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US Carriers Look to Kill off Phone Subsidies by 2015

May 16, 2014 - Written By Nick Sutrich

Carrier subsidies have been the bane of many a tech enthusiasts’ existence, and by extension the carriers’, for as long as cell phones have been around.  Many people today will walk into their AT&T, Verizon or Sprint store of choice and choose a new phone when their 2-year upgrade schedule is up, often choosing phones that cost $99 or less in many cases.  You’ll find things like “buy 1 get 1 free” deals on holidays like Black Friday, or sometimes just to celebrate the launch of a new device.  These sorts of practices are ludicrous to say the least, and often devalue a phone in the eyes of the consumer.  Worse yet it destroys the phone resale market, as most people only pay at most $199 for a brand new phone, so why would you want to buy a phone outright for $700 brand new, or worse yet when the phone is a year old it still costs $300-$400?  Thankfully with T-Mobile’s extremely successful UnCarrier strategy over the last year or so with John Legere at the helm, the wireless industry has been changing and responding to customer needs and wants, and things like carrier subsidies are going away.

What’s really interesting in the mix is looking at financing plans in place of carrier subsidies.  AT&T and Verizon have recently launched plans that nearly mirror those offered on T-Mobile, and they go something like this: You walk into a T-Mobile store to sign up for a new account and of course have to choose phones that go with that account.  You can either buy the phone outright for the full price, which is often around $600 or so for a brand new top-of-the-line smartphone, or you can choose to pay the phone off in payments of somewhere around $20 per-month per-phone.  This equates to the same cost in the long run, so you’re still paying that $600 regardless of how you choose to do it.  It seems like a good chunk of people have actually decided that spreading the cost out is better for them, as these types of financing plans have jumped from 15% in September 2013 all the way up to almost 25% in March 2014.  So at this point 25% of all US cellular customers are financing their phones per month rather than choosing to buy them outright or have a subsidized carrier plan.  But things are changing and we’ve been seeing the cost of top-tier smartphones drop in price from many manufacturers.  Google has the Nexus line, and if OnePlus can ever get the One out you’ve got at least 2 top-end phones for well under $400, and that’s a brand new phone too.

carrier subsidies

What are the other advantages of having these sorts of plans?  Besides the aforementioned resale market likely getting a boost due to consumers finally understanding the real cost of a modern smartphone, monthly bills tend to go down for those that don’t choose financing over buying outright.  In fact financing the phone has shown to increase the monthly bill by almost $100 per year for the average consumer, showing that buying the phone outright is a much better deal, especially if you plan on constantly upgrading to the latest and greatest.  Selling your phone for just slightly less than you paid for it a few months down the road to get a similarly priced phone is a win-win for everyone; manufacturers get to push more product more often, carriers don’t have to pay out as much money to manufacturers for those phones, and savvy consumers get better prices and tech upgrades more often.  This time next year we may not even have subsidies in the US if things keep going the way they are now, and that can only be considered a good thing.