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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 AND 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.

Source: Reuters



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RE: what subsidy
By CZroe on 1/7/2013 5:12:15 PM , Rating: 2
You obviously don't know what a "subsidy" is. Hint: Loans are "subsidized." The cost is in the monthly contract. They aren't mutually exclusive.

The manufacture gets the full price of the phone from the carrier just like a car dealer gets the full amount from the lender with a lien on a car. It was subsidized by the carrier with the contract and enforced with a hardware lock. A car loan contract is similarly enforced with a lien on the title.


RE: what subsidy
By menting on 1/7/2013 6:06:41 PM , Rating: 2
http://dictionary.reference.com/browse/subsidy
http://banking.about.com/b/2006/12/03/whats-a-subs...

A loan is only a subsidized loan IF you end up paying less than what it would cost with interest, which you cannot tell in this case because they hide it in the bill. And from T-mobile's bring your own device plans vs plans with "subsidized" phones, it's a $20 per month for smartphones. That means even over a 22 month period, it's a $440 difference, BEFORE the crazy tax you get charged for wireless plans. I'd say that's a pretty sure sign wireless companies don't subsidize anything for you, making the loan un-subsidized.


RE: what subsidy
By Mint on 1/7/2013 9:15:58 PM , Rating: 2
Except you forgot that after two years, my rate doesn't go down if I want to keep using the same phone; meanwhile, those that do choose to upgrade at that point pay $400+ less than retail to do so. That means I am subsidizing their purchase.


RE: what subsidy
By menting on 1/8/2013 8:32:41 AM , Rating: 2
oh you definitely are
I guess you're right then. It's a subsidized phone. But it's the consumer that's subsidizing the wireless company :)


RE: what subsidy
By CZroe on 1/8/2013 11:28:44 PM , Rating: 2
I didn't say who it was subsidized to. The device maker got the subsidy in exchange for your contract and the device maker locking it to their network.


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