Smartphones are deceptively affordable. If you buy an iPhone 5s unlocked, it will cost you $649 upfront for a 16GB model, yet if you bundle that same phone with an AT&T contract, it will cost you just $199 upfront. The rest of the balance is subsidized by your carrier upfront, and paid off over the next 24 months in monthly installments.
It’s a decent system that results in massive profits for carriers, but at the cost of an upfront payment to Apple. Go figure, though, AT&T would rather just rake in massive profits without that upfront payment… which is why CEO Randall Stephenson is now saying the are “unsustainable.”
Arguing that smartphone penetration is reaching saturation point at 75 percent, Stephenson says:
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.
He might have a point, actually. For every $199 iPhone 5s that AT&T sells you, Ma Bell has to write a check to Apple for $649. That’s a $449 upfront payment gathering interest that AT&T won’t fully recoup for another 20 months or so. Multiply that by millions of devices, and you see the problem.
To Stephenson, the solution is to incentivize bringing your own device to the network and keeping older devices longer, as well as to convince customers to pony up more upfront when they buy a new iPhone.
If AT&T is talking openly about this, you better believe that other carriers are seriously considering cutting down on iPhone subsidies too. You might want to get in the habit of buying your iPhones unlocked now.