As T-Mobile Moves to End Smartphone Subsidies, Verizon CEO Says "Not so Fast"
January 7, 2013 3:36 PM
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Verizon CEO says customers aren't ready to pay $700 for an iPhone
T-Mobile announced a surprising move back in early December to
end carrier subsidies for smartphone customers
. Instead of getting a discount on the phone upfront, customers would instead pay full price for the smartphone in exchange for lower pricing on voice/data plans each month.
However, Lowell McAdam, CEO of Verizon Communications, doesn't think that the model will work for its customer base (Verizon is the largest wireless subscriber in the United States). "It's very intriguing. Every carrier has thought about doing away with subsidies," said McAdam. But "I don't think U.S. consumers are ready to buy an iPhone for $700."
Verizon Communications CEO Lowell McAdam [Image Source: Bloomberg]
McAdam may indeed be right -- unlocked, contract-free 16GB, 32GB, and 64GB iPhone 5 smartphones sell for $649, $749, and $849 respectively. Those that choose the subsidized option (two-year contract) can get the phones for $199, $299, and $399 respectively. The psychological pain of paying so much upfront for a smartphone may be worse to many consumers than the slow and steady bleed that comes from paying the costs over the course of a two-year contract.
Customers may end up winning in the long run if they purchase a device full price upfront, go with discounted service plans
decide to keep their phones for longer than the usual 2-year contract window. Those that stick to strict two-year upgrade cycles may not see much of an incentive in paying upfront.
The biggest losers, however, would likely be those that purchase a subsidized device with a two-year contract, and keep the phone well past two years while still paying the higher "subsidized contract" price for voice/data services.
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RE: what subsidy
1/7/2013 4:28:18 PM
Verizon actually gets the phone paid off in less than a year, hence the fact they will pretty much subsidize a new phone for virtually anybody after 1 year if you break it. After that, you are getting screwed by their rates.
I really like what T-Mobile is doing, just wish their coverage were better. Would love to have the option to either deal with my phone, or take a small loan (which they actually do), or pay full price, and then getting significant discount on the plan itself.
My step mom has had her phone (now on our plan) for 7 years, and my mom (also on our family plan) has had hers for 4.5 years. Both of these would be much better off with a lower rate, but of course Verizon would never want that.
RE: what subsidy
1/7/2013 9:04:36 PM
Which suggests that it actually is a subsidy, because anyone who
replace/upgrade their phone every year or two is subsidizing those that do.
I also like what T-Mobile is doing. I'm on their Monthly4G plan, because I do as much calling on VOIP as I can and can live with the $30/month 100min/5GB plan. I know Verizon has better coverage and 4G speeds, but I'd have to pay ~over $800 more per year for that and I can't justify it.
“Then they pop up and say ‘Hello, surprise! Give us your money or we will shut you down!' Screw them. Seriously, screw them. You can quote me on that.” -- Newegg Chief Legal Officer Lee Cheng referencing patent trolls
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