AT&T CEO: Say Goodbye to Smartphone Subsidies

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In the United States subsidized prices for smartphones is standard, but that's coming to an end, according to AT&T CEO Randall Stephenson. He says the market has reached a point where it can't continue to support phone subsidies and at some point carriers will have to change their business model, which means higher phone prices.

Your next smartphone may not come with a subsidized price tagYour next smartphone may not come with a subsidized price tag

Along with dropping subsidies, he thinks it's time to retrain customers so they don't feel the need to upgrade their phone every 18 months. By keeping customers from buying into new subsidized phones as soon as they're eligible, cell service providers will deal with fewer subsidy costs. As an incentive, AT&T now offers a US$15 a month discount for customers that continue to use phones they could otherwise upgrade to newer models.

"When you're growing the business initially, you have to do aggressive device subsidies to get people on the network," Mr. Stephenson said, according to CNET. "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."

The big change for carriers is that they've hit a point where they need to focus more on services that retain customers instead of enticing new subscribers. He also sees phone financing instead of subsidies, just as T-Mobile is already offering, as a better model moving forward.

AT&T isn't dropping smartphone subsidies yet, but it's clear that's the directing the company is headed. T-Mobile has already made that move, and with Mr. Stephenson talking about it AT&T can't be far behind -- and it's a pretty safe bet Verizon is looking at doing the same.

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15 Comments Leave Your Own

Dave Hamilton

It seems like not much will change for the customers who don’t want change. Instead of calling it a subsidy, they’re calling it what it really is: financing. And that makes a lot more sense in today’s market. But people will still be able to spread out the cost of their phones if they desire.

vpndev

“If you are a customer and you don’t need to upgrade your device, you can get unlimited talk and text and access to the data network for $45 all-in,” he said. “You can use your own device or finance it. I think this will be very powerful. It’s where we see the market going.”

I don’t see the $45/mo plan yet. Not from AT&T. Some MVNOs offer it but AT&Ts; prepaid is more, and post-paid a *lot* more.

mouring

Makes sense if that is what they really do.  In the end I don’t expect to see my cell phone bill drop in cost if I pay full price for a new smart phone or not.  Which means, in the end my bill will just be more.  *shrug* Sorry if I sound jadded, but that seems to be the way with most business these days.

brettdog

If they switch to Financing, does this mean the phones will be unlocked since they are not subsidized?
This should also allow one to switch carriers anytime as long as you continue to make payments to financing.
But they (ATT) probably will not view it this way.

bdog

Mauritz Nordlund

Ending subsidises can be good for consumers. In most EU countries we don’t have subsidises instead we had cheaper phone calls and generous dataplans.
You can buy you phone unsubsidised or buy a phone locked to a carrier. If you buy a locked one they usually put a surcharge on each month bill to cover the cost on the phone 20-25 dollars.
People getting a contract get a “free” phone but have to pay for it each month. Many prefer doing this instead of plunking down 700+ dollars for a phone.
This was great as long as carriers didn’t start to raise prices. And they have especially on data since the carriers are “treated”. The carriers don’t want to accept that the are stupid data lines. 
And they are just data carriers. Most of us don’t need “talk/sms/mms”. We can use Skype/GoogleVoice/Ichatt/email/Imessage. Thats why carriers in EU have raised the price on data. They don’t want to loose their “bread and butter” that adds nothing for the consumers.
Here in Sweden we could get 5gig/month for 5 dollars a couple of years ago. Now its 1 gig for 5 dollars. And VOIP is blocked.
My current plan have unlimited data capped at 30Mbit/sek. I pay 30 dollars for it and use 300-400gig/month.
Unlimited plans don’t exist anymore. The “biggest” plan is 12gig for 40 dollars. 25% higher price in just 1 year and from no limit to 12 gig.

Plans with data limits used to continue to work even when you had used your data capped at (64Kbit). This is gone. Now you are charged per gig over your plan.

This data capping at same time they introduce faster and faster 4G networks.

Can someone explain to me why anyone needs a 150Mbit LTE Advance phone when the data is capped at 5gig/month? Why do we buy faster and faster 3G/4G phones when we have less and less data allowance?

I did that misstake and I have an unlimited dataplan. I bought the latest Iphone that had working LTE bands for Sweden. I got zero byte faster DL since the carriers cap download speed at 30Mbit. (some even so low as 16Mbit).

Why promote LTE-a phones on your network 150Mbit but you cap them at 16Mbit?

How is carrier allowed to charge more for pure data plans then if you have Voice/SMS/MMS? Why can I get a plan with Voice + 5 gig data for under 20 dollars but the cheapest non-blocked VOIP data plan cost 40 dollars?

And I don’t feel sad for the carriers. They print money.
Either the government needs to step in and put the carriers in place since they don’t compete as they should or the government should build infrastructure for its people including a wireless data backbone.

The carriers have no place in the feature. They should just provide data and do that good.

jimt

Randall Stephenson is blowing smoke. I looked this morning at ATT’s site to upgrade my son’s phone (3 years old). There are no discounts for older phones! I have to change my plan if I want a new phone. Even if I outright buy a phone or bring a phone I have to change plans. To get similar plan features to what I have now it will cost me more! T-mobile has done the same thing. Looks like it’s either Sprint or StraightTalk.

marcsten

Maybe I am ignorant, but I have long felt that cell phone companies are a huge scam. Financing your phone by charging absurd monthly rates for their service. If they do away with the subsidy/financing, why would anyone use their service when there are no contract services available for half what the big boys charge? I have never had a phone contract for phone service. Buy your phone, pay what you want, if you lose it or want to upgrade, do so. Like any other product in your life.

geoduck

Financing is what we did when we bought my wife’s 5C last month. Our rate is low but there’s an extra few bucks on it each month for the phone. There’s no long term contract so we can leave Koodo any time we want as long as we pay off the balance on the phone when we go. That gives us the upper hand.

Lee Dronick

Hmmmm, I wonder if this is just laying the groundwork for an AT&T phone that would priced well cheaper than than the 3rd partys’.  Apple could either lower their price or offer avery competitive payment plan.

iVoid

This is only good news if the cell phone providers reduce their monthly plan costs.

From what I’ve seen, that’s not happening. Most are trying to keep the plan costs as close to the old subsidized plan pricing and still expecting us to pay full cost for the phones.

barryotoole

The only country with a different carrier/mobile structure than the US that I know about is India.

There are no subsidies, and people usually buy unlocked phones not at the carrier’s store, but at special stores that only sell mobiles, often of multiple brands. They also sell SIMs, or you can buy a SIM card at a corner store. This SIM can be refreshed OTA or by going to any general/grocery/specialized store. Some people opt for phones with dual-SIM, so they can have two numbers, often from two carriers, for, say, business and personal use.

Consequently, the price of a phone call on mobile is one of the, if not the, cheapest in the world. There is cut-throat competition among carriers. However, 3G is just now spreading nationwide, 4G is getting started in major metros, and there’s no LTE. This is one reason why the actual smartphones have a slow uptake; with most phones you can SMS/MMS/browse Internet and make voice calls.

The other reason is price. Most phones cost $100 or less. While Samsung and Nokia make handsets at all price levels, Apple makes only one premium smart phone a year. Even its midrange phone, the 5C, is quite expensive.

To tackle the price issue, Apple has started a trade-in/installment program. The price/value of an older iPhone - although some resellers accept phones of other companies too, can be applied towards the purchase of a new one. In addition, if you make a downpayment, say $99/$199, you can pay the rest of the phone off in equal monthly installments for 12/18 months - interest free.

Apple has made this aggressive push in India only this year, and is getting great results. I’m sure in the near future, Apple - as well as others, will start this trade-in/installment program in the US. All you’ll have to do is go to an Apple Store, in person or on the web, where they’ll run a credit check, take the downpayment, and set up a monthly installment plan for you.

The blessings of carriers will still be needed, since there is a near-duopoly in the US. It appears they’ll have to, just like T-Mo has done, offer post-paid plans at a rate that doesn’t include the extra price of subsidy or a contract.

But they may throw tantrums, and resort to practices like what Mr. Nordlund has described happening in Sweden. It would be useless to get a set capable of handling LTE speeds of 150 Mbps, when they are throttled down to 60 or 30. if this does happen, I hope that big handset makers like Apple, Samsung and MS purchase and provide their own cellular voice/data service at true cost.

I see Apple being at the forefront in this, as it provides content and services for break-even cost (iTunes) or free (iWork), and makes profits on hardware. It will be great for customers if it provides wireless service at cost, and also great for the company - for it will sell a boatload of iPhones.

Bosco (Brad Hutchings)

Wow. You can get a very, very adequate Android phone in the Moto G for $179/$199 direct from Motorola, total price, no subsidy involved. You can take said phone to T-Mobile for $50/$60/$70 per month depending on how much full-speed data you need and one-time $10 charge for the SIM, no subsiby involved. If you want 4G LTE, you can get the amazing Moto X for under $550 or the Google Nexus 5 for $329 and bring them to T-Mo.

By comparison, on AT&T and Verizon, if you want a smartphone that isn’t last year’s model, you’re in for $99 or $199 subsidized up front price and a 2 year contract at significantly higher per-line prices, or gimmicks like friends/family list management, etc. I don’t know how T-Mobile isn’t wiping the floor with the big 2 right now.

diverreb

It will force the Apple’s and Samsung’s of the world to lower their margins to normal levels and market the phones like all other electronics where prices are highly competitive and consumers aren’t screwed over…..

ken luskin

The big winner from SUBSIDIZATION has been Apple and Samsung.

As people begin to realize that they do NOT need to upgrade so often, or how MUCH they are paying because of huge monthly fees.. the price of phones will FALL!

Apple makes 80% of their profits from selling iPhones.

Apple’s margins, profits, earnings, and share price will all COLLAPSE!

Paul Goodwin

Personally it doesn’t matter to me if I’m financing the phone or getting one with subsidies as long as the bill doesn’t go up significantly over the same 2 year period, and I get the same service and data plan. AT&T cannot raise prices indiscriminately or they will alienate customers, and drive them to their competitors. If the major carriers all do this, some entrepreneur groups will get financing and startup businesses to compete with them. Then the majors will immediately drop their pricing schemes to attempt to drive them out of business.

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