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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."
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)...
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.).
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.
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!