Sprint is hoping that its Forever plans will buck the industry trend regarding smartphone upgrades and make upgrade cycles shorter. Sprint, the smallest of the US national carriers, already has two Forever plans, one is for the iPhone that was launched in August 2015 and the other is for the Samsung Galaxy S8 and Samsung Galaxy S8 Plus that was launched just a few weeks ago. Forever plans allow Sprint subscribers to upgrade to the latest iteration of flagship smartphones after 12 months of continuous payment.
According to industry analyst Jennifer Fritzsche of Wells Fargo Securities, there are several risks and benefits for Sprint as the wireless carrier doubles down on its Forever plans. The biggest risk for the carrier is the possible reduction of its working capital due to the negative impact to the cash flow in the short-term since the phones in the Forever plans are effectively leased devices, so the carrier is not effectively selling them outright. Meanwhile, aside from decreased equipment upgrade cycles, there are also other benefits for Sprint to continue offering the Forever plans. First, it will allow for decreased subscriber churn, that is the number of people who discontinue their subscriptions with the network, as the subscribers take hold of the latest features and technologies offered by the latest smartphones. Subscribers getting hold of the latest smartphones is also beneficial for Sprint as it helps subscribers take full advantage of its network through carrier aggregation and HPUE technologies. Forever plans also allow for additional revenue sources for Sprint, which is selling refurbished devices in either the auction market or in Sprint’s prepaid business, effectively increasing device sales even more.
Increased equipment upgrade cycles have been a concern among the wireless carriers as equipment upgrades make a substantial portion of the carrier’s revenue. While AT&T believes that this is going to be a permanent trend among the carriers, Sprint hopes that its subscribers take advantage of its Forever plans and upgrade more often. For Sprint, equipment revenue is an important revenue component, with the carrier earning $2.42 billion from equipment sales in the final quarter of the carrier’s fiscal year 2016, which is a little bit more than 28% of the carrier’s total operating revenue.