AT&T CEO says smartphone subsidies must end as T-Mobile sweetens iPhone deal
During an investor conference on Tuesday, AT&T chief Randall Stephenson said wireless carriers need to push toward an ecosystem devoid of subsidies for high-end smartphones, a tack to which T-Mobile is already committed, as evidenced by a no money down iPhone offer for the holidays.
AT&T CEO Randall Stephenson. | Source: AT&T
With smartphone penetration at 75 percent in the U.S., Stephenson told conference attendees carriers can no longer foot subscribers' bills for new smartphone hardware, reports CNET. Instead, a new focus must be directed at getting existing customers to more effectively make use of built-out networks.
Stephenson is suggesting AT&T, and other telecoms, must break customers of the very habits they helped create with 18-month handset subsidies meant to incentivize subscriber growth.
"When you're growing the business initially, you have to do aggressive device subsidies to get people on the network," Stephenson 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."
Before Apple's iPhone and the smartphone boom, wireless telecoms were more concerned with luring subscribers onto their respective networks than anticipating how those customers would utilize -- and how best to monetize -- said assets. Now, with billions of dollars' worth of infrastructure in place, and an approaching critical mass of smartphones in operation, the goal has apparently changed.
When the iPhone launched in 2007, AT&T was one of the first to leverage data-hungry smartphones as a subscriber driver with unlimited data plans offered through its 3G network, setting a standard for other U.S. carriers to follow. In 2010, the nation's No. 2 wireless provider ended the unlimited data scheme and moved to a tiered model.
At a conference in 2012, Stephenson expressed regret for introducing the all-you-can-eat option, alluding that company profits would have been much higher otherwise. The telecom has been pushing in the opposite direction ever since with the introduction of new pricing structures, throttling data speeds for grandfathered-in unlimited data plans and other tactics.
Last week, AT&T took another step toward separating itself from subsidizing devices by announcing a new discount for contract-free customers and those who choose to keep their older handsets instead of upgrading. On average, the incentive cuts about $15 off monthly data bills.
Despite early missteps, AT&T has successfully moved more than 70 percent of its customer base to consumption-based plans, a number Stephenson plans to grow going forward. The company's new "Next" initiative is a more sustainable route to increase smartphone penetration, he said.
Under the plan, customers can purchase a new handset with no money down and pay a monthly fee for 20 months as part of their wireless bill. The handset can be traded in after one year for an upgrade to newer hardware, at which point a new 20-month cycle starts based on the price of the device.
"If you are a customer and you don't need to upgrade your device, you can get unlimited talk and text and access to the data network for $45 all-in," Stephenson said. "You can use your own device or finance it. I think this will be very powerful. It's where we see the market going."
With the pricing structure changes, Stephenson said AT&T and other telecoms will be able to compete "down market."
"You will see us go very aggressively in the prepaid market," he said, likely referring to AT&T's recent acquisition of prepaid carrier Leap Wireless.
While Stephenson talks up change, T-Mobile is well into its own experiment with the "uncarrier" initiative.
Also on Tuesday, T-Mobile announced it would be dropping down payments for Apple's new iPhone 5s and iPhone 5c handsets, as well as certain iPad models, for "well qualified" new and existing customers.
The limited-time offer includes 16GB versions of the iPhone 5s, iPhone 5c, iPad Air, non-Retina iPad mini and iPad mini with Retina display. Subsequent monthly payments will continue as usual, with device cost spread across 24 equal monthly payments.
The no down payment promotion is applicable to T-Mobile's Simple Choice Plan for all devices, while iPhone customers can take advantage of the JUMP! program, which allows customers to upgrade their phones up to twice a year for an additional $10 per month.
T-Mobile previously eliminated down payments earlier this year as part of its "$0 Down" sale, which ended for the iPhone 5 and 4S in August. The fourth-largest U.S. carrier later offered the iPhone 5s and 5c for zero down when the devices launched in September.
AT&T CEO Randall Stephenson. | Source: AT&T
With smartphone penetration at 75 percent in the U.S., Stephenson told conference attendees carriers can no longer foot subscribers' bills for new smartphone hardware, reports CNET. Instead, a new focus must be directed at getting existing customers to more effectively make use of built-out networks.
Stephenson is suggesting AT&T, and other telecoms, must break customers of the very habits they helped create with 18-month handset subsidies meant to incentivize subscriber growth.
"When you're growing the business initially, you have to do aggressive device subsidies to get people on the network," Stephenson 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."
"[...] the model has to change. You can't afford to subsidize devices like that." - AT&T CEO Randall Stephenson
Before Apple's iPhone and the smartphone boom, wireless telecoms were more concerned with luring subscribers onto their respective networks than anticipating how those customers would utilize -- and how best to monetize -- said assets. Now, with billions of dollars' worth of infrastructure in place, and an approaching critical mass of smartphones in operation, the goal has apparently changed.
When the iPhone launched in 2007, AT&T was one of the first to leverage data-hungry smartphones as a subscriber driver with unlimited data plans offered through its 3G network, setting a standard for other U.S. carriers to follow. In 2010, the nation's No. 2 wireless provider ended the unlimited data scheme and moved to a tiered model.
At a conference in 2012, Stephenson expressed regret for introducing the all-you-can-eat option, alluding that company profits would have been much higher otherwise. The telecom has been pushing in the opposite direction ever since with the introduction of new pricing structures, throttling data speeds for grandfathered-in unlimited data plans and other tactics.
Last week, AT&T took another step toward separating itself from subsidizing devices by announcing a new discount for contract-free customers and those who choose to keep their older handsets instead of upgrading. On average, the incentive cuts about $15 off monthly data bills.
Despite early missteps, AT&T has successfully moved more than 70 percent of its customer base to consumption-based plans, a number Stephenson plans to grow going forward. The company's new "Next" initiative is a more sustainable route to increase smartphone penetration, he said.
Under the plan, customers can purchase a new handset with no money down and pay a monthly fee for 20 months as part of their wireless bill. The handset can be traded in after one year for an upgrade to newer hardware, at which point a new 20-month cycle starts based on the price of the device.
Stephenson sees the new market dynamics as a chance for carriers to compete "down market."
"If you are a customer and you don't need to upgrade your device, you can get unlimited talk and text and access to the data network for $45 all-in," Stephenson said. "You can use your own device or finance it. I think this will be very powerful. It's where we see the market going."
With the pricing structure changes, Stephenson said AT&T and other telecoms will be able to compete "down market."
"You will see us go very aggressively in the prepaid market," he said, likely referring to AT&T's recent acquisition of prepaid carrier Leap Wireless.
While Stephenson talks up change, T-Mobile is well into its own experiment with the "uncarrier" initiative.
Also on Tuesday, T-Mobile announced it would be dropping down payments for Apple's new iPhone 5s and iPhone 5c handsets, as well as certain iPad models, for "well qualified" new and existing customers.
The limited-time offer includes 16GB versions of the iPhone 5s, iPhone 5c, iPad Air, non-Retina iPad mini and iPad mini with Retina display. Subsequent monthly payments will continue as usual, with device cost spread across 24 equal monthly payments.
The no down payment promotion is applicable to T-Mobile's Simple Choice Plan for all devices, while iPhone customers can take advantage of the JUMP! program, which allows customers to upgrade their phones up to twice a year for an additional $10 per month.
T-Mobile previously eliminated down payments earlier this year as part of its "$0 Down" sale, which ended for the iPhone 5 and 4S in August. The fourth-largest U.S. carrier later offered the iPhone 5s and 5c for zero down when the devices launched in September.
Comments
Meaning: We need to focus on how best to disguise data caps so our customers won't see it until we have them in a contract; this will allow us to keep the networks that we have in place safe from overcrowding for longer.
"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."
This is pure BS. A subsidy isn't a cost to the carriers any more than a bank registers a cost when it loans money. The carrier is simply acting as a loan shark. And I mean shark because, when you've paid off your debt, you keep on paying them. Tell me this isn't a money-making scheme.
Link?
This is pure BS. A subsidy isn't a cost to the carriers any more than a bank registers a cost when it loans money. The carrier is simply acting as a loan shark. And I mean shark because, when you've paid off your debt, you keep on paying them. Tell me this isn't a money-making scheme.
Verizon is equally bad. I asked the rep about monthly fee or usage allowance after the contract is fulfilled for my iPhone:
I: After the 2 year contract is completed, will the monthly fee be reduced?
V: No. It will be the same.
I: Since my phone is paid off, won't you give me some credit or allowance after the contract?
V: No. Nothing changes. It will be the same. Blah, blah ...
They shamelessly keep charging the customer the same!
I have canceled my V plan and joined the T, knowing that the monthly fee will be dropped to the bare fee level after my phone is paid off.
Tell me this isn't a money-making scheme.
Considering that the $15 drop isn't anywhere close to what they were paying in subsidies that is exactly what this is. They just managed to increase the price of their plan by $5-10 a month.
For a family with three phones AT&T's plan is around $30 more a month for less data. Although, T-Mobile doesn't allow data sharing.
Again, this is exactly why the government was right in not allowing AT&T to buy T-Mobile. This was all started by T-Mobile in the spirit of competition.
"But, but, but...dinosaurs will come back from the dead and eat us all if I don't get a smartphone."
I just find it funny, as it was said in the article, the phone companies caused this behavior, giving it away, hiding the real cost by building into the monthly costs and as one person put it, they hope you do not realize what you are paying and hope to sign up for more services.
So now they want you to pay full price for the hardware, which is not a really bad idea, but you also know they are not going to drop the month. This action is really geared toward Apple. They do not like what happen, Apple controls it all, people come in and demand and iphone, if the carry does not offer a deal on then they go somewhere else. I also suspect that Apple subsidize some portion of the phone cost in exchange for a cut of the monthly data fee. We know the Apple deal with carriers is complicated so AT&T and other would like to get out of it. They probably would like more control over what phone they offer you a deal on to sign up or keep you as customer like it was 10 yrs ago.
This reminds me of when airline gave frequent flyer miles and before they knew it people stack up loads of mile and then wanted to use them and the airline has planes filled with no paying fliers. They then instituted black out dates, the expiring miles and the list when on so having the mileage point is not really an incentive other than allowing you to get on the plane first so you know you can get your carry one in the over head.
My personal belief is you do not offer these things in the first place unless you plan to do it for every. But companies do stupid things to gain market share.
This is pure BS. A subsidy isn't a cost to the carriers any more than a bank registers a cost when it loans money. The carrier is simply acting as a loan shark. And I mean shark because, when you've paid off your debt, you keep on paying them. Tell me this isn't a money-making scheme.
I agree with it being BS, but it is the subsidies that justify them charging higher monthly fees. AT&T took record losses (in the tens of billions of dollars) in the quarters when new iPhones are released because they suck up the subsidy losses up front. They recoup those billions over time by overcharging for monthly fees, and yep, once you've paid off your phone- you keep paying the high rates to subsidize the 'new' people coming into the system or those who need the most expensive phones every two years.
AT&T might not have lowered there monthly rates enough, but as the carriers drop subsidies they will be competing purely on their network offerings. The ones with the worst networks, slowest throughput, and highest prices won't do as well as the ones with better networks at lower prices. Google fiber is really disrupting things where it is available and the carriers are scrambling to rush out improved services of their own.
With the new lower rates, when your phone is paid off, yes, you no longer get a 'free' or 'low cost' new iPhone. You have the option of paying full price , buying a lower priced phone that meets your needs, or just keeping your existing phone and enjoying the savings.
This isn't great news for companies that have expensive models that rely on subsidies to make them appear to be 'about the same cost' as other phones (Samsungs high end models, and yes, iPhones).
Things like this will make a cheap(er) iPhone a must, especially for lower income families who can probably afford a $99 iPhone 5C on contract, maybe even 2. However, if they now have to pay $500 for an iPhone 5C AND their plan rate doesn't decrease then its a 1 - 2 punch to them.
Even me, I don't really consider myself low income, but at the same time, I cannot afford to shell out $500-600 for a new phone at ANY time. I wouldn't be surprised if Apple doesn't have something to say about this. In the end, this will have an effect on their bottom line. If people have to start shelling out the full $500 for the phone they won't upgrade as much, not even every 2yrs.
So when they stop subsidizing my iPhone, should I expect fair prices on mobile data? Or will AT&T just pocket more profits?
AT&T is obviously hoping to pocket more profits =p
The simplest way to look at it is probably this:
Your existing data prices will go down $15/month. Over a two year period that will save you $360.
If you are a person that buys an $850 phone every two years for about $200- you will not be making out well, you'll be paying @$290 more over a two year period. If you buy phones outright, or don't buy a new phone every two years, that $360 is in your pocket.
“Apple is forcing us to pay too much! We need five times the profit without using it on anything related to our network!”
"I've just been told by my wife that five of my eight kids need braces!"
Things like this will make a cheap(er) iPhone a must, especially for lower income families who can probably afford a $99 iPhone 5C on contract, maybe even 2. However, if they now have to pay $500 for an iPhone 5C AND their plan rate doesn't decrease then its a 1 - 2 punch to them.
Even me, I don't really consider myself low income, but at the same time, I cannot afford to shell out $500-600 for a new phone at ANY time. I wouldn't be surprised if Apple doesn't have something to say about this. In the end, this will have an effect on their bottom line. If people have to start shelling out the full $500 for the phone they won't upgrade as much, not even every 2yrs.
I don't see this happening. If you have an iPhone, you already paid the full price for it. It was part of the monthly bill. The carrier effectively "loaned" you the money to buy the phone. Nothing has fundamentally changed in the "new" model except the carriers are now explicitly telling you that you're getting a loan.
As for lower income customers being locked out: I don't see that either. If a person walks into a carrier store they can still walk out with a new iPhone with almost nothing out of pocket. Or, in the case of T-Mobile, as mentioned above, nothing out of pocket.
Again, about upgrading: What has changed? To get a low front end cost, the customer had to agree to a (typically) 24 month contract. Now, you agree to a loan of similar duration. If someone makes a low down payment and signs a 24 month contract, that person would most likely not be upgrading during that 24 months because of early termination fees. And one might assume that the early termination fee is simply related to the amount still owed on the phone. I don't see a significant change from the customer's perspective.
What has changed from the customer perspective to require them to up front pay the full price of the phone?
“Subsidies…” “Lisa needs braces!” “Subsidies…” “Lisa needs braces!” “Subsidies…” “Lisa needs braces!”
“If we stop the iPhone subsidies… I can afford to give my kid braces without giving up our solid gold swimming pool!”
Actually it sounds more like "we have to end grandfathered unlimited data"
Why do you assume it'd be cheaper?
Which means they'll also give up the "standard" vendor lock-in (carrier locked phones), and that leaves them to compete on marketing and/or price. As more wireless companies roll out LTE and consumers can switch between low-priced carriers as often as they want while keeping their phone numbers, this will become a race to the bottom. Nice for consumers, but I suspect a "lose" for AT&T, etc. I don't know that his shareholders are going to appreciate this, but it seems T-Mobile is forcing their hand.