On the heels of AT&T’s announcement last week that it would stop offering service contracts and subsidized handsets to wireless customers, Sprint officially sounded the death knell of the traditional, two-year service contract in confirming plans last Friday to shift immediately and completely to no-contract service plans that require smart phone installment payments or device leasing.
While the traditional model of offering subsidized handsets at low or no-cost in exchange for long-term contract commitments has been cited as a key element in the growth of the U.S. wireless industry, the new no-contract model provides wireless subscribers with the long-sought freedom to switch carriers at will without the threat of hefty fees for early contract termination. Although subscribers will face the higher cost of paying for their devices in full—either up front or in installments—analysts anticipate that subscribers will benefit potentially from lower fees for monthly service. For Sprint, the decision to eliminate service contracts is expected to boost the company’s newly-minted device leasing division, Mobile Leasing Solutions, which agreed in November to purchase and manage leases for 2.5 million wireless devices through an arrangement that is expected to reap at least $1.1 billion in cash proceeds for Sprint. As he described Sprint’s decision to end service contracts as being “in line with the rest of the industry,” Sprint CFO Tarek Robbiati predicted that his company’s current effort to promote wireless device leasing will prove to be “a churn killer.”