U.S. Subscribers Ditching Phone Contracts

May 10, 2012
By: Michelle Amodio

Contract-based phone plans are falling by the wayside, recent trends indicate.

T-Mobile (News - Alert) USA reported a loss in subscribers – down 510K to be precise – in Q1 of this year alone. The Associated Press reported that major phone companies in the U.S., representing 95 percent of the phone market, combined saw a decline to the tune of 52,000 subscribers.

These contract-based plans are responsible for the majority of the revenue generated by providers, but as more and more people adopt phones, the need becomes less, more so since many are moving to pay-as-you-go or no-contract plans.

Despite the dip in subscribers, T-Mobile USA saw a rise in profits as its earnings were up 2.7 percent from last year.

CEO Philip Humm credits the profit jump to an increase in average revenue per user (ARPU), a healthy addition of new customers and perhaps most importantly, a more streamlined T-Mobile operation after significant layoffs and call center closures.

As far as the two bigger players in the market, Verizon is winning over AT&T (News - Alert).

According to the Associated Press report, Verizon signed 501,000 new customers to data plan contracts in the first quarter, compared with only a net gain of 187,000 new contracts for AT&T in the January to March period.

Nearly all of the new AT&T contracts were for the iPad. It is a known fact, however, that companies make more money off smartphone subscribers with data plans, who often pay more than $100 monthly, than tablet subscribers, who can pay $15 to $50 a month. So the lack of iPhone sales, which have proven more lucrative, have affected the overall numbers for AT&T.

“Over the last five quarters, Verizon (News - Alert) has added nearly three times as many contract subscribers as AT&T,” the AP report said. For perspective, the two split new subscribers nearly evenly over the previous two years.

Ralph de la Vega of AT&T's wireless division told analysts that the need for wireless data is going to continue to drive an increase in monthly bills.

"Quite frankly, it's hard for us to see a cap on that," de la Vega said.

Similarly, AT&T, one of the first to do away with unlimited data, is now talking about shared family data plans, so that users can now purchase package plans, or a plan for more than one iOS device, and share the data between them.

Speaking to CNet, de la Vega indicated that AT&T already had a plan ready for shared data, and that they would be offering it soon.

“I’m very comfortable with the plan that will be offered to our customers,” de la Vega said.

De la Vega would not say, however, when this would happen or how much it would cost. Due to the competition, it seems it will be sooner rather than later.

Edited by Braden Becker