What is the real cost of that cell phone in your pocket?
Are the days of free or low priced devices ready to end?
It would appear to be the case based on recent industry news.
This quote from Reuters suggests that it is just a matter of time before we will be paying real prices for our devices.
Subsidies have been a major driver of the iPhone’s success
and in boosting Apple’s earnings. Analysts estimate operators
pay a roughly $400 subsidy for each iPhone they sell in
comparison with subsidies of $250 to $300 for other smartphones.
But that may already be changing. T-Mobile USA, a unit of
Deutsche Telekom AG, has not disclosed the details of
its deal with Apple, but CEO John Legere said it will not be as
onerous as Sprint Nextel’s commitment to pay $15.5 billion over
four years. Instead of subsidizing smartphones, T-Mobile USA
will let consumers pay the full price in monthly installments.
Randall Stephenson, CEO of AT&T, Apple’s first partner for
the iPhone, applauds T-Mobile USA’s idea.
“That’s something we’ve looked at on several occasions. I
kind of like that idea,” Stephenson said. “Its something we’re
going to be watching.”
Verizon CEO Lowell McAdam told Reuters T-Mobile USA’s
strategy is “very intriguing,” but wondered if consumers are
ready to pay full price. An iPhone 5 with 16 gigabytes of
storage that is not tied to a contract costs $649 on
If subsidies are removed and payment plans widely adopted,
some experts say consumers might opt for cheaper devices.
This could have many implications including the potential to shrink the sales and margins on premium and previous model devices. We have also ask if the standard will evolve into unlocked devices after they are paid off and/or bought out right payment plan.
Another article on BGR notes, Canada’s industry regulators want to not only limit the early termination fees that wireless carriers can charge, but to also mandate that carriers unlock their smartphones under “reasonable terms.”
If we consider the current business model for most cell phone service providers, we have to understand that most of the subsidies are to bolster the use of extended contracts and customer commitments to extended service periods. Recent US rules that went into effect on Saturday previous, provide carriers the absolute right to lock devices to their service and makes it illegal for the owner of the phone to unlock without permission of the carriers.
It will be interesting to follow this as it progresses to see if we start seeing universal devices and more month to month service plans.