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Your phone is not Subsidized, its a Loan

kdarling said:
No, you didn't fully pay for the phone. The carrier did. You'll be paying back the carrier over time or with an ETF.



Paying the ETF for a phone, is no different than canceling a car loan by giving the bank the remainder that you owe in one payment. Both are repaying the loan.

The math is simple:

I sign a contract for an iPhone for 2 years. The carrier pays Apple ~$600 for the phone. I pay the carrier: $200 up front, plus a $30 upgrade / activation fee, plus even if I cancel after only two weeks (I'd have to give the phone back before then!), I'll still have paid at least $20+ in monthly fees.

$200+30+20 = $250 up front.

That means I owe the carrier $600 - $250 = $350 payoff. That's what the ETF covers if I cancel right away. The ETF goes down each month, because I'm paying back the carrier from within the service fees.

--

Phone companies would be out of business very quickly if they didn't get back what they paid for each phone. High phone prices are already killing them. For example, AT&T took a stock price hit the first time it was revealed that they had more than a half billion dollars tied up in iPhone subsidies (customer loans). Apple's prices are a major reason why carriers are pushing non-Apple phones, or in some countries have even stopped subsidizing iPhones.
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With Sprint, you can't just simply buy the phone at full retail price and not be in a contract. They require you to sign a 2 year contract when buying the phone when first starting service. I'm sure other carriers do this as well now. Maybe outside of America though. Even if you pay full retail price of the phone, you are still getting charged the $30+ data fee regardless on if you sign a contract or not.

I'm not buying what you're selling here..
 
I see what the OP means, because the carrier definitely builds the cost of the subsidy into the cost of the contract and monthly rates.

That said, I don't think it can be defined as a "loan", because as others have said, if you have a contract with a contract-less phone, your rates are seemingly the same from month to month.

It would be different if we could save a fixed % per month if we brought over our own device, but something tells me that the big carriers have already ran the numbers and decided this model brings in more cash.
 
Dwalls90 said:
I see what the OP means, because the carrier definitely builds the cost of the subsidy into the cost of the contract and monthly rates.

That said, I don't think it can be defined as a "loan", because as others have said, if you have a contract with a contract-less phone, your rates are seemingly the same from month to month.

It would be different if we could save a fixed % per month if we brought over our own device, but something tells me that the big carriers have already ran the numbers and decided this model brings in more cash.
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With all the major carriers, they don't give you a break on your monthly bill. Pre-paid, maybe, but even then, you are paying full retail for the phone with pre-paid, or a high sum of money to be on pre-paid.
 
Hey i like the way u think. Ur right in a way. The trade off is the ability to have a premium device at a discount price. If u enjoy ur phone it's ok
 
famoussasjohn said:
With Sprint, you can't just simply buy the phone at full retail price and not be in a contract. They require you to sign a 2 year contract when buying the phone when first starting service. I'm sure other carriers do this as well now. Maybe outside of America though. Even if you pay full retail price of the phone, you are still getting charged the $30+ data fee regardless on if you sign a contract or not.

I'm not buying what you're selling here..
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If I recall correctly, when the original iPhone was released, you had to pay full retail AND commit to a 2-year contract.
 
I really do wish Carriers here would allow us to buy the phone ourselves and get our service at a reduced rate. I realize it is virtually the same thing (whether you pay up front or a portion with each month's bill), but it would be nice to bring in my own (buy used maybe?) and actually get a reduced cost each month. Unfortunately that is obviously not an option so it makes more sense to just take the new phone every 20 months (if on Verizon, not sure what the exact amount of months it is for ATT and Sprint).
 
Blorzoga said:
If its a loan, then why does the service cost the same if you own the phone outright? Once you're finished paying off this "loan", why does your payment not go down? There is not an Early Termination Fee (ETF) PLUS an early cancellation fee, they're one and the same.
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Uh... I pay $20 a month for my iPhone 5 :D
 
czar44 said:
If I recall correctly, when the original iPhone was released, you had to pay full retail AND commit to a 2-year contract.
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More than likely, it was Cingular back then so I wouldn't put it passed them if they did that.
 
famoussasjohn said:
With all the major carriers, they don't give you a break on your monthly bill. ..
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The monthly rate for each of these phone is EXACTLY the same.


Iphone 3 on contract
Iphone 4 on contract
Iphone 5 on contract
Iphone 5 fully paid for
any other smart phone

So, other than INTL folks, why would you pay FULL price for a phone
 
kdarling said:
A subsidy has many of the earmarks of a regular loan:

1) The customer is locked into a contract until they pay back the carrier either over the full contract, or via the ETF pay off (which goes down monthly).

2) The carrier pays the phone maker the full price immediately, while the user only pays an upfront payment. The carrier is taking the risk. That's the same as a car loan from the bank with a down payment.

It takes an average of 20 months before the carrier gets the money back from the monthly fees collected from each customer.

The primary difference is that after the phone is paid off, the monthly contract fee does not go down. Which means either the carrier is now making extra money, or that the carrier has factored the likelihood of a certain percentage doing this as part of the overall payback process, or a combination.
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True, there are similarities and if you look at it in simplistic terms it may appear so. But that still does not make it a loan. The ETF is a penalty for not completing the terms of the contract. It's not a premium you are making payments on and there is no completion of payments once the terms are fulfilled. .
 
Here in Canada its seems all the major carriers have moved to this "my tab" kind of "subsidy" which works like so:

your phone bill every month includes a $13 (for however long it takes to pay off the remainder of the cost) repayment for the subsidized price of your phone so you can upgrade anytime you like but when you do so you have to pay the "ETF" or "subsidy repayment" to get the new phone at the "fully subsidized price"...here's the kicker though!

regardless if you take a new device or not your phone bill stays the same so the $72/mth I pay includes the repayment of my subsidy whether I take a phone or not. This year it worked like this for me.

11 months in to my 3year (ouch) contract meant my "early upgrade fee" was $338, iPhone 5 64GB was $399. So for me to upgrade early I had to pay out my 338 remaining of my iPhone 4S to get full "subsidized" price for my iP5. 338 + 399 = $737 which is well cheaper than full retail ($899) for a 64GB iP5. Add to this the sale of my 4S $460 which brings down the actual upgrade cost to $277.

so whatever you wanna call it, subsidy, loan etc it's interest free in a sense and you get what you want when you want for less than full retail or putting out full pop when you get it.
 
I think the interpretation of this as a loan really depends on how you value the service of either ATT or Verizon for your phone.

ATT data share plan with 2 persons: -i am calculating just for one-

($234 phone with tax + $36 activation) = 270$ upfront

+ |($70+40)/2 for 4Gbs between 2 persons) + ~20%tax| ) * 48 months = $3168

at the end of this 2 years investment, altogether you will be paying ~ $3400

while, if you don't have to stick with ATT or Verizon and go with straighttalk for example (if LTE is not necessary for you)

then

649 + 8% tax = ~700 up front

$49 straight talk * 48 months = $2352

altogether = $3052
your 'expensive' upfront investment will help you to save $400.

So back to the 'loan' idea, if paying upfront $700 is too much for you, sticking to the ATT to get your 199$ price will cost you $400 for the two years in 'interest'.....while if you don't 'loan' the phone from ATT by paying retail, then you save that amount...

HOWEVER, comparing the services between straighttalk and ATT, you are also lacking LTE usage. the $400 extra equals $8/month extra and to many, that is good deal for the LTE availability to them. In that sense, it is not necessarily an "interest" anymore but rather paying for a service...for people who doesn't need that LTE extravaganza, $400 can be a great big amount to save over 2 years, and to them, this may sounds like "interest" not paid by leaving ATT :)

I guess all in all, the OP's reasoning will make sense depend on different people's needs...


:D
 
kdarling said:
Correct, if a customer doesn't use the subsidy on a contract that would otherwise still cost the same, then the carrier is making extra money off that customer.

That's why it almost always makes sense to use the subsidy if you plan to stick with a carrier, at least in the US. Otherwise it's like throwing away up to $200 a year in kickbacks, for no good reason whatsoever.

It's smarter to get a subsidized phone every two years and even just sell it to someone else for a profit if you don't want it for yourself. Use the profit towards lowering your monthly payments, or use some of the money towards a used phone.
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Exactly. Not taking the subsidy is throwing money away if you plan on staying with the same carrier. It's the ONLY discount you get.
 
I've been using my same carrier for 6 years, even if I did get fed up and decide to terminate my contract, then the ETF+subsidized phone is less than cost of unsubsidized phone.
 
Blorzoga said:
If its a loan, then why does the service cost the same if you own the phone outright? Once you're finished paying off this "loan", why does your payment not go down? There is not an Early Termination Fee (ETF) PLUS an early cancellation fee, they're one and the same.
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Because of the stupid plans available to you. Most other countries split the fee up as, for example, $50 plan cost plus $25 phone repayment, making your cost $75 a month. At the end of the 2 years your plan reverts to $50 a month unless you upgrade to a new phone.
 
daviddth said:
Because of the stupid plans available to you. Most other countries split the fee up as, for example, $50 plan cost plus $25 phone repayment, making your cost $75 a month. At the end of the 2 years your plan reverts to $50 a month unless you upgrade to a new phone.
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I'd totally do something where I paid my phone full price then pay a cheaper monthly fee.
 
leenak said:
I'd totally do something where I paid my phone full price then pay a cheaper monthly fee.
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Thats what I do. Then I'm not stuck on a plan or with one company, and I dont have to beg to get them unlocked to go overseas etc. I pay $30 a month and thats more than enough for my usage of the phone
 
I just did a quick comparison between O2 and 3 in the UK. The results for me were unexpected. I have always purchased my iPhone outright from Apple and gone for a months contract with O2 (Simplicity). This is just about the most expensive way of doing it.

The cheapest way of doing it is to go for a contract and phone. Then pay the maximum up front for the phone (e.g. with O2 pay £399.99 up front and then £624 for the full 24 month contract). You save £155 over the 24 Month contract (compared to my first example) by doing this.

I looked at a number of contracts with O2 and with 3. I did not do the same cost comparison with other companies, for which the results might be different.
 
Sadly, much of this argument is worthless. Totally worthless.

People are trying to compare US based plans with Canada based plans with UK based plans, etc.

They are also mixing in those that have to get a new phone each year vs those that can wait.

Then, to make it even more confusing, others are mixing Straight talk with regular service, with and without LTE, messaging, etc.

What a waste.
 
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