Are The Days Of Carrier Subsidies Coming To An End?

With the news that Verizon Wireless is killing their one year contract deals, AT&T is raising their one year renewal pricing and finally, Sprint creating a tier of non-one year renewals at all, it begs to question one thing. Is the number of days that our carriers continue to subsides our phones numbered?

Over the past few years, phones have gotten more and more expensive for the carriers to bring in and the quick change inventory numbers aren’t favoring long term devices. In 2005, Verizon Wireless operated on a 2 year turn per device schedule. This meant that if you purchased your device on day one, you spent $100 for it (after your NE2 discount). At day 180, the device fell from $200 to $150. At day 365, that same device falls under $100 and by 18 months in to it’s life, it becomes a freebie.

Now, with devices cycling every 6 months, that pricing schedule doesn’t seem to hold steady any longer. Unfortunately, that means that either the devices will get more costly, or the service prices will.

The European carriers have long-time practices of selling the phones at a decent retail, then charging a competitive rate for the service that goes with them. Basically, it’s like purchasing the phone at full retail, but since it’s unlocked, you could use it on Verizon, AT&T, T-Mobile or Sprint – which ever gives you the best deal for what you need. Unfortunately, with our network fragmentation and carrier locks, this will never happen for the US.

What might end up happening though, is consumers may start choosing a provider based on service pricing and paying more for hardware – rather than signing a 2 year contract for a device discount. Think of the pricing as such. You pay $500 for an Evo on Sprint. You then pay $79.99 a month for 24 months for a total of $2419.76. Your discount on the Evo with a 2 year contract brings the price down to $200 – or a discount of $300 – making your total 2 year deal only $2119.76. Is that $12.50 a month worth being tied in to a 2 year contract?

When you look at the smaller carriers and prepaid brands, they charge more for basic devices – like $200 for a Samsung Intercept – but charge a very reasonable $50 a month for unlimited everything. The 2 year contract on a ‘prepaid’ service plan like this is $1400 for the same setup. With a family plan, these difference close quickly, but companies like BoostMobile and Virgin Mobile are actually running a more effective pricing structure than the big carriers like Verizon Wireless, AT&T and Sprint.

What this means in the long run is that Sprint, AT&T and Verizon could easily drop their fees $10-15 per line per month, at the expense of raising their device pricing. It may not be today, or tomorrow, but eventually, the price wars will favor lower cost plans to lower priced hardware.

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