Monday, 19 February 2018
Iphone

Trading growth for profit, AT&T launches BOGO for iPhone X


AT&T has become the first mobile operator in the U.S. to introduce a “buy one, get one free” (BOGO) promotion for the iPhone X, which famously crossed the $1,000 pricing threshold when it launched in the fall.

The promotion is open to both new and existing customers, with a new line of service and if the phones are purchased on the AT&T Next installment plan. The carrier is also not requiring users to sign up for its video services to take advantage of the promotion.

“Prior BOGOs [from Verizon, T-Mobile and Sprint] had been limited to the iPhone 8 model, or $700 in bill credits for a second device,” said Deutsche Bank analysts Matthew Niknam, Whitney Fletcher and Benjamin Soff. “The iPhone X’s $1,000 ASP hence marks a meaningful step-up on AT&T’s part.”

They added that AT&T has had a focus on profit and therefore keeping ARPU up, which has mitigated its subscriber gains. However, margins tipped over the 50% mark last year, and with that, AT&T is now “reinvesting” in growth by offering a few deals that helped push its fourth quarter to the first quarter with postpaid net gains since 2014. Going forward, the BOGO could signal AT&T’s return to waging an in-the-trenches pricing battle.

“These types of more aggressive BOGO offers could also be aimed at helping AT&T retain its significant iOS base, which we believe is largest among U.S. carriers,” DB analysts said. “Hence, newer-model launches pose increased churn risk to AT&T.”

They added, “AT&T’s move certainly increases the risk that peers will respond with more aggressive offers, especially following a multiquarter stabilization/lull in aggressive promotional activity.”

Other analysts also chimed in: “While we recognize that Valentine’s Day tends to be a big promo time for carriers, this is something to watch,” wrote Wells Fargo analyst Jennifer M. Fritzsche in a note to investors today. “Checks have shown T has been more in ‘fight back’ mode in terms of protecting its base since early December (recall the Q4 postpay positive phone adds was as surprise to many–including us). This recent promotion, suggests this behavior has continued into Q1. We also note – T has the largest embedded base of iPhone users to protect. Recall–T had iPhone exclusivity from 2007–2011.”

Don’t expect to see offers get too crazy though: Sacrificing profitability entirely is unlikely to become a core company strategy for any of them, thanks to investments in 5G looming and other aspects of business coming under pressure.

AT&T for instance saw its pay TV business decline 11% last quarter, with business services and Mexico operations not doing the balance sheet any favors. Verizon will need to maintain margins so it can fund aggressive fiber investments and 5G builds, while Sprint is also facing significant 2018-19 capex even as it sees higher churn.

T-Mobile may be most likely to respond to AT&T throwing down the iPhone X gauntlet, “considering its peer-leading service revenue growth at +7% (in a flattish industry), and track record as the ‘UnCarrier’ since 2013,” the analysts said. “While this is certainly possible, we also note the company has recently sought to target a greater balance between growth and profitability initiatives. In addition, TMUS has significant and robust growth avenues ahead of it, which (we believe) affords it the luxury of not needing to compete aggressively for less profitable growth.”

There could be other reasons besides subscriber growth that AT&T is discounting the iPhone X: The BOGO offer also comes as iOS levels are falling in the U.S. amid lukewarm reception to the latest models. Also, there are reports that Apple will discontinue its current iPhone X model once the company introduces its 2018 iPhone lineup later this fall. Wall Street analyst Ming Chi-Kuo has predicted that Apple’s iPhone lineup this fall will feature two new devices with edgeless displays, one a 6.5-inch iPhone with an OLED display and the other a 6.1-inch iPhone with an LCD display.



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