AT&T: It Is Impossible to Afford Big Subsidies on Smartphones Any Longer

AT&T Calls to End Smartphone Subsidies Citing Rising Costs

by Anton Shilov
12/11/2013 | 11:00 PM

Modern high-end smartphones can cost well over $600 since they are all based on leading-edge technologies and are pretty expensive to assemble. Most of end-users either cannot or do not want to buy those phones at full price and without a contract. As a result, in a bid to gain customers who use modern technologies, carriers need to sell smartphones at a low price with a contract. However, AT&T, the biggest cell phone operator in the U.S., no longer wants to subsidize devices.

 

“When you are growing the business initially, you have to do aggressive device subsidies to get people on the network. But as you approach 90% penetration, you move into maintenance mode. That means more device upgrades. And the model has to change. You cannot afford to subsidize devices like that,” said Randall Stephenson, chief executive officer of AT&T at UBS global media and communications conference, reports Cnet News web-site.

Modern customers change their phones once in 18 – 24 months. At present AT&T has around 110 million customers, which means that they need to lend their customers by whopping $500 billion over the period of 18 – 24 months assuming that every customer gets a $500 initial subsidy on hardware. Keeping in mind that over time people return the money with percentages to AT&T, it is obvious that the company keeps earning on subsidized smartphones, yet at the cost of increased risks.

The head of AT&T admitted that breaking end-users of their pattern of getting a new phone every 18 - 24 months is not a trivial task. Last week, AT&T presented a new pricing plan that provides an incentive to customers who keep their older devices, allowing them to save $15 a month on their service bill.

While customers may keep their smartphones for 36 months or even longer, they will hardly love to buy expensive smartphones at full price. As a result, either AT&T has to offer some kind of financing, smartphone makers/platform holders should offer tangible discounts on hardware or customers may prefer carriers that sell smartphones at a lower price.