Lease program would offer users new phone every year

TMNG Global has devised a program that would let operators lease phones to users

Wish you could have the latest hot smartphone even with a year left on your contract? TMNG Global has devised a leasing program that could let you upgrade your phone every year.

Those who qualify, based on a credit check, would be able to sign up to lease a smartphone for 12 months and put no money down up front. The monthly lease would probably add US$20 to $30 on the user's regular mobile bill. After 12 months, the user would be eligible for a new smartphone.

The exact leasing price and the phone models available would be decided by the operators. None of them has signed up for TMNG's leasing program, but they have expressed interest in it, said Tom Murphy, chief marketing officer for MDLx, as the leasing service is called.

TMNG offers operators consulting services, software and programs, such as one that collects used phones for reuse, so TMNG has existing relationships with many of the biggest operators, including Sprint Nextel and Verizon.

Operators could set the monthly lease price depending on the phone, and would likely include only a handful of phones in the program, Murphy said. The leasing programs would be aimed at high-value, tech-savvy customers who feel trapped by the traditional two-year upgrade schedule, he said.

The concept has merit, said Will Stofega, an analyst with IDC, but he's skeptical in part because no operator has yet signed up for the program. In addition, while operators dislike the existing phone subsidy model, the current two-year cycle has some advantages. "Phones in general are a tool to rein in customers or to go out and get new customers. AT&T proved that with its exclusivity on the iPhone," he noted.

TMNG would provide operators with most of the components and services to start offering a leasing program. It has a software platform that can handle the lease transaction and integrate with the carrier's billing system. That means if a user stops paying their bill, TMNG can disable the phone remotely.

Users would receive a message when there are 30 days left on the lease, showing the models available for the next year. TMNG would then ship the new phone and send packaging material to the user to return the old one. It also would handle the logistics, forwarding a specified percentage of the returned phones to an operator that wants to use them for parts, and handling refurbishment and sales to other regions.

If operators pick up the program, TMNG thinks it could have some interesting effects on the market. "It provides for the OEM a doubling of their projected sales volume because they are selling a device annually instead of every two years," said Thurston Cromwell, general manager for MDLx.

The program could also take some strain off operators who have to pay for phones up front and subsidize them for users. Operators are likely to continue to subsidize the phones but they should be able to significantly reduce the subsidy, Murphy said.

That should appeal to operators. "The subsidy cost is not something any carrier CFO is particularly fond of," Stofega said.

It also means some operators could reconsider contract terms, potentially eliminating contracts altogether for people who lease the phones. They still seem to be considering that detail though, Murphy said.

TMNG also thinks the service will open up new markets for operators for used phones. Operators can refurbish some of the phones for resale, both domestically and internationally. They might get more value out of one-year-old phones returned through the lease program, Thurston said. That's because phone batteries typically start underperforming in three years, so a one-year-old phone should have move value on the secondary market than most phones that operators currently try to refurbish, which are typically two years old, he said.

Still, there already is a solid secondary market and phone makers may not necessarily want it to grow, Stofega said.

Hammering out the details will be key to the success of such a leasing program. "There probably is some interesting case here," Stofega said. It just depends on whether an operator decides to take the leap.

Nancy Gohring covers mobile phones and cloud computing for The IDG News Service. Follow Nancy on Twitter at @idgnancy. Nancy's e-mail address is Nancy_Gohring@idg.com

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