Are Phone Subsidies Costing You?

Carriers should stop subsidizing smartphones, a T-Mobile executive suggested, in a move that would lower the cost of service plans, and change the structure of the wireless market.

The Bellevue, Wash.-based company’s chief marketing officer, Cole Brodman, said phone subsidies are hurting the industry, affecting the way customers view products.

“It actually distorts what devices actually cost and it causes original equipment manufacturers, carriers — everybody to compete on different playing fields,” Brodman said at the GeekWire Summit in Seattle. “And I think it is really difficult, especially from a consumer perspective, because it causes consumers to devalue completely the hardware they are using.”

Brodman said dual-core, multiprocessor devices, which cost close to $1,000, are “thrown away” each year because consumers receive new subsidized devices a such cheap prices.

The claim, which may hold weight, won’t affect the business model anytime soon. But market conditions are changing, and carriers are increasingly generating revenue from data-services over phone sales, which may shift the industry to reconsider its business model, and may trickle down to other players in the market and eventually become standard procedure.

Eliminating phone subsidies may end a customer’s ability to upgrade each year, but the change may also lead improved contract conditions. Since carriers charge full, up-front prices for devices, contract prices and data plans would drop in price significantly. The main concern is whether the drop in monthly cost would offset the higher price tag on unsubsidized smartphones.

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