NEW YORK — Verizon Communications and AT&T are practically giving away tablets this holiday season to eke out customer growth as the market for mobile phones maxes out.
Verizon this month is offering free tablets with a $10-a- month service fee and AT&T had a recent offer for a 99-cent Amazon Kindle Fire HDX. In the past four quarters, tablets made up 61 percent of the total monthly subscriber growth at the top four U.S. carriers, according to data compiled by Recon Analytics.
With just two weeks left before the year ends, Verizon, AT&T and Sprint are seeking to prop up subscriber growth rates that have been meager, if not lower, in 2014. The industry is stepping up its dependence on low-cost tablets in a market where mobile phones in use outnumber adults. Trouble is, tablet demand is reaching a plateau, too.
“Tablet growth in general is waning. I find it curious they are pushing this when there hasn’t been any pull from customers,” said Todd Lowenstein, a fund manager with HighMark Capital Management whose firm oversees about $16 billion in assets, including Verizon shares. “The competitive intensity has been ratcheted up and some of these tactics are a response to a saturated market.”
Tablets represent another charge to tack on to monthly bills and a reason for customers to stay with a carrier and pay for larger data plans. Verizon sold twice as many tablets as phones in the past 12 quarters, accounting for 68 percent of its monthly subscriber growth. Last quarter, Verizon added 1.1 million tablets and only 457,000 phone subscribers. In the first quarter, Verizon’s 634,000 new tablet customers offset a loss of 95,000 phone subscribers.
Without tablets, Sprint would have lost even more customers. In the past four quarters, Sprint lost 2.4 million monthly phone subscribers while adding 1.8 million on tablets.
“Tablets have been the unsung hero of the carrier industry,” said Roger Entner, an analyst with Recon Analytics. Sales of tablets to wireless carriers’ subscribers will increase 56 percent this year to 2.5 million, he estimates. “How do you say no to a Christmas gift?”
While tablet prices fall to the I’d-be-crazy-not-to levels, there are strings attached that help the phone companies more than recover the reduced price. The low-cost upfront price for tablets carry two-year contracts and data plans starting at $10 to $20 a month. It’s like adding another line to your account, and wireless companies count that as an additional customer.
Verizon stores are offering a 7-inch Ellipsis tablet for free for customeres who sign up for two years of data service starting at $10 a month. After 24 months, the subscriber will have paid $240, or about the retail price of the tablet. The two smaller carriers, Sprint and T-Mobile US, have also employed the cheap tablet strategy.