The new Apple iPhone 6S and 6S Plus are displayed during an Apple media event in San Francisco, California, September 9, 2015.BECK DIEFENBACH/Reuters
Executives from Canada's Big Three carriers all say they have no plans to start selling smartphones on instalment plans with no money down, arguing there is no incentive for them to move to what would be a more capital-intensive pricing model.
Equipment instalment plans (EIPs) and leasing options have become widespread among U.S. carriers over the past two years and Apple Inc. said last week it will directly offer customers the option to lease unlocked versions of its latest iPhones for $0 down and 24 monthly payments.
But Canada's dominant players – Rogers Communications Inc., BCE Inc. and Telus Corp. – have continued to use a subsidy pricing model, under which customers pay a reduced upfront price and the carriers recoup the balance of the device cost over the life of a contract.
Speaking at the BMO Media and Telecom Conference in Toronto Tuesday, executives from each of the Big Three carriers said they're keeping an eye on the U.S. market but don't plan to instigate such a model themselves.
"I think it's actually a very healthy market when people put some money down to purchase the product," said BCE chief executive officer George Cope. "But if the market changes, we'll change with the market. We're already subsidizing the handsets a lot as it is, so we'll see how it evolves."
Mr. Cope said he estimates that BCE offers average device subsidies of about $300 to $350 and retail customers pay an average of $200 upfront.
Rogers chief financial officer Tony Staffieri similarly said his company has studied the model and would consider implementing it "reactively" if necessary but doesn't plan to introduce it.
"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. So we don't see a lot of upside for it," he said.
The Big Three do offer tablets on instalment plans but those represent only a small part of the market and are often linked to existing smartphone accounts, sharing those data buckets. There are also some no-money down options available from smaller players in Canada – Eastlink Wireless has offered EIPs since 2013 and announced Tuesday it will sell the iPhone 6s for $0 down and 24 monthly payments – but these have not been enough to push the country's largest carriers to follow suit.
Telus chief financial officer John Gossling said the landscape is different in the United States where the largest players Verizon Communications Inc. and AT&T Inc. were spurred into changing their pricing by strong national challengers Sprint Corp. and particularly T-Mobile U.S. Inc., which originated the new pricing strategy in 2013.
Mr. Gossling noted that there is no Canadian equivalent to T-Mobile, which has 58.9 million subscribers – more than double the entire Canadian wireless market – and significant cash flow, making it easier for the company to finance the entire cost of devices upfront.
"Frankly, whatever you call it – instalment plan, EIP, leasing – it's 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 [under the subsidy model]," he said. "I just don't see that that's something that is all that appealing."
Mr. Gossling said the "subsidy model has worked very well for us," noting that increased transparency around the balance still owing on handsets has helped customers understand exactly when they are eligible for upgrades.
"It doesn't seem like there's a big customer demand for a zero-dollar-down kind of phone. 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. We don't have that mindset here," he added. "We're certainly not looking to lead at all on any kind of handset financing."
Mr. Gossling also alluded to the high cost of Apple's newest devices – the suggested retail price for the iPhone 6s and 6s Plus ranges from $899 to $1,289 depending on the amount of storage.
"I can see why a handset manufacturer might like it [the EIP model], especially when their product is pushing $1,000," he said. "But that doesn't mean that it's something that we feel compelled to do."