$199 iPhone costing you more than a $650 iPhone would?

“If T-Mobile’s Chief Marketing Officer, Cole Brodman, could change one thing about the mobile phone industry it would be making customers fork up more money for smartphones by doing away with carrier subsidies,” Erik Berte reports for Fox Business.

“That’s the gist of a blog post he wrote in March where he argued the current U.S. model, where popular devices like Apple’s iPhone cost just $199 with a two-year contract, has significant negative implications,” Berte reports. “You see, that shiny new phone isn’t really $199 at all. And if you lost or broke one you’d realize that pretty quickly, as you’d have to pay $649 for a new one. Your carrier gets a better deal, but still pays double your price at around $400, according to The Wall Street Journal.”

Berte reports, “Ross Rubin, analyst with NPD Connected Intelligence, said removing subsidies would likely help level the playing field and suggested that might be why T-Mobile would be in favor of them going away. Large, profitable carriers of scale like Verizon Wireless, he said, can afford to more heavily subsidize handsets… Dumping subsidies and paying a lot more up-front for a phone might sound radical, but outside the U.S. it’s pretty common. ‘The North American markets (U.S. and Canada) are really the only two in the world that have this complete addiction to the phone subsidy,’ said Elliot Noss, CEO of Ting, a new pre-paid carrier.”

Much more in the full article here.

[Thanks to MacDailyNews Reader “Fred Mertz” for the heads up.]

43 Comments

      1. in the last decade the average age to buy your first home was 26. before that it was 38. and at 38 it was after renting for a few years because you were already married

        RE sucks now but more than one person i went to HS with bought in the late 1990’s at ridiculously low prices and is set for life now

  1. 1. No shit.
    2. Perhaps T Mobile should look into pursuing a “not sucking” strategy as opposed to whining about the subsidy model. They may find it’s a way to be more competitive – at least in this dimension.

        1. Obviously not. But the ‘screw them’ attitude most certainly doesn’t do any good, and can actually do harm (it doesn’t take too much intelligence to understand that).

    1. There was a time when I’d get incredibly defensive about that statement.

      These days I just laugh, turn on the TV, tune in one of the countless soccer matches available on US television, and enjoy.

      ——RM

  2. I would be fine paying the full cost upfront but the carriers would need to lower the monthly fees since the model is you basically pay back the subsidy over the two years of using the phone. The model now is that if you are eligible for a subsidized upgrade and you are not taking it, you are paying too much for your monthly service.

    1. Most phones are subsidised here in Australia. I bought my iphone 3G on a 12mth subsidised plan and switched to a cheaper plan. Since then i have changed carriers 3 times and now i have a $39/mth unlimited minutes, unlimited text and 2Gb data which is more than i need. I will have to upgrade this year – i will lose contact/calendar synch when mobileme is turned off. I will probably buy a new phone outright and stay on my existing plan. I guess if you always want to have the latest phone, buying on a plan is easier than selling your old phone on ebay every couple of years…

      1. In order to go roaming, you need a passport. That obviously doesn’t count.

        In America, you have to pay for (or use up) every minute you’re on the phone and for every text message you send AND receive. For anyone coming from the rest of the world, this makes absolutely no sense: how can anyone force me to pay for something I didn’t WANT to do (i.e. be called or texted by a telemarketer, or anyone else, for that matter). That would be the same as forcing a recipient of a letter or a package to pay the mailman in order to receive that letter or package (without the option of refusing to receive it). The point is, elsewhere in the world, the burden of sending a text or making a call is rightfully placed on the one that is calling / texting; not on the one receiving.

  3. Apple tried this with the original iPhone. It didn’t work because the iPhone was basically the only phone which wasn’t subsidized, so it was much more expensive. Plus, it’s not like AT&T charged less for service (although it was an unlimited data plan, but that was before AT&T etc. realized how much data people would devour).

    Unless all the major carriers agree to dump all subsidies, the idea will never work.

    1. I’m not sure where you heard that. Original iPhone was subsidised just as others were. The full retail price of that original iPhone was around $950 ($500 plus the $450 subsidy).

      The unlimited GPRS data plan for the original iPhone was just a $20 per month add-on. With the arrival of 3G, that jumped up to $30.

      And the subsidy model was a bit different; Apple got only $150 subsidy up-front, and recovered the rest of it via recurring monthly payback of around $8 – 12 per month for two years. In the end, the total subsidy was around $450, just like it is today.

  4. I’d be glad to pay full price for my phone, as long as it is MINE — no contract and the ability to use it with any carrier I choose — you know, just like MY computer.

    1. You can do that today in the USA. Go to store.apple.com, pick your iPhone and choose “Get iPhone unlocked and contract-free”. You can use that iPhone with any compatible GSM carrier (which in America is currently only AT&T, although you could also use it on T-Mobile, on their GPRS network).

      1. But good luck trying to get an iPhone sans data plan. I for one would also be willing to pay full price is my monthly plan is cheaper (since I’m not funding a subsidy any longer) and I can choose to have a smartphone without a data plan if I so wanted.

        1. If you buy an unlocked iPhone, you can put it on any GSM plan you wish. I know people who paid $550 for a new iPhone 4 and have put it on their ordinary AT&T $40 voice-only plan (they use WiFi for data). I also know a person who is using T-Mobile’s prepaid $30 plan (150 min voice, unlimited data/text) with an unlocked iPhone (obviously, data speeds are GPRS only, since iPhone radio isn’t compatible with the T-Mobile’s 3G frequencies).

          When you buy an unlocked phone, you are really free to use it with any plan out there, even with the cheapest $20 per month prepiad voice-only plans.

  5. The subsidies wouldn’t be so bad but you keep paying for it even after the subsidies are paid back. My sister has a 3 year old 3GS. She gets no relief from AT&T.

    1. So her best strategy is to upgrade at the end of her contract and sell the 3GS, which should cover the bulk of her up front costs. She then has the most current hardware and isn’t any worse off for her monthly charges.

  6. Here in the UK iPhones are not always subsidised. Some providers do but tie you in for a long period. Others make you pay full cost and you pay less monthly. Either way you should look at the total cost of ownership before buying. Next time I will be buying in the Apple Store and just add a micro-sim from a small telco which gives me the best overall deal.

  7. Nope, in the UK I have never paid a penny up front for my iPhones and I have have most of them including the very first. They are always fully subsidised.

  8. This guy is absolutely correct. The carriers have been very successful at milking massive amounts of money from American consumers using this subsidy model. Almost nobody ever upgrades immediately when they become eligible for a new subsidised model. Carriers love such customers, as they keep paying that monthly subsidy for a phone that has been long paid off.

    There are people who purposely don’t upgrade; their logic is: “I’m finally free of their two-year shackles and now I can leave whenever I want!”. Meanwhile, the monthly plan they’re paying contains that subsidy part, which ends up being free money for the carrier.

    If you compare standard, subsidised, two-year plans with the prepaid, non-subsidised plans (and this is difficult, since no carrier offers same features in both flavours), you’d find out that the unsubsidised plan is cheaper by at least $20 – 25 per month. If we extrapolate this to 2 years, the difference is $480 – 600. Carrier subsidy for the iPhone is around $450 (and for Android it is even lower).

    Bottom line: if you buy the iPhone for $650 (no plan, no subsidy) and get a pre-paid plan, you will be paying considerably less for the same service. Over two years of the subsidised contract, you’d likely save over $100. And the savings rapidly accelerate beyond those two years (once subsidised device is paid off), to the tune of about $360 per year.

    There should be no surprise that American carriers love subsidy model. They’re totally ripping off their customers.

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