The introduction of equipment installment plans (EIP) in Canada’s telecom market is making premium phones affordable. With EIPs, one can get smartphones financed with 0% interest and can pay back the amount via monthly installments, generally over 24 months. Further, customers can combine EIPs with leasing plans (where a customer rents a phone for a fixed term, generally 24 months) offering great flexibility to consumers. This is a huge shift in the Canadian market as these kinds of options were not available earlier, which made the latest flagship devices way too expensive. As a result, for years, Canadians preferred to buy older flagships. Counterpoint has analyzed the impact of EIPs on various sections of the Canadian market. Following is a brief overview of the same:
- Consumers: It’s a win-win situation for consumers. They can now get the latest flagship devices by paying smaller monthly installments rather than a huge upfront payment, which many found unaffordable. Further, by combining EIPs with leasing, consumers get the option to return the phone after two years. They can also choose to retain the phone after two years by paying a small amount, which will not exceed the amount to be paid in a traditional plan. Finally, customers can also choose to upgrade to a new phone after two years.
- OEMs: The effect of EIPs on OEMs operating in different price bands will vary. With EIPs, OEMs will witness an increase in sales of their latest flagship models. Unlike the historical trend where sales of older flagship models were high due to discounted pricing, EIPs make newer phones more attractive to consumers. EIPs bundled with leasing can further reduce the price. For example, iPhone XR, X, and 8 are the best-selling models for Apple currently. With EIPs, we believe the iPhone XS and XS Max will see an increase in sales. Samsung and Apple are likely to benefit more from this by witnessing higher sales of newer models. Consumers will mostly use EIPs for high-end phones. Therefore, OEMs operating in the low-to-mid price bands are not going to benefit much. In fact, there lies a risk for them as their users may upgrade seeing some good deals.
- Carriers: Carriers already have a very low churn rate in Canada, and with EIPs, it is likely to dip further. EIPs help operators to keep customers locked onto their network. Having the option at the end of the two years to upgrade to a new device will entice some customers to stay with their current carrier. Among the major carriers, Rogers and Telus have come up with EIPs. Bell is yet to start with EIPs, although it will be starting soon. Carriers are providing discounts on the handset price to customers, which reduces the monthly installments. Initially, carriers will have to compromise on their profit margins slightly. However, in the longer run, this will help increase the customer base, which they can monetize at a later stage.
- E-Commerce: With EIPs, the little share of e-commerce players will further decline, although not much as carriers sell most of the flagship phones.
EIPs can play an interesting role in the Canadian market. However, the major challenge that lies here for the carriers is to bring everyone on the same page. EIPs comes with a lot of options and can become quite complex for the average consumer. This is why we believe that the impact of EIPs will be slow initially, but over the long-term, it will have a crucial impact on the market.
