AT&T CEO: Say Goodbye to Smartphone Subsidies

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.