Telus Corp. is eliminating data overage fees and becoming the first of Canada’s national carriers to introduce $0-down financing for smartphones, weeks after Rogers Communications Inc. announced similar offers that shook up the pricing dynamics of the industry.
On Wednesday, Vancouver-based Telus will announce its “endless data” plans are permanent and that customers will have the option immediately to purchase any smartphone for $0-down and pay off the full price over the course of the contract. The cost of the device will be separated from monthly wireless service charges and customers’ bills will decrease once the phone has been paid in full.
In mid-June, Rogers unveiled plans with bigger data buckets – starting at 10 gigabytes a month for $75 – and no monthly charges for using excess data (although it said it would dramatically reduce speeds once customers hit their limit), with device financing to come later in the summer. Rivals Telus and BCE Inc. responded with similar limited-time promotional plans.
Telus’s new financing option, which has been available in the United States for a number of years, should provide customers with more clarity around how much their smartphones cost, said Jim Senko, the company’s president of mobility solutions.
“Customers are confused,” Mr. Senko said. “In the current construct, it’s all bundled together so you don’t understand what you’re paying for on the device and what you’re paying for the network service.”
While the financing plans will force carriers to cover the full device cost upfront, companies will benefit by saving the costs of “device subsidies,” since the customer will eventually pay back the full cost of the device over time, analysts say.
Rogers eliminates overage fees in shakeup of wireless plans ahead of 5G
Bell follows Rogers ‘unlimited’ data in promotion plans, Telus on different path
The average device subsidy at the big three carriers is about $500, a number that has nearly doubled over the past four years as smartphone prices have surged, according to National Bank of Canada analyst Adam Shine. He expects carriers will see their subsidy costs drop as more customers choose $0-down financing to pay for expensive phones. After Rogers announced a couple of weeks ago it plans to offer device financing in late summer, he noted the company spends $2-billion each year on handsets, with about $600-million in subsidies and the rest in financing.
With device financing, “the subsidy amount should get materially reduced and this should prove accretive to EBITDA,” Mr. Shine said in a note (EBITDA stands for earnings before interest, taxes, depreciation and amortization).
Like Rogers, Telus’s new data plans start at $75 for 10 GB, and data speeds will be significantly reduced – or “throttled” – once customers hit their limits (but they won’t incur any additional charges). While U.S. carriers commonly offer this pricing model, Canadians have not had access to such plans with the exception of similar options from smaller carriers such as Shaw Communications Inc.’s Freedom Mobile.
Extra data charges have long been a prominent pain point for customers, often tying up call centres with questions and complaints, according to Mr. Senko.
Analysts have warned wireless carriers could face a drop in monthly wireless revenue as they give up once-lucrative overage fees as customers migrate to the new plans. Revenue from those fees has already been shrinking, however. Rogers’s data overage revenue sits just below 5 per cent of total blended ARPU (average revenue per user) compared with 10 per cent a few years ago before larger data buckets were introduced, according to TD analyst Vince Valentini. He said BCE recently reported similar overage revenue numbers at 6 per cent of ARPU and Telus does not disclose this figure.
Mr. Senko said Telus expects customers on lower priced plans with less data to switch to the more expensive options with larger data buckets to avoid overage fees, thereby contributing to higher monthly bills and steadier revenue in the long term.
“The combination of customers that will see these as valuable plans and step up to them will mitigate the customers who are potentially coming down in price because they do have data overage,” Mr. Senko said.
BCE’s “unlimited” plan promotion was set to end on July 2 but has been extended for an indefinite period of time, according to a spokesperson.