Have you ever been asked if you were eligible for a cell phone upgrade? Some people still dont know how cell phone upgrades via carrier subsidies work, but it may soon be a bit too late to get that large discount on a cool new phone just by signing up for a two year contract. Paying just $200 every two years for a brand new $650 iPhone has been a blessing of the smartphone subsidies for the last few years. In a new development however, these subsidies seem to be coming to a possible end, meaning that those Apple and Android devices would get really expensive.
Beginning of the End
Addressing an investor conference in New York City earlier this month, AT&T’s CEO, Randall Stephenson expressed his concern on how difficult it was getting for wireless operators to fund the constant upgrade cycles for smartphones. He has recently discussed how the smartphone penetration is well over 75 percent and will soon be going above 90 percent mark.
“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,” he further added.
A new plan introduced by AT&T encourages users to either upgrade their phones less frequently or bring their own phone. Talking about this new deal which can save consumers up to $15 each month, Stepenson said: “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.”
What will the Carriers Do?
Smartphone fans will likely be disappointed by this news. However, T-Mobile is already on a path the other carriers can possibly imitate. T-Mobile offers a financing option in which you have to pay a minimum down payment for the smartphone and then finance it interest free for 24 months. Such plans give a clear picture to the consumer that there are no subsidy costs. One main problem with this model for the used cell phone market is that newer T-Mobile phones are appearing on the used market with BAD IMEI/ ESN at a much higher rate since these consumers are now financing and then selling off the phones before paying the rest of the balance owed. What this will mean for the used cell phone market is uncertain if all carriers use this model.
On a brighter note, it is expected that carriers will lower their prices to be able to compete for your dollar. So you may want to sell your old, used cell phones and smartphones now and look forward to financing newer models. Without any subsidies, most of the consumers will not be able to afford around $800 each year on their phones and it won’t really matter which carrier you have – upgrading will get costly.