Wireless Carriers’ Dreams Come True: Phone Subsidies are Quietly Going Away

Carrie Sylvester
Sep 15, 2015

Although some BIG changes are coming to the wireless industry, you won’t hear the wireless carriers making a lot of noise about it. Phone subsidies— phones offered by wireless carriers at a discount if multi-year service agreements are signed — have fed our gluttonous appetites for the latest and greatest mobile phone for years. This is all about to change, though, and this change has actually been occurring for some time.

The Shift is Happening NOW!

T-Mobile Got in Early

Although some wireless carriers have recently introduced more consumers to the concept of paying for their phones over time, T-Mobile was early to the party. Many people probably don’t realize it, but T-Mobile actually stopped subsidizing its phones in March 2013. T-Mobile, which has dubbed itself the “Un-Carrier,” stopped subsidizing before this idea became popular. With the company’s Simple Plan, customers were given the option to put a down payment on the phone and then pay a monthly fee until the phone was paid off.

Apple Bypasses Wireless Carriers… and Verizon Follows Suit

During its most recent iPhone launch in September, Apple announced a new “phone first” approach with its iPhone Upgrade Program. In the typical phone purchasing scenario, the customer visited a wireless carrier, selected a phone from the available models, and activated the phone on that carrier’s network. With Apple’s new program, the model is changing—people visit the Apple store, select an unlocked phone from the available models, and only then do they chose a carrier. With this announcement, Apple became the first smartphone manufacturer to grab consumers’ phone dollars before wireless carriers could get involved. Apple’s plans, which offer a new iPhone every year, start at around $32 a month with the AppleCare protection plan included.

On the same day as Apple’s iPhone announcement, Verizon issued a press release entitled Simplified Data Choices Match Customer Lifestyles to detail some of its new tiered data plans. Although these plans weren’t big news in and of themselves, Verizon provided a few interesting tidbits at the end of its press release. Customers who choose a new plan, with device payments, will be able to spread the cost of their phone over 24 months. Furthermore, these customers will be able to upgrade at any time once the device is paid in full. Some customers might wonder—do they get to keep their phone once they’ve paid for it? According to Verizon, customers own their devices once they are paid in full, and they aren’t required to turn in the old device if they choose to upgrade.

But We Were First!

Not to be outdone by these more recent announcements, T-Mobile CEO John Legere made a point of reminding everyone who started the no-subsidy revolution. The animated and outspoken executive took to Twitter with statements like “First @sprint with a random, more confusing, mimic of #MobileWithoutBorders… Then @Verizonwireless 2yrs late with a lame #SimpleChoice copy?” and “Our mission with #uncarrier is to change the whole wireless industry! When @VerizonWireless and @sprint copy our moves, consumers win!”

Don’t sugarcoat it, Mr. Legere… tell us how you really feel! (*wink wink*)

InfoTrends’ Opinion

So why does any of this matter? It’s simple—these (mobile) times are a-changing! Although consumers have already been paying for their phones because the cost is offset in their carrier subscriptions, people were able to justify upgrading their phones every two years or sooner because they didn’t get hit directly with a hardware charge. This will likely change when consumers are asked to pay $550 or more, the average unsubsidized cost of a new iPhone or higher-end Android phone. Should other carriers follow suit, InfoTrends believes that many people will consider delaying their upgrade plans. Wireless vendors and carriers will need to have a wide selection of lower-priced phones to capture these budget-conscious shoppers.

Beyond extended upgrade delays, carriers might also feel the pinch in another area as customers consider switching carriers to obtain a better deal. For many years, wireless customers have traditionally been loyal to their carriers. In fact, InfoTrends’ latest mobile imaging research states that 50% of phone buyers consider staying with their existing wireless carrier to be a top influencer in the handset purchasing decision. Now that consumers will be getting hit in the pocketbook, switching to a new carrier might be a more attractive option, especially if competing wireless companies offer financial or other incentives to make the move.

Although some consumers may balk at the idea of a non-subsidized phone plan, this change may well prove to be a good thing. Increased competition on the wireless carrier scene will ultimately benefit consumers in the form of product or financial incentive perks, even if they have to pay for their phones outright.

To learn more about the latest InfoTrends Mobile Imaging and smartphone analysis and insights, contact Matt O’Keefe with questions.

 

 

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