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T-Mobile Exec Calls For End To Cell Phone Subsidies
MojoKid writes "T-Mobile's Chief Marketing Officer Cole Brodman has an interesting idea for revamping the mobile industry, and it involves killing the subsidy plans that have driven smartphone adoption over the past five years. Asked what one thing he'd change if he had the power to do so, Brodman pointed to subsidy programs. 'It [device subsidies] actually distorts what devices actually cost and it causes OEMs, carriers — everybody to compete on different playing fields ...' Brodman isn't kidding about an irregular playing field. The HTC Titan is the most subsidized device in the chart seen here (unsubsidized at $549, $0.01 on contract). Microsoft is obviously desperate to gain market share in mobile but both the iPhone 4S and the Galaxy Note carry $400+ discounts too. The cheapest smartphone AT&T offers without a subsidy is the thoroughly mediocre HTC Status, for $349. To add insult to injury, it's only available in mauve. It's an interesting idea, but practically unworkable as far as the mass market is concerned. Carriers have built a market structure in which consumers gladly accept a new bauble every 18 months in exchange for paying for text messaging (which literally costs carriers nothing) and overage charges in which 300MB of data for $20 is a fair market value."
Don't know why you'd give particularly extra credit to Apple, gTalk, AIM, skype, et al already give people little incentive to consider anything particularly extra for SMS. I fail to see what 'iMessage' gives that these do not. SMS use in the face of all those is generally amongst people who aren't about to change their ways, most of who now have plans where messaging really doesn't impact them one way or another (for example I don't use SMS yet I couldn't get a plan with the features I wanted without unlimited SMS).
XML is like violence. If it doesn't solve the problem, use more.
One problem with subsidies in the US is that if you pay full price for your phone, your monthly bill isn't reduced to compensate for not having the subsidy.
In other countries when you buy a phone subsidy-free you pay less per month. This is common sense, yet the US providers don't do it. I'd rather pay full price for my phone and pay less per month. Basically if you keep your phone for longer than 2-3 years, you are now losing financially because you're monthly cost includes a subsidy you're not taking advantage of.
Here's how it works here in Finland:
You either
a) buy the phone yourself (HTC Titan is ~590 EUR ~= 773 USD), and then have a plan without a phone. Example plans:
0.66e / month, 0.066e / min, 0.066e / sms
3.90e / month, includes 3000min in-network calls, others 0.069e/min, 0.069e/sms
38.90e / month, 3000 min to all networks, 3000 sms messages.
Unlimited non-NATted incoming-ports-open mobile broadband (HSPA+, max 15Mbps) is 13.90e / month (other speed classes exist), or 20.85e / month total for an extra SIM card ("MultiSIM") + USB modem (i.e. you get unlimited broadband in both your phone and computer for that price).
These contract are normally non-fixed-term, so you can cancel/switch operators anytime. Note that in Finland only outgoing calls are paid by the mobile user, incoming calls are paid by the caller (mobile numbers have a separate number block).
or b) buy a plan with a phone. This is a bit different from the US subsidies in that you pay *nothing* up-front, and the plans are actually the same as in (a) above, but there is an additional separate monthly cost for the phone. However, the "subsidy" is very small, only a few percents (e.g. HTC Titan total additional cost is 576 EUR, just 2.5% below normal market price). These are generally 2 year contracts. AFAIK these kind of bundling contracts are generally not allowed, but a special time-limited law was enacted in 2006 allowing such contracts to be made for 3G phones only, and it has been extended at least once since.
The prices above are for Saunalahti, but other carriers have very similar pricing and plans.
At least my impression from all this is that we seem to pay more for the phones, but our plans are otherwise way cheaper (when compared to the US)...
You DO know iMessage is just XMPP, right?
-- I'm the root of all that's evil, but you can call me cookie..
iMessage gives you ease of use - I don't have to care whether the person I am messaging has iMessage or not, the messaging app works it out for me without any input from me at all on the matter. This way, I don't have to treat one block of contacts different to any other, it just happens.
A fourth operator just entered the market two months ago in France and has caused a hell of an uproar. The French market has been traditionally dominated by Orange (of France Telecom, former monopoly), SFR, and Bouygues. Two months ago Free finally launched their offer after years of the government and the other telecoms trying to stop them. Their offer: 20€ a month for unlimited calls and texts (even internationally to many countries), with 3GB of data for whatever you want to do (meaning tethering, etc.), and 16€ if you have their internet package as Free is traditionally an ISP. They also have a plan for 60 minutes and 60 texts for 2€ a month. This is a huge change from the 85€+ a plan like this would traditionally cost. And they don't offer a subsidized phone with it, so you either buy the phone separately in full (but at good prices), or pay for it monthly in your choice of months (12 or 24). Or, you just use the phone you already have.
To be frank, the other telecoms have flipped their shit over this and have lost about 2 million subscribers in 2 months. They've brought out their attacks on Free and said that people have become violent in their stores because of Free saying that people have been screwed by the Big 3 for years (they were actually fined half a billion dollars in 2005 or 2006). It's caused a huge stir in the mobile market and the traditional operators have followed suit and (in anticipation) launched their so-called low cost offers online without a subsidized phone. I think it would be very interesting to see someone do the same thing in the US, especially someone established like T-Mobile and force telecoms to compete on services and plans (unlimited texts, "we'll give you more data than the competition", etc.).
Buy a prepaid phone. The up front cost of the phone is more expensive, but the service plans are cheaper. Also, no contract. There are even decent Android phone available on prepaid providers, for example, the Motorola Triumph on Virgin Mobile or LG Optimus Q on Straight Talk.
(emphasis in the quote is mine)
...paying for text messaging (which literally costs carriers nothing)...
You are using that word and I literally do not think you know what it means.
I'm not entirely sure that matters one bit - it's the fact that it works seamlessly that makes it effective, not the underlying transport mechanism. Again, implementation is what has set it apart from the other alternatives tried.
A discount?? I think you give carriers more credit than they deserve. They will continue their current practices. 2-year contracts, $60+/month plans, little add-ons for text, night/weekends, "premium" data, etc. They are a cartel. What one does, all do. They don't compete; they collude.
No, you didn't "FTFM" at all, you put your own bias on my words and nothing more. I don't use iMessage because of marketing, I use it because it seamlessly worked on my iPhone - I didn't have to set any contacts to use it, I didn't have to configure anything, it just worked. Thats got nothing to do with the transport mechanism, and everything to do with the implementation - no alternative has that. The implementation works out how to deliver the message, not the transport mechanism.
If something else had seamlessly worked, I would be saying the same thing for that.
In ye olden days, ma bell would rent you a phone for $5/month. Why would you pay $20 for a phone at walmart if ma bell would give you one "for free"? This had two effects:
1) Ma Bell ancient telephones were indestructible and reliable because any problems meant the manufacturer faught with one of the worlds largest corporations, not some individual peon. Thats why a 1960s phone worked great and lasted forever, and you can only buy garbage now. The days of a mobile phone lasting more than a couple months are going to go away if cell phone subsidies go away... why shouldn't they?
2) Ma Bell made fat stacks of cash on the ghetto rent to own model. You'd laugh at a guy in the lowly socioeconomic circumstance of paying rent-to-own for a couch or TV, but supposedly that biz model is what the cool kids use when they get phones... You can't seriously think the telco is acting as an intermediary out of the goodness of their heart, can you? Basically, they're in the loanshark / payday loan biz, if you're too ghetto to front a couple hundred, they'll do it for you, at a long term cost of thousands. They have shareholders to support... this is a profitable operation, if competently run (which might be asking too much).
"Science flies us to the moon. Religion flies us into buildings." - Victor Stenger
iMessage hides it from you. You just text somebody, and if they have an iPhone the text gets sent using cheap data instead of expensive SMS. The only distinction is what colour background the text has. Apple instantly made a chunk of carrier text revenue disappear without any effort on the part of the user: no getting your friends to sign up, no downloading an app, no remembering who has Skype accounts and who doesn't.
Blackberry figured out the built-in, just-like-texting thing first, but BBM used silly PIN numbers and didn't fail over to regular texts.
There is a pretty obvious way for the phone companies to solve this. You offer a series of plans, some of which include no subsidy and are correspondingly much cheaper, others of which provide a fixed subsidy (e.g. $400) that you can apply toward any phone once every two years, and have correspondingly higher monthly fees. Those who get reimbursement can choose the latter plans (which will be much less distortionary because the subsidy is a fixed amount rather than varying based on device type), and everyone else can choose the cheaper plans and then choose a phone based on a combination of features and price.
I'm not even seeing any particular reason why a single phone company couldn't do this unilaterally -- the fixed-amount subsidy should still be competitive with other carriers' subsidized plans. You can even just come right out and say it: We have new unsubsidized plans, they're much cheaper because it's BYOD. It's not like the customer is going to be angry that you've giving them a chance to take a less expensive phone and get a discount for it.
I mean they've got marketing departments. If you actually want customers to realize that they're better off paying $55/month but paying $500 up front for a phone (or, once you have that choice, maybe $400 or $350) than they would be paying $80/month for two years to subsidize a $500 phone, you can make that clear to them.
No. Transparent failover to SMS and using phone numbers as IDs are what set it apart. The user has to do NOTHING to use it. ANY other IM program at least requires you to get your friends to sign up. The point is that there's no marketing necessary. If you've got an i-device you use it automatically, transparently. If you were colour blind your first indication would probably be that your phone bill was smaller.
High-interest loan would be more accurate. I did some calculations a while ago with my carrier's 'free' and 'subsidised' phones. Taking the difference between the SIM-only contract and the one with the bundled phone, and subtracting the cost of buying the phone new, it worked out that the 'subsidy' was a loan at around 20-50% APR. In other words, pick a random credit card offer with a crappy interest rate, buy the phone, and get a SIM-only deal, and even with the extortionate interest you get from the credit card, you'll be better off after a year. You also would have a shorter contract term, so you could switch more easily.
Note that I was assuming that the price I could get the phone for retail was the same as the price that the network paid. In reality, they are likely to pay significantly less. Want to kill this kind of bundling? Make it a requirement to show the interest as a separate line item...
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That's not what happens at all. If an iPhone user sends you a message, the iPhone checks with Apple's server. If the recipient's number is registered as an iOS device it gets transmitted as an iMessage. If not, it gets sent as a plain old text message.
If you're getting unreadable multimedia files from iPhone users it's likely that it's a contact card (VCF) attachment or map data.
ANY other IM program at least requires you to get your friends to sign up.
Ok.... Most everyone has an AIM or google account, and all android users have a google account. For me getting someone's google account is easier than phone number, they rattle off a human readable name rather than me having to jot or type down a number. Point taken though that there is a networking effect and iMessages used phone number as one sort of id for easier correlation between phone and im mechanism.
If you've got an i-device you use it automatically, transparently.
I think getting your friends to buy an iDevice is a *tad* more burdensome than getting them to use their free gmail acount....
XML is like violence. If it doesn't solve the problem, use more.
SIM-only contracts in the UK are somewhat cheaper than ones that include a handset subsidy (between half and two thirds).
Then again, it seems like the US is a special case; apparently no-one else screws one over quite as hard as an American mobile phone company.
If God forks the Universe every time you roll a die, he'd better have a damned good memory.
A close family member of mine worked for AT&T Wireless since it was called Cingular. He would tell you that that business model would fail spectacularly here in the US. People here don't shop for plans, they shop for phones. They especially shop for phones they can't actually afford. Worse, they don't shop with money they've saved up. They shop with whatever flexibility they have in their monthly expenses. "What?! You don't offer a phone with that? See ya!!"
We are a month to month culture. Buying something for 500 bucks is a huge decision for most people. Adding 40 bucks a month (or whatever) is just another bill.
Pay 500 dollars now to save 40 or 60 bucks per month doesn't work for you if you ***don't have 500 dollars***. But your phone is dead and you need a new one. So what do you do? You could buy a super cheap one and get a low end phone plan. If you want that get a disposable or pre-paid phone. Otherwise you're going for the fancy smartphone without the 500 bucks. This is what most people want.
So say you did the math and you have the 500 bucks... Offering you an unsubsidized smart phone is a losing option. They make too much money subsidizing your phone and most of their customers like it that way, so why should they make less while giving away the option for you to change carriers at the drop of a hat? Easier to collude with the other carriers and make sure you can't do that.
It doesn't help the carriers until it helps them compete. There's not enough real demand to give up the lock-ins in favor of attracting a few new customers. It'll take critical mass and a lot more people demanding the unsubsidized option before it makes business sense to offer it. It's a cart and horse thing. So It'll never happen unless it's regulated to happen. Cole Brodman is correct that such regulation would vastly improve the market for consumers.
Operator, give me the number for 911!
"I think getting your friends to buy an iDevice is a *tad* more burdensome than getting them to use their free gmail acount...."
No, you've missed the point. If the person you're texting has an idevice, your message will be sent through iMessage. If he doesn't, it will be sent via conventional SMS. Completely transparently. You don't have to get your friends to buy idevices. The only reason people use SMS is that everyone has it. iMessage capitalizes on that by using SMS as a transparent failover while all the other text/IM programs try to replace it. It's also always on, just like SMS, and unlike IM programs.
I have What's App, Skype, GTalk, MSN, Yahoo, generic Jabber, and a few other accounts (only a couple people I know have AIM accounts). I even have an app that ties most of them together. Those are great for longer, arranged conversations, usually typing on the computer, but almost never get used for the same things as SMS.
In Israel, the government made a valiant effort attempt at fixing this distortion. First, they forbid the carriers from signing customers up on binding contracts (i.e. - any contract can be terminated by the client at any point). They also forced the carriers to allow clients to take their phone number with them when they switch carrier. Last, if you buy a phone shipped by a carrier at an outside shop, the carrier is required, again, by law, to give you the same subsidies it would give you if you bought the phone from the carrier (which means that for, e.g., the Galaxy SII, the carrier winds up over a period of three years paying you about twice what you paid for the phone yourself).
Guess what? Roughly 95% of the people still buy their phones from the carriers, and still stick with the same carrier.
Shachar
T-Mo is doing that. Their $30/mo prepaid plan is pretty sweet. 100 minutes, unlimited text, unlimited data. The only catch is the first 5GB is at 4G speeds. After that, you may be throttled to EDGE. So there's only 100 minutes... who needs minutes with an android + free calls with Google voice?
As far as I'm concerned, it's the best thing to happen to the price of internet access since AOL's $19.95/mo flat rate.
That might be correct for other carriers, but T-Mobile does offer plans that are cheaper if they don't involve them "giving" you a new phone. Bring your own phone to them and you can get a lower rate. Do that with the other carriers and you get the same rate. If you get a subsidized phone you can switch to the cheaper plan when you're out of contract.
Apple tried to change the whole "free phone" mentality when the first iPhones were offered at full price, but that didn't last long. The G1 and Nexus One Android phones were also sold for full price. This didn't turn out to be popular as consumers were hooked on the 'free" or cheap phone prices.
It's probably even worse than it sounds. Here in the US we use up minutes for both incoming and outgoing calls.
So 'unworkable' my ass.
Non-Linux Penguins ?
T-Mobile is the single company doing this unilaterally.
They're the only American major carrier to offer cheaper plans if you bring your own phone.
Their most impressive cheaper plan for those of us that don't do a lot of talking on our smartphones anymore is an impressive attempt to bring European-style bring-your-own-smartphone plans to America. $30 a month, no additional taxes or fees, no contract for 5GB of HSPA+ 4G, unlimited 2G, unlimited text, and 100 minutes. That's not many minutes, but you can go pretty heavily over on minutes and still have it be a great deal. It doesn't take a long time on $30/month for your smartphone to start saving over a traditional American carrier smartphone plan.
Unfortunately subsidized is more accurate for most plans... or maybe "forced purchase" because I've never seen a carrier in my country that gives you any discount at all for a "sim only" or "bring your own phone" plan. If I have to pay the same either way, I might as well take the "free" phone while I'm at it.
This bundling will end only if carriers are forced to separate the phones from the plans (Something I really wish would happen!)