The second largest U.S. wireless carrier AT&T (T, Financial) is offering a discount of $200 on sale of iPad. The company is making this deal available to buyers who are ready to buy an iPhone 5S or 5C at full price ahead of the release of the so-called iPhone 6. In addition, this move is part of the company’s effort to promote tablet sales as the smartphone market has started to saturate and subscriber base is growing at a stunted rate. Selling and iPad at a discount is also quite profitable for the wireless provider as long as the subscriber is willing to enter into a two-year contract.
Preferring tablets over smartphones
In the recent quarters it has been observed that tablet sales are accounting for the telecom operators’ subscriber growth. There was a time when smartphones sales were the real triggers behind increasing subscriber base. But the situation has reversed now. All the four national carriers have started giving offers to endorse tablets aggressively to widen its customer base.
Though tablets fetch much lower revenue to the carriers relative to a smartphone, it’s more attractive as telecom providers see future growth in this space. Verizon (VZ, Financial) CFO Fran Shammo explained this in an investor conference saying that the penetration of tablet is very small. This provides tremendous opportunity. Another possible reason why telecom companies have been trying to popularize tablets more than smartphones is that the former has a larger screen. Since data usage is the revenue driver of telecom players and tablets are increasingly used for video streaming as compared to a smartphone, its can generate more data revenue.
Both Verizon and AT&T are modifying their base plans such that it’s based on the data consumed by the user. At an investor conference held last week, AT&T Chief Strategy Officer John Stankey made a comment saying that “What customers want to do with their devices is entertain themselves.” And the most common source of entertainment is watching videos online or listening to music. Both these activities hog data from where the mobile operators earn revenue.
Strategies to maximize share
Every wireless carrier is trying to get a greater share of this market. AT&T is promoting Apple’s (AAPL, Financial) devices heavily. Smaller rival T-Mobile (TMUS, Financial), which has been giving tough competition to AT&T in the past few quarters, is trying to make its offer more attractive by providing a chunk of data for free. It is also offering a gift card worth $100 to its customers if they buy both an iPhone and an iPad.
These strategies are paying off well to the carriers. In the latest quarter, AT&T added 366,000 tablet subscribers to its subscriber base, while T-Mobile 329,000. Verizon’s performance too was quite impressive. The Big Red added 1.4 million postpaid subscribers, of which 80% were owing to the sale of tablets. According to J.P. Morgan Chase & Co., the four national carriers saw a consolidated addition of 3.1 million postpaid lines in the last quarter, and out of the total 2.4 million were on account of tablet. This figure is nearly four times of what it added in the year ago period.
Parting thoughts
Currently tablets generate insignificant revenue for the carriers compared to smartphones. But it has great potential in the future. AT&T has sweetened the iPad deal for iPhone buyers. Will it help the company to clear its smartphone stock by offering discounts on the tablet before the release of Apple’s latest iconic flagship product? Let’s keep our eyes glued.
