AT&T subscriber Jon Schallert is pretty sure he can get better coverage from another wireless carrier.
But he has no plans to jump ship after 12 years, and not just because he’s hooked into a contract. The Longmont small-business consultant has four lines on his family-and-business plan. He’s also grandfathered into AT&T’s unlimited mobile Internet data plan, which is no longer offered to new subscribers.
“Everything is unlimited, so I never have to worry about how much I’m transmitting and downloading,” Schallert said. “Honestly, (switching) would mean I would have to start thinking about something else.”
Call it the carrier “locked-in” phenomenon.
For all the complaints about dropped calls and slow mobile Internet connections — a Pew Internet Project study released in August found that three-quarters of subscribers deal with those problems — fewer are dumping their providers, in large part because they don’t want to deal with the fees and hassles involved.
During the quarter that ended June 30, the four national wireless carriers — T-Mobile, Sprint Nextel, AT&T and Verizon Wireless — reported lower rates of contract-based customers discontinuing their service compared with the same period a year ago. (Sprint’s rate excludes the soon-to-be-phased-out Nextel platform.)
Some of that could be attributed to subscribers waiting for the release of the iPhone 5 before making a decision on whether to renew or leave.
But for better or worse, millions of consumers are essentially married to their carriers, a trend that traces its roots to the original iPhone. It will probably exacerbate as the nation’s two largest carriers, Verizon and AT&T, push subscribers to new “shared data” offerings.
“Nowadays, there are very few new customers to be acquired,” said Charles Golvin, an analyst with Forrester Research. “That means for all these carriers, the business is really about keeping your best customers and luring away your competitors’ best customers.”
With roughly 200 million subscribers combined, Verizon and AT&T may be more focused on locking down their existing subscribers than winning over new ones.
The carriers’ latest data plans — in which smartphones and tablets on the same account share a bucket of mobile Internet gigabytes — offer savings as more devices are added. But there’s a catch.
“Just like the more lines you have with them, the more painful it is to switch, the more devices you have with them on your plan, the harder it is going to be to switch to a competitor,” Golvin said.
In 2007, Apple’s iPhone revolutionized the wireless industry, essentially turning a cellphone into a mini-computer, or a smartphone.
In the years that AT&T served as the exclusive provider for the iPhone, the company’s contract-based churn rate, or percentage of customers that end service, dropped despite its public label as the nation’s worst carrier. That exclusivity ended in 2011, and not surprisingly, the carrier’s churn increased, though the rate is on the downswing through the first two quarters of this year.
More than half of cellphone users own a smartphone. The majority pay no more than $200 to $300 for the device, while the retail cost is more than twice that.
Carriers subsidize the purchase and recoup the cost (and more) over a two-year contract, charging a cancellation fee if a subscriber leaves early. That fee was $175 or less before the rise of the smartphone and is now $350 for Verizon and $325 for AT&T.
“Smartphones, with all the bells and whistles, are locking people in,” said Eric Wurtenberg, co-founder of Celltrade-usa.com, which helps customers transfer cellphone contracts.
Celltradeusa.com’s business boomed from 2007 to 2009 but has since flat-lined as more subscribers are sticking it out with their carriers.
Initially associated with cellphone providers, the two-year contract requirement is now standard in the pay-TV business.
Verizon drew scrutiny by doubling its maximum early-termination fee to $350 in late 2009. Lawmakers were concerned that the carrier was using the higher fee to dissuade subscribers from switching. Verizon said it increased the charge because of the rising cost of smartphones, and a federal bill introduced to limit such fees failed. Other carriers have since followed suit.
The service contract and associated breakup fee are just part of the locked-in story.
Forrester Research estimates that 75 percent of U.S. wireless subscribers are on discounted, multiple-line family plans, raising the barrier to switching.
Thom Yi of Colorado Springs has four lines on his AT&T account. He’s eyeing an iPhone 5 and its 4G LTE compatibility, but AT&T hasn’t lit up the high-speed network in Denver.
“When AT&T has LTE in the middle of Kansas, and they’re just now getting Denver rolled out, it’s kind of sad,” Yi said.
Still, he’ll likely stay with AT&T because he doesn’t want to pay $35 activation fees on each line he would carry over to Verizon.
“I’ve been contemplating, should I just stick with AT&T and not deal with activation fees?” Yi said.
Yi isn’t alone in his thinking.
In 2011, the churn rate was 35 percent lower for subscribers on family plans, according to a study released this year by PricewaterhouseCoopers.
“In general, family plans appear to be an effective way to increase the length of subscriber relationships and reduce churn,” the study states.
A couple of years ago, amid the tight economy, more subscribers moved away from contract service to lower-priced prepaid cellphone providers. That growth was somewhat limited because prepaid carriers didn’t have access to higher-end smartphones.
This summer, prepaid providers such as Cricket Wireless started selling unsubsidized iPhones. Cricket said last week that it will also carry the iPhone 5. But prepaid carriers still must convince customers that a lower-priced, month-to-month plan is worth paying several hundred dollars more upfront for the same smartphone.
Andy Vuong : 303-954-1209, avuong@denverpost.com or fb.com/byandyvuong
