Get your subsidized iPhones while you can, AT&T CEO says the deals can’t last

“AT&T’s CEO Randall Stephenson told investors yesterday that with smartphone penetration approaching 90 percent, the existing business model – where carriers sell highly-subsidized smartphones to drive demand – will have to change,” Ben Lovejoy reports for 9to5Mac.

“‘When you’re growing the business initially, you have to do aggressive device subsidies to get people on the network. But as you approach 90 percent penetration, you move into maintenance mode. That means more device upgrades. And the model has to change. You can’t afford to subsidize devices like that,’ [Stephenson said].” Lovejoy reports. “In the UK, where subsidies are much more visible, all carriers offer the option to pay full price for the phone in order to get much cheaper monthly service fees. As an example, I bought my iPhone outright at full retail, and as a result pay just £15 ($24) a month for unlimited voice calls, texts and data. Upgrading every other cycle means I typically save $3-400 over the course of two years.”

Read more in the full article here.

39 Comments

    1. They think they’re in control. We all know that they WON’T reduce prices much. In Canada, for example, Fido offers a Paltry %10 off when you bring your own phone. On a $60 plan that includes 2GB of data and unlimited minutes that’s $144 over 2 years.

      Of course, subsidized you need to opt for an $85/month plan for only 1GB of data and unlimited minutes… so technically… you’re saving $31/month… which is $744 with double the data.

      Unsubsidised, the phone is $730.

    1. “Free Market,” my arse. That’s more like companies deciding that they want to pay makers less, which means that they keep more, and this happens to be one way for them to do so.

      It’s their right, but to attribute to some mythical “Free Market” – which has never existed – is kind of silly.

    1. In the U.S. you can get unlimited voice/texts/data for around $45 per month on a non-contract basis if you avoid the major carriers. In some cases, you will be able to get a modest discount on your phone purchase. And I believe that there is at least one carrier that will gradually reduce the monthly cost if you stay with them for months/years. If you are willing to accept a 300 minute cap on voice minutes (but with unlimited text/data), then there is a plan available for $35 per month. But there is nothing in the U.S. that compares to $25 per month for unlimited voice/texts/data.

  1. I’d say give people the choice – either pay for the phone outright and have a lower monthly bill, or get the subsidized phone and have a “subsidy fee” be part of your monthly bill. Some people might actually take the higher monthly bill to keep their up front out of pocket expenses low, or they might save up or use their tax return to get a new phone outright and pay a lower monthly bill.

    But I’ll tell you this much – if they stop subsidizing iPhones _and_ keep monthly bills as high as they are, AT&T will lose customers to their competitors. Same goes for any other wireless provider who tries that stunt.

  2. This has been a scam forever. You buy a phone from Apple. It is unlocked and lets you go anywhere to get service. But, after paying full price for my phone, I’m stuck with the same high service rates as someone on a contract to pay off a subsidized phone. If I come with a phone I have already paid for I want to see a lower rate for just the service.

    I like having an unlocked phone. It gives me options when I travel and I’m out of the country for maybe 6 months a year. Our carriers are perpetrating a HUGE ripoff.

    1. That’s because you didn’t shop around, but I agree… If you’re going to get an unlocked phone, you definately don’t want the plan. Carriers haven’t provided a discount in the past becuase they don’t want you to realize that the phone is subsidized. They want everyone on a contract. I pay $30 a month for T-Mobile. Unlimited text and web (5GB at “4G”) and 100 talk minutes. I use Skype when I need extra talk time.

  3. I can see this driving the cost of the iPhone down. (Not that it will, but it could.) I always buy the 64Gb iPhone, every other cycle. ~$400 subsidized. If I had to pay $850 for that up front (I won’t buy less that 64Gb) I would only do that every third or fourth cycle. Three or four years between phones is a long time, but doable. Only speaks to my case, but I doubt I’d be alone.

    If the most basic iPhone was suddenly ~$650 and not free with contract, that could precipitate a huge downturn in sales as people made their existing phones last.

    1. This idea of holding on to your phone for longer is a fallacy. Since your contract does not adjust to recognize the fact that you’ve paid for your phone, you’re just give money to the carrier that should be yours.

  4. In Japan, the opposite is happening. Carriers are offering a 0 down price on the iPhone 5S because of competition. Of course, you can pay for it outright, but nobody does that.

    This could actually hurt AT&T if people are more freely able to switch between services.

  5. Subsidy model has always been very good for carriers. As soon as subscriber completes their two-year contract, they essentially start ‘donating’ free money to the carrier (subsidy doesn’t disappear after the phone has been paid off). I know a number of people who take pride in the fact that they are now “off-contract” and paying month-to-month (“They don’t have me by the b@lls anymore, I can leave whenever the h3ll I please!”), and their carrier is laughing all the way to the bank.

    The only problem with the subsidy model for the carrier is that the subsidy part of subscriber’s monthly bill is taxed as wireless service, and not as retail tax on hardware. Wireless service taxes are much higher (in may states above 20% !!), while retail tax on mobile phones is well below 10% in most of USA. This difference ends up representing almost $100 on the price of a new iPhone. Neither carrier, nor consumer, gets this money; it needlessly goes to the government. Buying a phone up-front, or financing it on 0% two-year loan (like on T-Mobile) makes much more sense, since the phone is then taxed as a retail sale (well below 10%), and the carrier can pass at least some of the saved money onto the consumer.

    1. American business, the so-called free market capitalist system, absolutely depends on customers who are bad at math and are willing to do things that are not in their economic best interest.

      The wireless carriers do not subsidize one nickel of the cost of an iPhone. At the end of the 2 year contract, they have recovered all costs for the hardware and provided you with two years of service, all at a profit. No carrier subsidy, just a payment plan in disguise.

      They used to able to keep your phone locked to their network, even past the end of your contract. That’s when the customers began subsidizing the carriers, by continuing to make payments on their already paid-for phones. That’s not happening now. Pretty soon the iPhone will be back to one universal model that will work on any carriers network with the proper SIM card. AT&T can provide low cost loans for hardware, or not. Without the loan, there is little incentive for anyone to enter into a contract. Everything will be pay as you go. Hopefully customers will shop for the best service and cost package for them.

      I put these statements down to saber-rattling, part of their negotiation with Apple on the purchase price for iPhones in bulk.

  6. People, you keep looking at this wrong. Nobody here is seriously proposing that the only available non-subsidised option is buying the phone up-front at full price. Look at T-Mobile’s model for guidance: buy the phone on a 24-month 0% loan. You have no carrier contract, you can upgrade anytime you wish, you can even switch anytime you wish. There is no early termination fee (since there is no contract). All you have to do is pay of the remaining balance on your phone and you can get a new device and a new loan right away. In almost ALL cases, the remaining balance on the loan will be much lower than the residual value of your old device on e-Bay or CraigsList. You pay the balance, buy the new phone, sell the old one and cover all the costs of the exchange. This is much more flexible than being locked into a two-year contract, and/or having to pay early termination, or premium upgrade fee to get a new phone sooner. In all instances, these fees are much higher than the value you’re getting for them.

      1. Yea, I would be on T-Mobile right now, except their coverage is the pits in my town. Thus I stay with AT&T who even with all their faults are still better than Verizon when it comes to gouging their customers.

    1. And with the service plan cost divorced from the cost of the phone people will be able to shop for the cheapest plans. Service plan rates should begin to drop with competition. The horses are out of the barn. Too late to shut the doors, AT&T.

  7. This is the second wake up call for Apple. The first was the too damn expensive 5C. First T-Mobile, now AT&T soon after the rest will follow. The only one’s becoming UBER wealthy are the manufactures Apple and Samsung. And to a lesser degree the carriers and as for the end users, well, they’re the cattle.

    The “it costs the same” model is dying as there will be fewer people that will say yes I’ll purchase (at full price but carrier financed) a new phone every year as carriers do away with the old model especially when some of these phones are averaging $650.

    1. As I said, you’re looking at it wrong. Wherever subsidy model is complemented with a non-contract, post-paid model with full retail purchase of a phone, the perception is of an advantage. You feel liberated (no longer a slave for two years to your carrier), you are now able to hold onto the phone as long as you wish, or upgrade as soon as you like, and you don’t feel like you’re overpaying your carrier for the subsidy. With the subsidy plan, you never know how much you’re actually paying for your phone, but you are quite certain it is more than the retail price of the actual phone. With non-subsidy plan, it is all clear. The service plan price is only for the service, the phone cost is only for the phone, and if you’re paying it off in monthly interest-free installments, you know exactly how much you owe and when it will be paid off. You are in complete control and free.

      The consequence of this is that many more people will begin upgrading every year, instead of every two years, because by the time the new phone is released, the remaining balance on their installment plan may well be a very manageable $230 or so. A year-old iPhone will always fetch at least $400 on e-Bay (or CraigsList).

    2. All premium phones cost about the same no matter who makes them and ATT’s ideas are pure bs and have nothing to do with Apple Samsung HTC Motorola, LG or any other phone manufacturer. Like has been said multiple times in this thread ATT does not pay one thin dime for your phone subsidy. You pay for your phone over the life of the contract.
      People will still buy the phones they will just finance them separately just like T mobile is doing right now. One the phone is payed for the service is all you will pay for. Unlike ATT’s current 2 year subsidized plans, on which when you pay your phone off you still pay the subsidized price regardless and give the carrier free money out of your pocket.

  8. Money Grab. I’ll be more than willing to bet you that while prices for service go down somewhat without the subsidy, the difference won’t make up for the cost of the phone… which REALLY means a PRICE INCREASE for service.

    1. We’ll have to wait and see what AT&T does with this, but if T-Mobile is any indication, the deals will end up being cheaper for the consumer. Which only makes sense, since right now, taxes are needlessly eating almost $100 of the value of every new iPhone (see above for explanation). With non-subsidy model, this absurd taxation is gone, and at least some of the savings are passed onto the consumer.

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