Is there REALLY any difference for AT&T between subsidizing and NEXT? (hear me out)

[Hal~9000]

Let me start this off with the following article from Dec 2013:
http://www.cnet.com/news/at-t-chief-we-cant-keep-doing-big-subsidies-on-phones/

In it, AT&T chief Randall Stephenson says...

"When you're growing the business initially, you have to do aggressive device subsidies to get people on the network," he said. "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."

My question is this... what the hell is he talking about?

I mean I know he says "you can't afford to subsidize devices like that", but either way (subsidizing or NEXT) is basically the same: AT&T fronting a bunch of money to the customer so they can get their phone and so that AT&T charge them service costs each month.

If AT&T subsidizes a $650 smartphone down to $200 on a 2-year contract, they are basically paying the customer $450 upfront so that they can charge them $70/mo over 2-years. The subsidy was basically built into the higher monthly cost so it didn't end up costing AT&T anything in the end. Does Stephenson mean that AT&T couldn't afford the upfront costs? Because that's exactly what they are doing with the NEXT program as well...

With the NEXT program AT&T is basically doing the same thing as they were before: costing themselves a bunch of money upfront ($650 interest free loan) to make money on service charges over time. Except now the customer 'pays' for the $650 phone themselves but is also charged $600 less over 2-years on service costs ($25/mo discount for NEXT customers).

So why did he say they can't afford it if they are basically doing the same thing as they were before? If they really couldn't afford to subsidize, wouldn't they simply sell phones for full retail and not bother with interest free loans via NEXT? I don't get it...

Thanks in advance for your replies. I look forward to hearing your thoughts




P.S. I know the first few responses might the typical quick/snarky ones from people that don't get what I'm asking and say "What do you mean? one you pay for the phone and the other you dont jeez", but I'm more looking for the intellectual responses from those who understand what I'm asking.

 

[Supermallet]

Looking at that article, it appears there is some difference to AT&T's bottom line on subsidizing a phone versus financing a phone. Perhaps he simply means that the finance pricing makes people more aware of the total cost of the phone and may give them an incentive to keep the phone after the initial financing period to lower their monthly bill instead of upgrading as soon as the phone is paid off. On the old subsidy model, because the subsidy was built in and you never saw a drop in your monthly bill once the phone was paid off, you lost money if you didn't upgrade. Here you save money. Perhaps the problem isn't market saturation, perhaps the problem is people wised up to what the carriers were doing if you didn't upgrade when your contract was up.

 

[ToroidalZeus]

"Basically" is the key word in your text. AT&T has structured the new plans so they are "basically" the same but what that really means is that they are ever so slightly skewed that customers will pay more.

For instance in my case I would pay about $50 more per month if I switched plans. I know my friend switched to mobile share everything and started saving a lot of money each month but when he calculated how much it would cost him to get new iPhones this year it ended up being more than if he just stayed on his old plan. So now he only upgraded 1 line whereas I upgraded 4. And that is how they get you with mobile share everything / NEXT. It's cheaper if you don't upgrade but as soon as you start upgrading like crazy you'll realize the costs are actually higher.

Furthermore AT&T has done everything they can to increase the costs on the old subsidized plans. Such as increasing the activation fee from 36 dollars to 40 which back in the day you could have easily gotten it waived. As well as adding that extra fee on the shared value plan where getting a 2 year subsidy actually makes it more expensive then just financing the phone.

There are other details too like how old FAN discounts could apply the data plan on each line. Or the value of your trade-in device under NEXT. EDIT: Plus the guy above me makes a really good point about internal costs. Every time you go up a data package, AT&Ts profit margins increase because the cost to deliver that service is less than the revenue they generate. Whereas the revenue they used to generate from the more expensive services (caused by the cost of the data plan) went directly to Apple's pockets for the subsidy.


With that said if you switched to the new mobile share plans you really don't have a choice anymore; NEXT is all you can do.