AT&T CEO: Carriers Can't Afford Big Subsidies for Devices Any Longer

[Maschil]

If all the carriers say no more subsidies who would be hurting more, the customer or the supplier? Apple and Samsung don't want to lose those sales and if the providers decide not to eat the cost anymore people won't buy expensive phones. Forcing the suppliers to lower prices.

it depends but i get your point. Its easier for most people to pay 200 up front for a phone and 100 every month for service than paying 600 up front and then paying every 50 for service, though these two examples may pay the same over 2 years, i think most people would prefer to pay less up front..

 

[shurcooL]

I don't need your charity. I threw it on the ground.

Seriously, I've been buying my devices outright, it feels much better not having to deal with anyone. Freedom ftw.

 

[ChazUK]

Could this be a boon to Nokia/Motorola and LG the cost conscious buyer with the low priced Lumia 525, Moto G and Nexus lines of phones?

 

[gnasher729]

Shouldn't your bitching be aimed more towards Apple for over charging for the phone in the first place? Considering it only costs a few 100 dollars to make. They don't subsidy phones in Europe do they? Are we just spoiled Americans that we get cheap phones?

What do you think does it cost MacDonald's to make a Big Mac for you?
What do you think does it cost Levi's to make a pair of jeans?
What do you think does it cost Samsung to make a phone?

Seriously, if you take the published guesses for "Bill of Material" and think that's what a phone should be sold for, that's just stupid. There are tons of other costs beyond the materials that need to be paid.

 

[Abazigal]

Apple's net profits are in the 30% range, and they were even higher before the iPad mini was released.

And your point is?

Google can afford to sell their nexus line of phones at near cost because they expect to eventually earn it all back as advertising revenue. They are earning every time someone uses maps or search.

Apple's business is in hardware. That price you pay for the iphone also covers other "invisible" costs like processor design, OS updates, cloud services (mail, Siri, maps, iCloud etc), as well as shipping, warranty and so on. All these earn apple no profit on their own, yet help sell the end product, and so has to be factored in anyways.

I won't say apple products are cheap, but I do feel they are fairly priced for the sort of quality and user experience I am getting.

 

[gnasher729]

That's the whole idea. If this injects renewed true competition in those monthly rates, I'll gladly buy my own handset, and sell it privately, if and when I feel like upgrading to a newer model, rather than have that option dictated to me by the carrier.

Fact: There is no such thing as "subsidy". What customers get is a hidden loan for a phone, with the cost of the loan plus some generous profits added to the monthly bill. In addition, when the loan is paid off after 24 months, they keep charging the same loan repayment fees until the customer gets a new phone with a new loan.

The way they make profit is by hiding the exact cost cleverly, and buy appealing to customers who think that a phone advertised as free + $100 per month for 24 months is free, while a phone that is advertised as $700 + $60 per month for 24 months costs $700 more when in reality the first phone costs them $960.

 

[TC03]

that Ceo is a liar. AT&T and Verizon have record profits. What I wish they did was scrape the mvnos and offer cheaper plans themselves and/more options. Theres no reason why you should be forced into a data plan if you have a smart phone, things like that need to go...

Please look a bit further than an arms length.

The subsidy model helped carriers greatly in order to encourage customers to use their phones more than ever (by offering smartphones which are more exciting), which is profitable for the carriers.

However, saturation of the market is imminent. Prices of phones are dropping rapidly (Moto G, Lumia 525). Susbidies aren't a necessity anymore for the carriers because people can buy their own devices for good prices. As devices become cheaper and cheaper, the carriers will feel more reluctant in using subsidies solely for the purpose of offering good devices. The only purpose subsidies will serve in the future, is to tie customers up with a new 2-year contract. However, I suspect those subsidies will be a lot less. A free Moto G ($200 subsidy) can tie people up just as well as a $500 subsidy (iPhone).

This is a big deal for Apple, since in countries in which the subsidy model has become more conservative, iPhone market share went rock-bottom (European countries mostly). On the other hand, sim only contracts are usually much cheaper. In The Netherlands, you can find decent contracts without a phone for less than $30 or $40 (€25-€30). That's a win for the customer.

 

[edjs]

It ain't a subsidy; hats off to the damned marketer that seeded that word for what is a lease-to-own model, built into the contract plan pricing and early cancellation penalties.

 

[gpat]

AT&T CEO: Carriers Can't Afford Big Subsidies for Devices Any Longer

is read like:

Nexus-like devices are the future

 

[Mackan]

I'm not going to shell out $700 for a new phone every few years. Are they crazy?

The cost to make the phone is probably around $200-$300 (high end smartphone) according to many studies, so maybe it's time for the phone makers to not overcharge?

 

[skellener]

Exactly. I'll gladly pay full price for a phone if my phone bill goes down say... $85/month.

That's what I did. Bought my phone from Apple. Using T-Mobile. $40 a month plan. Very happy with it.

 

[vmistery]

Sounds like they are going to go towards a more European model, here in the UK we can get sim only deal for sub £10 a month including data. However it has alsways seemed to me that the US has always had high contract prices?

 

[freedumbfighter]

They're not referring to you. They're referring to those suckers who "have" to buy a new phone every damn year.

How the f does this even make sense??? Currently, carriers only give subsidies every two years.... so, if somebody gets one upgrade every year they are:
A) using another line on the plan & locking it in for another two years
Or
B) buying a phone outright while still under a contract
Please explain to me how either of these scenarios are in ANY way negative to the carrier.

 

[Johnnnny]

Looks like a plan to allow AT&T and Verizon to pocket more money and charge the same or more money for your contract. You just wait and see.

What contract, if there's no subsidy?

And I swear if this goes through and they still dare lock phones I'll lead a class action law suit.

 

[numlock]

They do.

Most of the world's cellular markets do not have subsidized handsets, so the devices are sold at retail.

obviously im not referring to the majority but the subject at hand.

It is interesting to note that apart from Apple and Samsung, the other major smartphone handset manufacturers are losing money, regardless of what they are charging for their devices.

in the last few years its been either apple or samsung and the price for the rest has been rather irrelevant. according to a report i read on cnet htc has 8% of the us smartphone marketshare compared to 66% combined for apple and samsung so the word "major" flatters to deceive here

This also brings to light something else of note: the fact that Apple has allowed US carriers to offer subsidies has not negatively impacted Apple's bottom line.

why should the subsidies have negatively impacted apples bottom line? the mere fact that the subsidies fools the common man thinking he can afford the item in question means it should increase sales for iphone and the likes of them.

 

[DBZmusicboy01]

LETS PROTEST!!!!
We are sick and tired of their games
We need to do something about this.

 

[Philsy]

Sounds like they are going to go towards a more European model, here in the UK we can get sim only deal for sub £10 a month including data. However it has alsways seemed to me that the US has always had high contract prices?

Bear in mind, though, that the majority of people in the UK still opt for a "free" phone with an 18-month contract at around £35 a month.

Buying outright and then getting a SIM-only deal has to be the way to go though.

Agreed that US contracts sound expensive. $45 for SIM only contract?

 

[freedumbfighter]

Fact: There is no such thing as "subsidy". What customers get is a hidden loan for a phone, with the cost of the loan plus some generous profits added to the monthly bill. In addition, when the loan is paid off after 24 months, they keep charging the same loan repayment fees until the customer gets a new phone with a new loan.

The way they make profit is by hiding the exact cost cleverly, and buy appealing to customers who think that a phone advertised as free + $100 per month for 24 months is free, while a phone that is advertised as $700 + $60 per month for 24 months costs $700 more when in reality the first phone costs them $960.

Close.... (sadly, no cigar), the profits are really more average than generous. When I get a $450 subsidy on an Apple phone every twenty months, that is $22.50/month subsidy on a $70/month bill. That means my cost is really $47.50/month.... about the same as prepaid. If I had a family plan, the average service per unit would be substantially lower, perhaps (including subsidy) dipping into the sub $30/month range. Def NOT price gouging since that's cheaper than prepaid.

Where the companies TRULY profit is on the schmucks that, as you say, continue paying the loan payment after the 20 months with no new phone.
To be clear:
Every month you don't upgrade when you are eligible... you are GIVING AWAY YOUR MONEY... $22.50/month for no reason.

 

[ladeer]

[deleted]

 

[jimmirehman]

Everyone seems to be forgetting that Phone Tech is designed to be disposable. All Manufacturers are on a 1 year or less product cycle. The overblown full price of phones needs to come down to reality for this to work.

Apple charges $130 to upgrade to an iPad with cellular data support, it should be the same for phones.

iPod Touch $299 + $130 for cellular capability = $430 for a phone. Makes sense.

 

[kevinof]

Agreed. I bought my kids two Moto G's sim free for £100 each from Tesco. They use a Three pay as you go sim for €20 a month which gives them 3000 texts, 3000 minutes and unlimited internet.

Why would they ever buy a contract phone again?

Bear in mind, though, that the majority of people in the UK still opt for a "free" phone with an 18-month contract at around £35 a month.

Buying outright and then getting a SIM-only deal has to be the way to go though.

Agreed that US contracts sound expensive. $45 for SIM only contract?

 

[EbookReader]

It's a bad thing that carriers are separating the cost of the phone from the cost of the wireless service.


This major UK carrier did it and it got a lot of bashlash from customers

http://www.o2.co.uk/refresh

With O2 Refresh, your monthly bill is split into 2 parts:

Phone Plan
the cost of the phone phoneplan

Airtime Plan
all your data, minutes and texts airtimeplan

So when you want a shiny new phone, just pay off your Phone Plan. Choose which phone you want next, and then start again.

Paid off your Phone Plan, but don’t want a new phone just yet? Carry on paying just your Airtime Plan and have a lower monthly bill.

T-Mobile USA also did this. Not sure if it is successful. People usually flee when carriers abandon subsidy. Why pay $600 for a phone when you can just pay $199?

 

[ladeer]

[deleted]

 

[fermat-au]

When I read the headline my first reaction was: An glad I am not an Apple Share holder. Much of Apple profits come from the iPhone, due to the high profit margin they are sold at. The reason Apple come sell the iPhone with such a high profit margin is the subsidised carrier model in the US.

Apple doesn't do as well in countries where phones aren't subsidized. Someone posted a chart a few days ago here showing the breakdown. Android owns the market in the non subsidized countries.

Kantar Worldpanel number from MR

You see that iOS has higher marketshare in the US than the EU or AU, this is largely due to the the high monthly cost of smartphone plans in the US that have allowed carriers to subsidise higher end (~$650+) smartphone.


All iPhones get a $450 subsidy. 450/24 months = $18.75 per month of the your plan that effectively goes straight to Apple. A $15 per month discount is actually low.

 

[69650]

Apple executives have often spoken of the importance of growth in countries where purchasing phones for full-price, with prepaid voice and data plans, is more popular.

They may have spoken about it but they haven't done anything yet. The iPhone is still way too expensive if you need to buy it full price off contract. If the carries pull their subsidies it's going to have a big impact on iPhone sales.