NEW YORK (Reuters) - Sprint Corp on Tuesday unveiled a new option called “framily” plans that give up to 10 family members or friends big service discounts if they sign up as a group, the latest move in an increasingly competitive market.
The new option, which could represent a service discount of almost 50 percent from Sprint’s existing family plan in some cases, follows aggressive discounts by Sprint’s smaller rival T-Mobile US that sparked a new wave of competition.
T-Mobile’s chief executive officer put the spotlight on family plans last week when he said winning over rivals’ family plan users was a New Year’s resolution. T-Mobile is seen as an acquisition target by Sprint, which is 80 percent-owned by SoftBank Corp.
Operators have long offered discounts through family plans because they help to retain customers as it is harder for groups to switch than for individual customers. Sprint is taking the concept a step further by letting friends and neighbors join “framily” plans and providing them with separate bills.
Sprint CEO Dan Hesse said during a webcast of an investor conference on the sidelines of the Consumer Electronics Show in Las Vegas that, while the new plans would hurt average monthly revenue per user, they would ultimately help Sprint’s financials by decreasing customer defections.
Because the plan requires each customer to pay for his own cellphone, whether with a one-time payment or on an installment plan, Sprint would also save money on phone subsidies, Hesse said.
The Sprint plan could cost as little as $25 per person for a group of seven people with 1 gigabyte of data each, compared with a $55 monthly bill for a single customer with the same service.
In comparison, Sprint charges more than $48 per person for its more traditional family plans with seven lines.
However, if somebody decides to leave the plan, it would increase payments for the remaining members. For example, for each person who leaves a “framily” plan, the monthly bill could go up by $5 for each member who stays in the group.
So while the new offer looks like a clever new way to tie in customers, the creation of a dependence on non-family members for discounts could cause all sorts of friction when people leave the plan, said Recon Analytics analyst Roger Entner.
“I don’t think there are that many people ready to throw in their lot with their friends,” Entner said.
He noted that college students may be most likely to make use of such plans.
“If college kids are doing this, there’ll be a lot of broken friendships,” Entner said. “This could be a source of endless drama worthy of a soap opera, when the framily plan turns into a frenemies plan.”
While traditional family plans typically address households with three or more people, Hesse told investors at the conference that 60 percent of households have just one or two people, leaving an opening in the market for the new plan.
At the same conference, Lowell McAdam, the chief executive officer of Verizon Communications, suggested that regulators may not look too kindly on a merger between Sprint and T-Mobile because of the recent increase in competition.
Verizon is the majority owner of Sprint’s biggest rival, Verizon Wireless, which is 45 percent owned by Vodafone Group.
Hesse declined to comment on any plans for consolidation by Sprint during his appearance. T-Mobile US is 67 percent owned by Deutsche Telekom.
Sprint’s stock rose 1 percent to close at $9.87 on Tuesday, while the shares of rival T-Mobile US slid 0.8 percent to end at $33.22. Verizon Communications’ stock, one of the 30 that make up the Dow Jones industrial average, shot up 1.3 percent to end at $49.30 in New York Stock Exchange trading on Tuesday.
Reporting by Sinead Carew; Editing by Andre Grenon and Jan Paschal