As interest in the smartphone industry grows, owning one and paying for the service is becoming more and more expensive. New, data-optimized wireless networks are rapidly being built and expanded to accommodate for the millions of new data users; phones themselves are becoming more powerful with every generation and their price tags are starting to scale accordingly; and the associated data plans are more expensive and being capped or throttled to curb usage and alleviate some network stress due to an ongoing spectrum crisis.
What all of this amounts to, though, is subscribers shelling out more money to get the services and devices they want. Providing service isn't getting cheaper, nor are the devices and it's forcing carriers to reevaluate device and plan pricing.
Currently, all of the major wireless providers in the States offer devices to consumers at heavily discounted rates through subsidies. Instead of forcing customers to $500 or more for a device, the wireless provider will sell the device for $200 (give or take) with a two-year agreement, guaranteeing they will earn the money back over the length of the contract. While this has immediate and apparent benefits, like cheaper upfront prices on devices, it also means higher rate plans and locks customers in for the length of the contract.
In March, T-Mobile CMO Cole Brodman expressed his displeasure for the current subsidy system, stating that if he were "king for a day", he would nix device subsidies altogether. Brodman explained further by saying:
"I think it distorts the economic reality of what devices actually cost and it causes OEMs, carriers, everybody to compete on different playing fields. And I think it's really difficult, especially from a consumer perspective, because it causes consumers to devalue completely the hardware they're using, which is these days is amazing hardware but has become kind of throwaway. It's unfortunate you've got dual-core, multiprocessor devices with amazing HD screens that get thrown away in 18 months."
However, no subsidies would mean consumers would have to pay more for devices upfront, and without all stateside carriers on-board with such an initiative, T-Mobile would be a sitting duck and would likely lose subscribers. Most mobile subscribers outside the U.S. buy devices no-contract, but where subsidies have been the way for many years now, the difference in prices would come as a shock to most.
I wouldn't imagine any U.S. carrier would make the radical jump and abandon the subsidy system. But, as the retail price of devices become more expensive, the effectiveness of subsidies is waning. Look at Verizon, for example, who has set a standard of $300 4G LTE smartphones with two-year agreements versus the normal $200 price tag of previous years. Yesterday during a J.P. Morgan investor conference webcast, AT&T CEO Ralph de la Vega said "the carrier will do whatever it takes to minimize the amounts it gives away in phone subsidies," says Daniel P. of PhoneArena, alluding that increasing prices may also force their hand and bring higher priced devices.
The price of phones is only half the battle for consumers, though. Over the past two years, wireless providers have been moving away from unlimited data for much more profitable tiered data plans, which stifle usage while bringing in the same or more revenue. Those who use more data will have to pay more for it, and if they surpass their monthly allowance, they will either experience heavily throttled speeds or fork out an overage fee for additional data.
On Wednesday, we learned that Verizon would begin phasing out grandfathered unlimited data plans once they launch their family share data plans this coming summer. Yesterday, Verizon spoke out and shared a bit of silver lining in the midst of ominous news of family shared data. Those who want to keep unlimited data can do so by buying new phones off-contract.
This is something I mentioned in my article yesterday about losing unlimited data. I said that I may purchase a 4G phone now and just continue to buy new phones off-contract to keep my unlimited data plan. That said, there is no telling how long this would work. I imagine Verizon will eventually axe that option as well.
I have always been a heavy data user, so tiered data can get quite expensive once I pass a certain threshold. (The largest data tiers offered by Verizon and AT&T are 10GB and 5GB, respectively. Verizon's 10GB plan costs $80 per month and AT&T's 5GB plan costs $50 per month, each with $10 per gigabyte overages. Nothing about either of those plans is cheap.) So anything I can do to extend the life of my unlimited data plan is worth exploring. It could be a long road full of $600 phone purchases and several headaches. But, given the right touch, buying, selling and trading phones sans contract can be just as easy on the wallet as buying with an agreement.
As prices across the board continue to rise, I'm interested in where you stand, readers. Will you continue to fork over the extra cash for new devices and the associated rate plans? Or will you consider cheaper alternatives, such as pre-paid services? Is anyone else considering going no-contract on Verizon to keep unlimited data?