How's this for gall? Take away hundreds of dollars in subsidies that cellphone customers have enjoyed for years. Then pass it off as an improvement.
The major U.S. wireless companies are doing just that. And many of their customers seem to like it.
The U.S. wireless industry is in the midst of a shake-up, sparked by T-Mobile's decision in March to stop subsidizing phones bought by its customers. National rivals followed with similar plans. Since then, U.S. carriers have been announcing new prices and plans every few weeks.
The move is essentially giving the customer more flexibility -- at a price.
With subsidies, consumers typically pay $200 up front for a phone that costs $600 or more. Wireless companies make up the difference by padding the monthly service charges over the life of the two-year contract. Under that approach, customers save some money but are stuck with a phone for two years, which can be frustrating when a new model comes out just months or weeks later.
By forgoing subsidies, customers aren't locked into contracts and can upgrade more frequently.
Driving this trend is the rapid pace with which new phones are released from Apple Inc., Samsung Electronics Co., Sony Corp., LG Electronics Inc., HTC Corp., Nokia Corp. and others.
"It's happening at least every 12 months, if not even faster," said David Christopher, chief marketing officer for AT&T Inc.'s wireless business. "The tech cycles are speeding up."
Many models will be unveiled this week at the Mobile World Congress wireless show, which begins Monday in Barcelona, Spain. Among the most keenly awaited will be Samsung's successor to its flagship Galaxy S4.
The bevy of new phones could push even more U.S. customers into subsidy-free installment plans such as AT&T's Next, Verizon's Edge or Sprint's Easy Pay. These all let people trade in phones before the two years are up. T-Mobile US Inc., which now sells all phones without subsidies, also lets people trade in phones early if they join a $10-a-month Jump program.
The carriers are beneficiaries from these programs because they no longer have to pay for the subsidies. Instead, they get their customers to pay the entire cost of the phones, all at once or in installments.
In a sense, the shift away from subsidies is inevitable. Subsidies helped attract customers as the wireless industry grew. But most Americans now have cellphones.
Even if T-Mobile hadn't made the move to end subsidies as part of an effort to lift itself from fourth place in the market, competition likely would have forced carriers in the U.S. to do so, just as they already had in parts of Europe. (continued...)
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