Should wireless carriers offer an option to drop phone subsidies?Evan Selleck - Contributing Editor
I saw an interesting report on TmoNews yesterday. Actually, it was a follow-up of another story that appeared on the site, regarding T-Mobile USA's CMO Cole Brodman. If you missed the initial report, or even the follow-up, you should go read them. (The links are highlighted above.) But, basically, Brodman is talking about how phone subsidies aren't all that great, and that we should get rid of them.
He's absolutely right.
To be honest, I was both a little shocked when I saw the comment stream on both of those stories, especially the follow-up article. For as long as I've been in the phone industry, I've never actually talked to someone who would willingly pay the most for a phone out-right. Not in the general consumer, sense, that is. In fact, the majority of people that I have spoken to in the past, especially when I was selling the phones, would be more than willing to wait for their contract to reach its term limit so they could get a discount.
And, let's face it, the wireless carriers have a nice subsidy thing going on here. You can get a steep, steep discount on a phone right out of the gate if you're willing to sign that two-year contract (here in the States). For most people it isn't about the contract. We are so accustomed to contracts, and the simple fact that contracts get you a good deal on a phone. If it's possible for that to change, then it wouldn't be something that could happen overnight.
A smartphone can cost you more than $500 without a contract. But, with the contract, you'll more than likely be able to snag it for only $200. In the case of other devices, some featuring 4G LTE or other high-end features, it may be a bit more. But, not having to pay that huge price tag right from the start, even if you're paying for it in one way or another every month for the length of your contract, is worth it to most customers.
It's pretty clear to me why people don't want to pay the higher cost of the phone, along with signing that contract. It's because the larger wireless carriers don't alter the contract pricing each month. So, even if you pay for the phone outright, you still have to pay the same price as someone who got the phone with a subsidy. As I looked over the comments on that initial story, I realized that people may actually want there to be two different options.
The first would be that subsidy option, where you're paying a set amount every month for your contract, and all your features. What you get today. The second option would be the ability to pay for your phone outright, but pay a lesser amount every month. There should be no surprise that the wireless carriers make money on just about every part of the subsidy, so as long as you buy the phone from the carrier, offering a lesser amount per month would make sense.
But like I mentioned above, I don't see a change like that happening. And, even if it did, it would have to be a gradual one. An "extra option" for consumers under Verizon's or AT&T's wing. It works for T-Mobile and their Value Plans, and plenty of people seem to like it. Could it work on the larger networks? I don't see why not, to be honest.
Then again, people could want cheaper phones, with longer contracts.