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AT&T CEO thinks phone subsidies must end

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At an investor conference on Tuesday, AT&T(s t) CEO Randall Stephenson expressed a pretty shocking belief: Carrier subsidies for new cell phones must come to an end.  According to CNet, Stephenson thinks that wireless carriers need to shift their focus from getting new customers on their network to getting current customers to use more of the network.

For consumers, this would mean the end of paying $200 or so for a new phone on-contract every couple of years. Instead, buyers will have to pay full retail price for phones, which is usually much closer to $500 or $600.

This isn’t just a grab for more money. According to Stephenson, “When you’re growing the business initially, you have to do aggressive device subsidies to get people on the network… 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.”

This explains some of the reasoning behind AT&T’s new Mobile Share Value plans, which gives monthly $15 discounts to customers that bring their own phone, buy a phone at full retail price, or continue using a phone that is no longer under contract.

Of course, Stephenson isn’t expecting that customers will want to plunk down a full $500 or more every time they want a new phone. Instead, programs like AT&T Next offer customers the ability to get a new device for no money down every 12 or 18 months. You then pay off the entire cost of the device through monthly installment fees. This is similar to T-Mobile(s tmus), which earlier this year did away with subsidies completely and became the first big U.S. carrier to offer a device finance plan.

On top of this, Stephenson says that AT&T is planning to tackle the prepaid market more aggressively, and believes that the connected car and home industry will grow considerably over the coming years. But it’s a new carrier business model that focuses on financing rather than subsidies that Stepehenson believes will ultimately be “transformative.”

14 Responses to “AT&T CEO thinks phone subsidies must end”

  1. John Gibson

    I think there is a hidden agenda here and that Stephenson is talking to Apple.

    In Stephenson’s perfect world I think this talk is an attempt to get Apple to come to them and offer cheaper prices to keep the system the same as it is Apple far and away who is the biggest beneficiary of subsidized phone.

    Other manufacturers such as Samsung and Nokia have low cost alternatives to their flagship phones but Apple has always refused to go low end. But iPhones do not seem to be high priced devices to anyone in the US because the costs are hidden. Ask an average consumer how much their iPhone costs and the answer will be $199 if talking about a 5s, they’ll have no idea it’s a $649 phone. In other countries where there are no subsidies we see phones like the Nokia 510 outselling iPhones.

    T-Mobile is doing a fantastic job disrupting the status quo in the US and now the other carriers are on their heels. It’s probably why Sprint wants to buy them. In the end, we end subsidies and contracts and carriers are forced to compete on the quality of their services, consumers win.

  2. complexlitigator

    Just another reason to switch carriers to the carrier offering me the cheapest data package. Apparently the wizards of smart at AT&T have not figured out that I’m paying a $45/month premium with them right now in exchange for $500 savings/subsidy on my phone. Let’s do the math.

    $45 * 18 = $ 810 (worst case scenario for AT&T)
    $45 * 24 = $1,080

    $500 subsidy

    Profit from this model to AT&T = $310-$580 every two years.

  3. AT&T either needs to get its act together and release the Android updates Samsung has provided to them for the Galaxy Note 2, or explain what the holdup is.

    It’s disgusting that we flagship Phablet owners, who pay thousands of dollars every year to AT&T for the very best, are stuck with an old, outdated 4.1 Android operating system.

    • Trinadh Yerra

      Exactly I was thinking, till now for the same price after subsidies many people choose iPhones against Android, with subsidies removed, Apple fans have some real decisions to make. Also, I wonder how iPhones are doing on T-Mobile

  4. For a big company to decide to follow T-Mobile network by advertising upgrade every 12 months and now this? This proof one thing, the upper management did not plan and calculate carefully before launching the 12 months upgrade program.

    • How is that when the consumers are still paying an extra $27-$35 per month for that privilege? I have no problem with the carriers taken subsidies off the table, but if they are going to do that, then the plan costs better go down by $20-$30 a month.

  5. I wonder if there’s not an alternative explanation: the threat of legislation regulating subsidies. It’s not fair to consumers to continue paying subsidy rates on paid-off phones.

    • What a stupid naive statement. Muni WiFi isn’t going to replace GSM/ LTE networks. What planet are you living on? Just ask venerable and respected Esme Vos (founder of MuniWireless)