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. Any company who’s management thinks they need to “move into maintenance mode” is doomed to failure.

    I’m on the AT&T family plan. If it weren’t for our rotating eligibility for upgrades, we would have probably moved to another carrier long ago. (one that doesn’t charge us extra just to tether the data that WE ALREADY PAID FOR!)

    We use to stay with AT&T (Cingular) because of the free AT&T to AT&T cell calls, our whole extended family is on AT&T, but that’s not relevant anymore.

    If you are no longer going to be aggressive with subsidies, why should we stay with you in the future?

    1. Essentially, you are stuck. Perhaps the only way to move would be to remove each additional family line as they expire and send them temporarily to SIMple Mobile, or T-Mobile prepaid. You could put them on the cheapest plans over there ($30 or so, I believe), until all that’s left is the two main lines on the AT&T family plan. Once they expire, move everyone to the carrier of choice (currently T-Mobile is the only one with no-contract post-paid offerings). T-mobile doesn’t charge for teathering, offers UNLIMITED everything (with tiered pricing for data throttling, with everything clearly explained, so you know exactly what you’re paying for). If their coverage works for you, you should really bail out as soon as possible, even if you have to pay early termination on some of your lines. They are positively the cheapest main player out there.

      And if you travel overseas on occasion, their free data roaming is a remarkably unique (and attractive) feature.

      And no, I don’t work for them and have only been a(n obviously satisfied) customer for some 8 month now.

  2. ATT does NOT “subsidize” iPhones. (A loan is not a subsidy.) ATT sells phones on installment, after receiving a downpayment and a obtaining a signed 2-year contract that requires consumers to pay minimum monthly payments to ATT. Monthly fees cover (a) principal & interest on your “loan”, and (b) normal fees for cellular service.

    In theory, buying a phone outright and buying it “on installment” are substitutes. Perfect substitutes mean that most people would be indifferent between either option. However, I suspect ATT makes more money selling phones on installment, because this is what they would prefer to do. Obvious, no? They are: (1) charging high interest rates, (2) tying consumers to lucrative contract terms, or (3) receiving “windfall” revenues from those customers who do not upgrade to new phones (and new contracts) by the time their phone is fully paid off — or all 3.

    Carriers should unbundle their charges so consumers can see, and fairly compare, terms for buying their phones on installment vs outright, and the fees they are being charged to buy normal cellular service.

    I thought there were laws against this sort of abusive, anticompetitive behavior ? We need a good consumer advocate: where are the journalists, analysts, lawyers, & regulators ? WHERE IS THE DOJ ???

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