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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T-Mobile Has It Right
1/7/2013 9:45:58 PM
The quicker Verizon and AT&T and Sprint and the other post-paid carriers in the US pay for the up-front subsidy the more $$$ they make within the 2yr contract term. No one really knows except for the carriers when that occurs. I have read people online stating after 4-5 months the per month plan cost they charge effectively pays for the subsidy. The remaining months until you upgrade they bank.
T-Mobile is offering this because they are bleeding customers. This change is pro consumer. The other carriers don't like it because they make less $$$ as a result. Why do out think AT&T has gotten more stingy on early upgrades? Because it costs them profit to let customers upgrade sooner. I'm convinced the major 3 US carriers collude anyway on plan pricing.
Cheaper plans is what everyone wants. If AT&T offered cheaper plans like what T-Mobile is proposing I'd buy the phone full price at Best Buy and do the 0% interest for 18 months on it and decide when I want to pay it off within the 18 months. Plus I'd consider keeping the phone for at least a full 3yrs.
"A politician stumbles over himself... Then they pick it out. They edit it. He runs the clip, and then he makes a funny face, and the whole audience has a Pavlovian response." -- Joe Scarborough on John Stewart over Jim Cramer
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