AT&T CEO thinks phone subsidies must end

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.”