service and installment plan revenue, Verizon reported five percent revenue growth. Looking only at mobile service revenues, growth was 3.5 percent in the third quarter of 2014.
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