“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.]
from what i read in europe and japan people live with parents until 40 or so. lots of disposable income that way
and that’s different from here how?
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
Not true. In the Netherlands subsidies are pretty common. More than 90% of the smartphones here are subsidized.
Ah, there you go: letting an ugly fact destroy a pretty fabrication…
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.
Actually, I heard that there was an item under New Business at the last board meeting titled “Towards Not Sucking So Much.” Got sent to committee.
Who cares what the rest of the world does??? The rest of the world loves soccer, but in the US, we don’t give a damn.
That is precisely his argument. There are things to learn from the rest of the world.
Loving soccer ain’t one of them.
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).
Understand what?
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
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.
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…
In the rest of the world we also dont pay to RECEIVE calls, so we dont give a damn either…
So you have never received a call while roaming then.
It is rare to pay to receive calls. Roaming is rare. Generally, people in the EU do not pay to receive calls.
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.
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.
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.
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.
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).
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.
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.
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.
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.
Untrue, in France 95% new phones bought comes with a 24 month commitment and subsidy…. especially iphones.
That’s not correct. The contracts are usually 12 months.
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.
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.
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.
Its called apple care…..
YOUR ALLLLLLLL WRONG !!!! blah……
“if you lose or break your iPhone”… What part of “iPhone” does T-Mobile not understand? I’m more likely (and willing) to lose or break my left hand.
As far as subsidies are concerned, I love ’em and wish they’d do it for the iPad. I upgrade yearly so it works out very well for me, both directly for the subsidy and because the subsidies are driving the rapid development in the industry. Without the subsidies, people would upgrade their phones much less frequently.
And just kidding about my hand. I always keep the previous model in case some disaster should happen to my iPhone. Also insurance is pretty cheap through Apple or 3rd parties.
It’s a shame AT&T couldn’t buy T-Mobile.
Pretty sure they’re subsidized here in Japan. Bit tricky, as the 19-year-olds at the Softbank shops take an insanely complicated payment plan drafted by lawyers on crack, run it through their addled brains, then mumble it while looking out the window at the lovely summer day. But I do think it is subsidized.
If they dropped subsidies, then the monthly plan price would drop, since you wouldn’t need to hide the subsidy there.
HELLO!!! if you break your phone go to the apple store and buy a brand new refurb for 149 dollars they switch your sum and your on your way (some models may cost 199) dropped mine 2 months ago (damm)
It’s hardly news that carriers hate subsidies. You want an iPhone, the carrier wants you. So the carrier subsidises your iPhone to get you. Other carriers do the same, which creates competition and drives down the cost of the calls and data. Carriers make less money, you benefit. As long as one carrier continues to subsidise, they all must. So long live subsidies! PS. I live in the UK and have lived in Germany; in both countries subsidies are commonplace.
In Canada, all of the carriers require a 3 year contract. Even if you buy the phone outright from Apple, you are still required to sign a contract for data which is also three years. Every time you make the smallest change in your plan your contract is extended for another 3 year term. So they lock you in on data when they can or on the phone.
Thankfully, most provinces are passing laws to reign in some of these shady practices.
None of this is true.
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
The “markets” are not addicted to cell phone subsidies – the *carriers* are addicted. Subsidies push consumers into longer contracts, lock them in with punitive penalties, and milk them for outrageous profits if they don’t upgrade handsets every two years because you continue paying the subsidy even after your contract has expired.
This is outrageous, even criminal behavior and U.S. consumers need to rise up and kick some a$$. The carriers have been screwing us for years, and it will take a full-scale consumer revolt to stop it.
Yes, the contract is part of the price of the phone.
No, unlocked phones do not get service for free, even if there is not a 2 year contract. (Yes, I know that 1% of people want to use the phone in a way that does not need a contract).
I get it – there is a cost associated with being locked into a contract. Sure, but to act as if the contract goes away is really ignoring reality. Would I rather pay $199, then pay my monthly contract? Or would I rather pay $649, then pay for service every month? Oh, I could shop for service! This is only a dream scenario if 1) the carriers actually begin to compete on price and 2) switching is incredibly easy. 1 would be great, but you can bet that carriers will significantly raise the difficulty of 2 in order to create enough barrier that consumers will dread changing enough to put it off for months.
Im sure Google would love this plan – it would really increase unit sales of the crappy low end “smart”phones that run Android. How fantastic for consumers that don’t have enough disposable income to afford a $649 upfront charge. Maybe that would drive sales of iPhone 3GS at $49, though.
I also do not buy that pollyanna argument that this would drive innovation (see full article). Oh, we aren’t keeping up with Moore’s Law! The refresh cycle is too short! I hate to break it to the tech pundits, but the refresh cycle is probably about as short as it is going to get. The Apple refresh cycle is already shorter than contacts and, in fact, ATT regularly shortened their upgrade times for iPhones. In other words, contract lengths were not driving refresh cycles. A refresh every three months would drive make it difficult for developers, creating fragmentation, and would likely mean just iterative change per cycle (unless component supply cycles suddenly sync for no reason).
I think having all contract free phones could drive competition on service pricing, but i do not believe this will somehow help drive innovation of high end smartphone hardware.