AT&T exec sees end of phone subsidies on horizon
President and CEO of AT&T Mobile and Business Solutions Ralph de la Vega said Tuesday that phone subsidies will soon vanish as customers move away from two-year commitments in favor of new financing plans.
Current options for purchasing an AT&T iPhone from the Apple Store. | Source: Apple
According to Re/code, de la Vega believes customers will increasingly choose cellular plans that spread out a handset's full cost over a set period of months. Unlike traditional two-year models, customers don't have to pay an up front fee and have the option to trade in their phone for newer hardware once the term is complete.
"I think it is one of those options that is going to go away slowly," de la Vega said.
The comment comes a year and a half after AT&T CEO Randall Stephenson said carriers will inevitably need to wean subscribers off handset subsidies. Initially, subsidies were instituted to ameliorate the cost of high-priced smartphones, thus incentivizing customer growth and billings. With higher penetration, early subsidy models become unsustainable, Stephenson said at the time.
AT&T already fields an installment program called AT&T Next that spreads out full handset pricing over 20, 24 or 30 months, with upgrade eligibility kicking in after 12, 18 or 24 payments, respectively.
De la Vega believes plans like Next are just as beneficial to consumers as they are for carriers. Flexible options let power users choose a path that upgrades annually, while those not concerned with cutting edge hardware can select longer terms that bring lower monthly fees. Almost two-thirds of all smartphone sales last quarter were sold without subsidies, the report said.
AT&T seems keen on accelerating that transition, however, as it enacted a new policy last week that bars third-party dealers from selling two-year contract pricing. Among those affected by the change is the Apple Store.
Current options for purchasing an AT&T iPhone from the Apple Store. | Source: Apple
According to Re/code, de la Vega believes customers will increasingly choose cellular plans that spread out a handset's full cost over a set period of months. Unlike traditional two-year models, customers don't have to pay an up front fee and have the option to trade in their phone for newer hardware once the term is complete.
"I think it is one of those options that is going to go away slowly," de la Vega said.
The comment comes a year and a half after AT&T CEO Randall Stephenson said carriers will inevitably need to wean subscribers off handset subsidies. Initially, subsidies were instituted to ameliorate the cost of high-priced smartphones, thus incentivizing customer growth and billings. With higher penetration, early subsidy models become unsustainable, Stephenson said at the time.
AT&T already fields an installment program called AT&T Next that spreads out full handset pricing over 20, 24 or 30 months, with upgrade eligibility kicking in after 12, 18 or 24 payments, respectively.
De la Vega believes plans like Next are just as beneficial to consumers as they are for carriers. Flexible options let power users choose a path that upgrades annually, while those not concerned with cutting edge hardware can select longer terms that bring lower monthly fees. Almost two-thirds of all smartphone sales last quarter were sold without subsidies, the report said.
AT&T seems keen on accelerating that transition, however, as it enacted a new policy last week that bars third-party dealers from selling two-year contract pricing. Among those affected by the change is the Apple Store.
Comments
This is incorrect. The 12/18/24 plans spread out the payments over 20/24/30 months. The 12/18/24 is after how many months you can trade in the phone on an upgrade. (In all cases if you pay ALL the payments, you keep the phone at the end).
Seems a lot more sensible to me, I never really understood where the subsidy model had come from.
Something funny going on with that table though - for one, it doesn't match the one on Apple's site at http://store.apple.com/us/carrier-financing-overlay/att?product=MGF02LL/A (initial phone cost on the 2 year contract), and two, (going by Apple's site) it can't be right that you can get an iPhone for just $40 activation fee, with no real commitment (a 2 year contract is hardly meaningful if the monthly cost is $0). Very strange.
"I think it is one of those options that is going to go away slowly," de la Vega said.
Hey Ralph. Since you're busy shaping the future, why don't you get rid of data caps too?
I'm grandfathered in to unlimited data. But lots of users aren't. Which sucks for them.
Seems a lot more sensible to me, I never really understood where the subsidy model had come from.
Something funny going on with that table though - for one, it doesn't match the one on Apple's site at http://store.apple.com/us/carrier-financing-overlay/att?product=MGF02LL/A (initial phone cost on the 2 year contract), and two, (going by Apple's site) it can't be right that you can get an iPhone for just $40 activation fee, with no real commitment (a 2 year contract is hardly meaningful if the monthly cost is $0). Very strange.
The monthly cost FOR THE PHONE is $0. You still have your phone plan you are contracted to.
Subsidiary is such a genius plan and I love it. It keeps me getting a new phone every two year without thinking about finance and total cost over two years. There are too many serious things to worry about. I don't want to spend days comparing 10 plans just so I can save $200 in two years.
What $200 are you saving? (You can indeed save money using the Next if you have a big data plan etc but I wanted to know where the $200 you quote is coming from).
I'm grandfathered in to unlimited data. But lots of users aren't. Which sucks for them.
Read an article AT&T has quietly changed their throttling
Policy because of the pending lawsuit. They will only throttle in congested areas mirroring Verizon's policy.
Subsidiary is such a genius plan and I love it. It keeps me getting a new phone every two year without thinking about finance and total cost over two years. There are too many serious things to worry about. I don't want to spend days comparing 10 plans just so I can save $200 in two years.
Each of these plans are genius for the large carriers that make more money than they should by complicating the plans. Business strategy is to maximize the PERCEPTION that customers are getting better services for cheaper (than the competitors).
Ever wonder why each carrier has its own distinct mobile/data/usage plans? It makes it almost impossible to make a simple comparison without the consumer having to run 12-15 iterations/scenarios to determine which is best.
In the end, I'm with you, having to waste time comparing 10 plans to save $200 in 2 years is not worth the headache.
And I'm not holding my breath for the carriers to simplify...it's of no benefit to them. And they'll continue to make changes to plans just to confuse you even more. Genius.
1. Subsidy is gone. Sorry. That $299 phone is now a $699 phone. The $599 128gb Plus model will now cost a cool grand ($!)
2. Monthly plan stays the same price (remember that previously, the plan included the subsidy, so now you are paying for the subsidy without getting the benefit of it).
3. Add payments for your new phone on top of the monthly payments. So much for saving money.
4. Want to trade in your phone for a new one after a year? No problem. AT&T owns the old one. Sorry! Can't give it to family. Those payments you were making... Gone! AT&T says thanks for the free money.
5. Want to own your phone? Pay the retail price on the phone. ALL of it, now. Then you get the title to the phone.
6. Oh, yeah. You can't preorder your phone from Apple.com unless you prepay the full, unsubsidized, retail price UP FRONT (so much for payment plans). Want to preorder and have a payment plan? Sucks to be you. Guess you could finance it on a credit card at credit card interest rates (not... smart).
7. Average amount you pay AT&T goes up from 15-25% (annually), and you have zero extra to show for it.
8. What do you think happens if you accidentally break or lose that phone you are using (you know, since you are now BORROWING it from AT&T)? Think they will offer to just replace it for free?
9. Thanks, AT&T, for having your customer's best interests at heart.
Where this actually has some benefit are for people who really want to buy a nice phone, but can't scrape together the $299 to get it. Otherwise, it's just a bad deal all around, from what I can tell. The are any number of ways to change carriers with no penalty these days, so that's not even a real benefit.
Bottom line... AT&T is a bunch of greedy bastards.
What Verizon policy?
I have an iPhone 6 Plus, paid $428.00 after taxes on a two year subsidy. I'll sell it when the new phone comes out and probably pay around the same amount or a little under for a new 2 year subsidy.
If I were to get an iPhone 6 Plus under Next program, I'll pay $42.50 a month for 12 months and then trade the phone back into AT&T. This ended up costing me: $510.
As someone who is always going to trade up to a new phone each year, can someone please help me rationalize what really is better for me. I'd seriously like to know which avenue I should go next time. I do still have unlimited data, also.
Do not let the carriers fool you into thinking they only want to sell services.. Everyone wants a piece of the profits in selling the devices.