AT&T’s CEO Randall Stephenson told
investors that with smartphone penetration approaching 90 percent, the existing
business model – where carriers sell highly-subsidized smartphones to drive
demand – will have to change.
“When you’re growing the business initially,
you have to do aggressive device subsidies to get people on the network. But as
you approach 90 percent penetration, you move into maintenance mode. That means
more device upgrades. And the model has to change. You can’t afford to
subsidize devices like that.”
Most U.S. smartphone buyers don’t realize the
true cost of their handsets, as carrier subsidies mean they typically pay no
more than $200. The full retail cost of an iPhone, however, ranges from $549
for a 16GB iPhone 5c to $849 for a 64GB iPhone 5s. The balance is paid by the carrier, then recovered back through
the contract payments.
Carrier business models are changing, with
T-Mobile the first to separate
monthly fees for device and phone
service with its Uncarrier program started in 2013. AT&T seems to be
thinking along similar lines, with the company seeing the future in
financing, rather than subsidizing, devices.
AT&T also acknowledged that breaking
customers of their habit of upgrading to a new phone every 18 months to two
years is not an easy task. But he said a business model focused on financing
rather than providing a subsidy would be transformative for the industry. He
said the company’s new AT&T Next program, which offers no-money down and
0-percent financing, drives smartphone penetration in a way that is more
sustainable over time.
Though you can still get a $200 phone with a
contract through AT&T and Sprint, they don't advertise the plans, and it's
difficult to sign-up on their websites. Verizon, at least for the time being,
still has the subsidized plan as a standard offering.
Expect more changes when the iPhone 6 is released.
Apple's new smartphone is rumored to be making its debut this August, and it's sure to spark a marketing frenzy. However, you are probably going to have to
decide if you should foot the bill for the entire cost of a new IPhone and get lower
monthly payments. Or, if you should get
a deal with no money down and, in effect, finance the phone in your monthly
payments.
Either way, as the cellular marketplace matures, HPA
believes you will probably pay more than you're used to. If you need assistance managing your cellular services HPA can help. HPA can provide a one time analysis or we can manage your services.
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