December 2012 saw T-Mobile make the decision to end subsidies on devices, just before their iPhone launch is official. The thought behind this is that, in return for lower monthly fees, consumers will pay the full price for the device. Now it looks as though Verizon and AT&T, the 2 largest carriers in the USA, are thinking about following suit. Of course, they will watch T-Mobile for a few months first to see how successful it is before they put it in place. The Wall Street Journal reports:
“Last month Deutsche Telekom AG’s DTE.XE +0.65% T-Mobile USA said it would completely stop subsidizing phones in 2013, instead offering plans that essentially allow for interest-free financing.
“That is a great thing,” Verizon Communications Inc. Chief Executive Lowell McAdam said in an interview at the Consumer Electronics Show in Las Vegas. He joked that Verizon would support U.S. regulators in banning phone subsidies…
…AT&T T -1.69% Mobility Chief Executive Ralph de la Vega said Monday the company is watching the T-Mobile strategy, and AT&T could make a similar move if it becomes popular, but the company isn’t focused on the issue.”
Source : WSJ
One of the biggest concerns is how receptive to the idea consumers are. Obviously this will benefit the carriers who potentially lose hundreds of dollars on each sale –let’s say they purchase an iPhone from Apple for $650. They sell it to the consumer for $200 in return for a 2 year contract. That’s a n instant loss of $450 that the carrier has to try to recoup over the next 2 years. By ending the subsidies the loss is non-existent.
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Consumers could benefit but only in that their monthly fees would be a bit lower. The big question is, how many people will pay the full price for a phone that is still essentially tied to a contract? Would you? Or would you prefer to see a choice of subsidised on contract and non-subsidised phones ?