In Spain, top 2 wireless carriers stop phone subsidy: US carriers watching closely

EbookReader said:

http://online.wsj.com/article/SB10001424052702304020104577384562576617618.html
Wireless Carriers Chip Away at Phone Subsidies



What would be the effect if AT&T and Verizon stop iphone subsidy?

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Here the wireless companies are a little crazy..

I can buy an iPhone 4S unlocked directly from Apple for 599€ or from Movistar (my country top carrier) for 609€ locked, nonsense.

Edit : or paying 33,83€/mo throug 18 months.

I'd have no issue paying full price for a handset if no contract was involved. But the way that T-Mobile has done things recently with no subsidy AND a 2-year contract? Pssssht....you can keep that nonsense.

As times goes on, pre-paid is looking better and better.

I don't think US carriers would do it. They really make bank on the 2-year contracts and over-charging consumers on there monthly voice/text/data plans (not to mention any other add ons) in order to re-coup the cost of the subsidy and make a handsome profit along the way.

I would like to see them do it, similar to carriers do outside the US (and some of the discount carriers in the US). Pay full for the phone, and provide voice/text/data plans that are reasonably priced.

Phone subsidies are the only reason why consumers stick with expensive carriers like AT&T and Verizon. Both carriers are under the illusion that their network is important and to a large extent it is but that is diminishing.

With texting becoming commonplace and Wifi being more available and important. The US carriers getting rid of subsidies means their revenue/profits drop.

I'd have no problem running an iPhone prepaid for cheap. There's a reason why AT&T made dataplan mandatory. People are happy enough with local wifi.

To be fair, Spains economy is in the toilet. Watch dumbphones all of a sudden becme very popular there.

quietstormSD said:

I don't think US carriers would do it. They really make bank on the 2-year contracts and over-charging consumers on there monthly voice/text/data plans (not to mention any other add ons) in order to re-coup the cost of the subsidy and make a handsome profit along the way.

I would like to see them do it, similar to carriers do outside the US (and some of the discount carriers in the US). Pay full for the phone, and provide voice/text/data plans that are reasonably priced.

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The thing is...the spanish carriers didn't lower the prices! They charge the same now than a few months ago when they were still subsidizing phones

I buy most of my phones from ebay or forums like this or xda anyway so I wouldn't really care too much about this. Although it would be funny to see how some people would react when they don't know that their phone is subsidized.

I would take this with a pinch of salt.

Ignoring the Spanish economy (I don't think it's relevant) Telefónica (a company) isn't doing all that well.

Their brands around the world (including Movistar and O2) are seeing high churn and falling profit margins.

This was predicted back in February:

Apple's iPhone Is Getting Clobbered By Android In Countries With No Carrier Subsidies

Anton Troianovski of the Wall Street Journal reports that only 5% of phones sold in Greece are iPhones, for example, and only 9% of phones sold in Portugal. This market share is well below the iPhone's ~25% share of smartphones in the U.S.

Most of the other smartphones sold in Greece and Portugal, Troianovski reports, are Android.

According to a Greek wireless company interviewed by Troianovksi, the issue is price: Even the cheapest iPhone, the 3GS, sells for $535 without a contract. This compares to the Samsung Galaxy Mini, which runs Android and sells for $188.

Of greater potential concern for Apple is what could be a trend toward carriers reducing or eliminating subsidies.

A Danish telco, for example, stopped offering subsidies last year after realizing that preferred having cheaper calling plans than having their handsets subsidized.

When the subsidies were eliminated, handset sales declined 10%.

The WSJ reports that Spain's telecom giant Telefonica is now considering reducing subsidies as well.

Obviously, the iPhone's performance in Greece and Portugal isn't worth a lot of concern. But the subsidy issue is worth watching closely, especially if it becomes a trend.

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Yes, the economy plays a big part in this.

The stats I've seen say that $300 out-of-pocket is the breaking point for the majority of buyers around the world. Above that, subsidies help a lot.

People need to get some perspective on the "subsidies" Carriers in the USA offers vs. European/Asian countries.

The key "savings" many USA subscribers receive is throught "family plans"
Familes plans are making up close to 60% of all plans in the USA and that number is growing enomously with the uptake of smartphone customers looking to save money.

http://ipcarrier.blogspot.com/2012/...012/03/family-plans-drive-mobile-service.html

Why is this important? Because family plans offers the same subsidy for lines 1 vs. lines 2-5 for all subscibers. Verizon/ATT/Sprint all subsidize the iPhone by as much as $400 per line. It's really the single individual plans in the USA that are a complete rip off. Once you get to line 3 in a family plan is when you start seeing the real savings.

I have 4 lines with ATT along with a 24% FAN discount. My total bill including taxes is $175 (about $44/line) that includes the $400 subsidy discount. 700 minutes with rollover (have 3000 plus minutes rollover), unlimited text and 3 $30 iphone unlimited lines.

You will be hard press to see any European plans average $44 per line along with the $400 plus iPhone subsidy ATT gives me.

For those on 1 line or 2 lines, prepaid with Straight Talk and paying full price ($650) for an iPhone has a significant savings over post-paid plans.

Now let's get to the European style of paying for cell phone contracts. From what I have read, there really are not "family talk" plans.

So it's individual plans. And if you pay full price for phones, the month to month plans are much cheaper than the contract that involves subsidies. Europeans and Asians are use to paying $400-700 for full price smartphones. That's the European/Asian way.

But Americans in the USA are dumb. They can't do math very well. Everything revolves around what's "the lowest price" initially I can get for a product without calculating the total 24 month contract.

Carriers like Verizon and ATT and Sprint have fed into this model for so long it will take both Verizon and ATT together to change the subsidy game. Who blinks first? Considering iPhones made up 50% of Verizon contract smartphone sells and close to 70% of ATT iPhone contract sales. Neither carrier will blink on raising subsidies because they are afraid to lose customers.

So we are stuck with the system we have in the USA. Both ATT and Verizon will need to go into decreasing the subsidy game together. Than again, if both are seen doing this together the FCC will hammer them with acting like a Duopoly which is what ATT and Verizon really are anyways. This could cause a breakout of both companies. And that's why they can't change their model to increase prices at this point.

EbookReader said:

Heck, the carriers just need to do 1 thing. Separate the wireless service and the "hardware" contract.

Rough example:

$40 a month for Iphone hardware
$70 a month for wireless service

Total: $110 a month


$25 a month for Samsung Galaxy
$70 a month for wireless service

Total: $95 a month

$10 a month for LG Smartphone (mid-tier one)
$70 a month for wireless service

Total: $80 a month


So the consumers will have to choose.

Maybe some will choose to "stick with their old phones."


$0 for hardware
$70 a month for wireless service

Total: $70 a month

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Unless they were to lower their monthly rates (which isn't about to happen), it'd be no different than what's already going on with certain phones being free and others costing upwards of $200 at purchase.

The end result, if AT&T or Verizon were to follow suit, would be that they'd lose money.

If they didn't lower their monthly rate to balance it out, customers would be VERY quick to jump ship and go elsewhere. If they did lower their monthly charges, too many of their customers would take advantage of it by using old phones to lower their costs.


Not to mention, you simply can't look at one country in Europe and assume what works there would work in the US. The size (in both population and area) is far too big to make any comparisons.

kdarling said:

This was predicted back in February:

Apple's iPhone Is Getting Clobbered By Android In Countries With No Carrier Subsidies



Yes, the economy plays a big part in this.

The stats I've seen say that $300 out-of-pocket is the breaking point for the majority of buyers around the world. Above that, subsidies help a lot.

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Greece, Spain and Portugal... 3 of the worst economies in Europe. Coincidence?

This would never work. Think of the pressure that would be put on carriers from the Android handset manufacturers that come out with a new handset about once every 3 weeks. So if they implemented this, people would stop buying phones every 2 years (hell, I'd hang onto my iPhone 4S until it stopped working entirely) or would buy used. The manufacturers of android devices (I'm not picking on them per-se, but they *are* the ones who turn out devices every time they take a lengthy BM). would have a cow. Suddenly, nobody is buying their new devices every 3-6 weeks.

0m3ga said:

Greece, Spain and Portugal... 3 of the worst economies in Europe. Coincidence?

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Nope, not coincidence. As I said, their economies are why they're among the first to back out of subsidies.

Not the first, though. That was Danish telecom Telenor ASA, who stopped subsidies last year. Is their economy bad, too? I haven't checked. Thanks!

djrod said:

The thing is...the spanish carriers didn't lower the prices! They charge the same now than a few months ago when they were still subsidizing phones

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Ouch, that does suck. They should have some sort of "pre-paid" type plan for all smartphone users that's a lower price, if you have a phone and are not on contract.

djrod said:

The thing is...the spanish carriers didn't lower the prices! They charge the same now than a few months ago when they were still subsidizing phones

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Exactly.

Even if subsidies for the hardware went away, the carriers aren't going to suddenly lower their monthly charges.

You're talking ********. The spaniards are trying to do what has been done in Italy for a long time: The iPhone 4S at TIM.it.

The iPhone 4S 16GB costs you 20€/mo for 30 month (still subsidized, but only by 59€), plus 10€/mo for unlimited internet (well, probably has a 5GB cap) with texts and all calls for 9¢(/min).

30€ are $39.16. And that is, except for the 20€ of the phone, PREPAID. Don't charge your phone, don't have the internetz.

If you pick options like 1500 free minutes on a fixed contract, you can reach AT&T prices, though. Yes, a fixed contract is a lot more costly than prepaid.

If you would try that in the USA, some smug starts whining about shareholder value and not being able to buy a west-african country from his boni this year.

Wether the US carriers want to follow suit or not they will have to make this move sooner rather then later. The manufacturing costs of Smartphones is increasing while the subsidized price has remained unchanged. This works for now as the carriers are still making a profit with this plan, but the margins are shrinking as there is a limited two year frame to make back their money and strike a profit.

As a first step, wireless carriers in USA may start paying equal/prorated subsidies for all phones. This way, phone price would better reflect the cost of the phone to carrier and they could save money. It could also mean more expensive iPhones but it is unlikely. Apple would have to live with lower profit margins (or become irrelevant which they obviously do not want to).

It occurs to me that if subsidies stop or are reduced to a large extent, then you'll actually see greater marginalization of the carriers.

That is, device providers will be even less beholden to the carriers. The number of features that Apple had to can or cripple to satisfy the carriers (especially AT&T) is probably larger than we'll ever know.

"No subsidy? Fine. We'll sell the iPhone independently, and we'll determine the feature set. Let's see here, let's make WiFI tethering standard..." Apple could also the electronic SIM route and enable people to switch carriers at the drop of a hat - because why would anyone sign up for a contract if their handset wasn't subsidized?

Does any sane person think that once a carrier sells the iPhone that they'd stop allowing it on their network? That's the only leverage they'd have, and that would basically be a dead end for them.

Android manufacturers might not all find themselves with the same leverage that Apple has with the iPhone if subsidies go away.

They will see a lot of people leave them for Simyo/Pepephone/whatever and buying unlocked iPhones upfront. Instead of reversing course, to make up for their losses, they will raise their prices. That's their twisted logic.

EbookReader said:

good luck with prorated subsidies...

It's all about bargaining position. Most Androids have none. Apple has plenty.

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Actually it's the opposite. iPhone's have a very high subsidy cost the carrier has to absorb.
Carriers make more money off of an Android contract than an iPhone contract.
CNN/Money had a great article on this a few months ago.
http://money.cnn.com/2012/02/08/technology/iphone_carrier_subsidy/index.htm

All smartphones weigh on carriers' margins, since wireless carriers pay a hefty subsidy up front to buy the phones from the handset manufacturers. They make up the difference over the life of a two-year contract.


But the subsidies on the iPhone -- roughly $450 per device -- are the highest in the industry. AT&T's subsidies are even more exacerbated because it gives away the iPhone 3GS for free.

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smithrh said:

That is, device providers will be even less beholden to the carriers. The number of features that Apple had to can or cripple to satisfy the carriers (especially AT&T) is probably larger than we'll ever know.

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Why do you think they (Apple) can't do that now? There's nothing stopping them doing these things (including tethering as mentioned below) - Android does it.

Apple seems to prefer pandering to carriers to gain their money (not just through subsidies). They are the only phone manufacturer that lets carriers have such deep control over the user experience of the device.

smithrh said:

"No subsidy? Fine. We'll sell the iPhone independently, and we'll determine the feature set. Let's see here, let's make WiFI tethering standard..." Apple could also the electronic SIM route and enable people to switch carriers at the drop of a hat - because why would anyone sign up for a contract if their handset wasn't subsidized?

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People can change carriers at the drop of the hat already.

I can change to one of 6 "official" carriers or dozens of smaller MVNOs just by swapping SIM. If I want to keep my number, it takes no more than 24 hours.

The risk of an "electronic SIM" system is that the carriers have TOO much control over the process. I can swap SIMs all day on my iPhone and none of the carriers involved can stop me.