AT&T’s Next upgrade plan booms; on track for half of smartphone sales in Q2

AT&T(s t) expects to report healthy second quarter operational results, projecting net growth of more than 800,000 subscribers when it reports earnings in July. A good deal of that growth was driven by AT&T’s Next upgrade program, which AT&T says is now accounting for 50 percent of its smartphone sales.

Instead of taking AT&T’s traditional handset subsidy (the big upfront discount on a new phone) and a two-year contract, Next subscribers sign up for a device installment plan. They then pay off the full cost of the device in payments spread over 20 months, but after 12 months, they have the option of trading in their smartphone for a new one. The remaining payments are voided and the financing process starts all over again.

In its first quarter earnings call, AT&T revealed Next was already having a big impact. It sold 2.9 million devices under the Next program in the first three months of the year. AT&T had a lot of promotions in Q1 that might explain why Next did so well. For a limited time, it offered to pay the early termination fees of customers who switched from another carrier. It also began forgiving contracts of older customers if they joined the Next program.

Source: Thinkstock / RomoloTavani

Source: Thinkstock / RomoloTavani

But it appears Next has a momentum all its own. AT&T is projecting 3.2 million Next smartphone sales for the three months ending on June 30. Next accounted for 40 percent of AT&T’s smartphones sales in the first quarter, but AT&T says the program is on pace to bring in half of its smartphone business in Q2. In comparison, at the end of Q1 T-Mobile had 5.3 million total customers enrolled in Jump.

Though AT&T won’t report Q2 earnings until July 23, on Tuesday it issued a mid-quarter progress report. In addition to the Next projections, AT&T said by the end of the quarter it expects to have moved half of its postpaid smartphone subscribers over to its Mobile Share Value plans, which charge customers much lower monthly rates if they eschew the traditional subsidy on a new device or finish up their contracts.

By the end of the year AT&T expects those value plans to account for two-thirds of its subscriber base. AT&T hasn’t done away with subsidies entirely like T-Mobile(s tmus), but it’s quickly moving away from the subsidy model.

Also, AT&T said its LTE network now reaches 290 million people, putting it just 8 million shy of Verizon’s(s vz) LTE coverage. The company adjusted its full-year financial targets, saying it expects revenue growth of 5 percent, adjusted earnings-per-share growth at the “low-end of the mid-single digit range,” and capital expenditures of $21 billion.