Apple Inc. revealed a new way to buy its flagship device last week – the option to pay for unlocked models of its newest iPhones through monthly instalments. But the arrangement is exclusive to U.S. customers, extending a trend in smartphone shopping that has yet to make its way to Canada.
For the past two years, U.S. wireless carriers have been increasingly offering new smartphones through equipment instalment plans (known as EIPs). These allow customers with good credit histories to pay for their devices through monthly instalments, with no initial down payment, and separate the cost of the phone from the price of network access.
For example, a current offer from T-Mobile U.S. lets customers put no money down and pick up an iPhone 6 for $27 (U.S.) per month for 24 months and add an unlimited talk, text and data plan, plus 1 GB of LTE data, for $50 per month. If wireless service is cancelled, the remaining balance on the phone becomes due.
Apple's leasing model will take that one step further and go directly to consumers, who will then be able to sign a service contract with one of the four national U.S. carriers.
The EIP model is attractive to consumers. But it does require carriers to put more capital up front, compared with the traditional North American model of offering a discounted device and recouping the balance of that cost over a multi-year contract for wireless service.
Analysts say the Canadian industry has not embraced the EIP model, primarily because the competitive dynamics are different in Canada and the Big Three carriers have not yet been pressured into abandoning their traditional subsidy model.
"We don't really have them [EIPs] in Canada," said Greg MacDonald, head of research at Macquarie Capital Markets Canada. "The main reason we don't have them is we don't have disruptive challenger companies like T-Mobile and Sprint [Corp.]."
There are four competitors in most parts of the country now, with Wind Mobile Corp. operating in Ontario, British Columbia and Alberta, Vidéotron Ltd. in Quebec, regional incumbents in Saskatchewan and Manitoba, and Eastlink in the Atlantic provinces.
But while they provide an alternative for customers – and lower prices in some cases, such as with the Prairies and Quebec – they have not disrupted the basic pricing model used by Rogers Communications Inc., BCE Inc. and Telus Corp.
Some players – such as Eastlink, Wind and Telus's discount brand Koodo – have introduced "tab" models that clearly demarcate the cost of paying off the device cost from the price of service and some handsets are available for $0 down and subsequent monthly instalments. However, there has not been a widespread move toward the EIP model at the three major carriers.
In a research report last week highlighting the investing outlook for 2016, BMO Nesbitt Burns Inc. analyst Tim Casey said he remains optimistic about the fortunes of Canada's large-cap telecom stocks.
"In short, the functioning oligopoly remains intact," he said, adding: "Operators compete on service rather than price."
It was T-Mobile that led the charge toward a new model for marketing devices in the United States in 2013. After lagging behind Sprint and the country's two biggest wireless players, Verizon Communications Inc. and AT&T Inc., T-Mobile got access to Apple's iPhone and also introduced the new pricing strategy, giving customers the ability to pick up a new device with no up-front cost.
Part of T-Mobile's "uncarrier" strategy, the model separated monthly service charges from the cost of a new smartphone and did away with two-year contracts. The other U.S. carriers soon followed suit.
Scotia Capital Inc. analyst Jeff Fan noted that Wind and Vidéotron are both attracting new subscribers and seeing growth in their average revenue per user, meaning there is less incentive for either to make a bold move with EIP options at this time.
But as Canadian smartphone penetration continues to increase, EIPs may become an attractive way to compete for new customers.
"I suspect once that growth strategy starts to mature, then they [Vidéotron and Wind] will move towards strategies we've seen in the U.S.," Mr. MacDonald said.
Editor's Note: This story has been updated to add that while instalment plans have not been widely adopted among wireless carriers in Canada, some companies have introduced "tab" models that clearly demarcate the cost of paying off the device cost from the price of service and some handsets are available for $0 down and subsequent monthly instalments.