T-Mobile Exec Calls For End To Cell Phone Subsidies 355
MojoKid writes "T-Mobile's Chief Marketing Officer Cole Brodman has an interesting idea for revamping the mobile industry, and it involves killing the subsidy plans that have driven smartphone adoption over the past five years. Asked what one thing he'd change if he had the power to do so, Brodman pointed to subsidy programs. 'It [device subsidies] actually distorts what devices actually cost and it causes OEMs, carriers — everybody to compete on different playing fields ...' Brodman isn't kidding about an irregular playing field. The HTC Titan is the most subsidized device in the chart seen here (unsubsidized at $549, $0.01 on contract). Microsoft is obviously desperate to gain market share in mobile but both the iPhone 4S and the Galaxy Note carry $400+ discounts too. The cheapest smartphone AT&T offers without a subsidy is the thoroughly mediocre HTC Status, for $349. To add insult to injury, it's only available in mauve. It's an interesting idea, but practically unworkable as far as the mass market is concerned. Carriers have built a market structure in which consumers gladly accept a new bauble every 18 months in exchange for paying for text messaging (which literally costs carriers nothing) and overage charges in which 300MB of data for $20 is a fair market value."
Re:Apple is killing text messaging (Score:4, Insightful)
I'm not entirely sure that matters one bit - it's the fact that it works seamlessly that makes it effective, not the underlying transport mechanism. Again, implementation is what has set it apart from the other alternatives tried.
Re:The carriers won't buy in (Score:3, Insightful)
A discount?? I think you give carriers more credit than they deserve. They will continue their current practices. 2-year contracts, $60+/month plans, little add-ons for text, night/weekends, "premium" data, etc. They are a cartel. What one does, all do. They don't compete; they collude.
Re:Apple is killing text messaging (Score:5, Insightful)
No, you didn't "FTFM" at all, you put your own bias on my words and nothing more. I don't use iMessage because of marketing, I use it because it seamlessly worked on my iPhone - I didn't have to set any contacts to use it, I didn't have to configure anything, it just worked. Thats got nothing to do with the transport mechanism, and everything to do with the implementation - no alternative has that. The implementation works out how to deliver the message, not the transport mechanism.
If something else had seamlessly worked, I would be saying the same thing for that.
Re:The carriers won't buy in (Score:5, Insightful)
There is a pretty obvious way for the phone companies to solve this. You offer a series of plans, some of which include no subsidy and are correspondingly much cheaper, others of which provide a fixed subsidy (e.g. $400) that you can apply toward any phone once every two years, and have correspondingly higher monthly fees. Those who get reimbursement can choose the latter plans (which will be much less distortionary because the subsidy is a fixed amount rather than varying based on device type), and everyone else can choose the cheaper plans and then choose a phone based on a combination of features and price.
I'm not even seeing any particular reason why a single phone company couldn't do this unilaterally -- the fixed-amount subsidy should still be competitive with other carriers' subsidized plans. You can even just come right out and say it: We have new unsubsidized plans, they're much cheaper because it's BYOD. It's not like the customer is going to be angry that you've giving them a chance to take a less expensive phone and get a discount for it.
I mean they've got marketing departments. If you actually want customers to realize that they're better off paying $55/month but paying $500 up front for a phone (or, once you have that choice, maybe $400 or $350) than they would be paying $80/month for two years to subsidize a $500 phone, you can make that clear to them.
Re:in other words... (Score:5, Insightful)
High-interest loan would be more accurate. I did some calculations a while ago with my carrier's 'free' and 'subsidised' phones. Taking the difference between the SIM-only contract and the one with the bundled phone, and subtracting the cost of buying the phone new, it worked out that the 'subsidy' was a loan at around 20-50% APR. In other words, pick a random credit card offer with a crappy interest rate, buy the phone, and get a SIM-only deal, and even with the extortionate interest you get from the credit card, you'll be better off after a year. You also would have a shorter contract term, so you could switch more easily.
Note that I was assuming that the price I could get the phone for retail was the same as the price that the network paid. In reality, they are likely to pay significantly less. Want to kill this kind of bundling? Make it a requirement to show the interest as a separate line item...
Re:Apple is killing text messaging (Score:4, Insightful)
ANY other IM program at least requires you to get your friends to sign up.
Ok.... Most everyone has an AIM or google account, and all android users have a google account. For me getting someone's google account is easier than phone number, they rattle off a human readable name rather than me having to jot or type down a number. Point taken though that there is a networking effect and iMessages used phone number as one sort of id for easier correlation between phone and im mechanism.
If you've got an i-device you use it automatically, transparently.
I think getting your friends to buy an iDevice is a *tad* more burdensome than getting them to use their free gmail acount....
Re:I bet T-Mobile is following Free Mobile in Fran (Score:5, Insightful)
A close family member of mine worked for AT&T Wireless since it was called Cingular. He would tell you that that business model would fail spectacularly here in the US. People here don't shop for plans, they shop for phones. They especially shop for phones they can't actually afford. Worse, they don't shop with money they've saved up. They shop with whatever flexibility they have in their monthly expenses. "What?! You don't offer a phone with that? See ya!!"
We are a month to month culture. Buying something for 500 bucks is a huge decision for most people. Adding 40 bucks a month (or whatever) is just another bill.
Pay 500 dollars now to save 40 or 60 bucks per month doesn't work for you if you ***don't have 500 dollars***. But your phone is dead and you need a new one. So what do you do? You could buy a super cheap one and get a low end phone plan. If you want that get a disposable or pre-paid phone. Otherwise you're going for the fancy smartphone without the 500 bucks. This is what most people want.
So say you did the math and you have the 500 bucks... Offering you an unsubsidized smart phone is a losing option. They make too much money subsidizing your phone and most of their customers like it that way, so why should they make less while giving away the option for you to change carriers at the drop of a hat? Easier to collude with the other carriers and make sure you can't do that.
It doesn't help the carriers until it helps them compete. There's not enough real demand to give up the lock-ins in favor of attracting a few new customers. It'll take critical mass and a lot more people demanding the unsubsidized option before it makes business sense to offer it. It's a cart and horse thing. So It'll never happen unless it's regulated to happen. Cole Brodman is correct that such regulation would vastly improve the market for consumers.
Re:in other words... (Score:5, Insightful)
That might be correct for other carriers, but T-Mobile does offer plans that are cheaper if they don't involve them "giving" you a new phone. Bring your own phone to them and you can get a lower rate. Do that with the other carriers and you get the same rate. If you get a subsidized phone you can switch to the cheaper plan when you're out of contract.
Apple tried to change the whole "free phone" mentality when the first iPhones were offered at full price, but that didn't last long. The G1 and Nexus One Android phones were also sold for full price. This didn't turn out to be popular as consumers were hooked on the 'free" or cheap phone prices.
It's worse (Score:5, Insightful)
It's probably even worse than it sounds. Here in the US we use up minutes for both incoming and outgoing calls.
Re:in other words... (Score:4, Insightful)
Unfortunately subsidized is more accurate for most plans... or maybe "forced purchase" because I've never seen a carrier in my country that gives you any discount at all for a "sim only" or "bring your own phone" plan. If I have to pay the same either way, I might as well take the "free" phone while I'm at it.
This bundling will end only if carriers are forced to separate the phones from the plans (Something I really wish would happen!)