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There is little question that device subsidies are a hotbed of the US wireless industry with a variety set of viewpoints about their usefulness. One man who doesn’t see them as a beneficial part of the marketplace is T-Mobile CMO Cole Brodman, who last week spoke out regarding device subsidies and the negative impact they have on the consumer and the market.
While the comments we saw in our own post on Brodman’s comments were definitely emotional, there is an argument to be made for removing subsidies from the marketplace. I truly understand the notion that the removal of subsidies would increase the purchase price of a handset, nobody disputes that. What isn’t recognized is the increased cost of voice, data and text plans all as a result of carriers needing to win back some of the subsidy. There is plenty of supporting evidence that would help support the argument that without device subsidies, voice, text and data plans would decrease across the board passing savings on to the customer. There is a good chance a carrier has built-in an extra $20-$40 extra dollars of costs to help make up the device subsidy. AT&T and Verizon build it into the voice minutes, Sprint builds it into the total rate and T-Mobile into the voice and text plan.
The good news is that T-Mobile offers the cheapest rates because they use a razor thin margin on the subsidy at the $20 price point. I know that a lot of you are absolutely against the idea of a carrier removing device subsidies, and that paying $600 for a phone outright seems incomprehensible. It does, but mostly because we’re trained to think that way. The carriers have us running scared when we see full retail pricing. The unfortunate part of this is that T-Mobile’s Value Plans really are a great deal, they just aren’t being marketed the right way. More importantly, they are ahead of their time as US wireless consumers aren’t ready to completely grasp a world without device subsidies.
I’d urge you to put aside your fears of increased phone costs and read the following blog with the hope that one can realize that subsidies have been a thorn in the industry and consumers side for some time.
The Hidden Cost of Device Subsidies
March 12, 2012
By Cole Brodman, Chief Marketing Officer, T-Mobile
This week I participated in a panel discussion at the Geekwire Summit in Seattle. One of the questions we were asked by the moderator, Geekwire editor Todd Bishop, is “If you had a magic wand and could change one thing in the industry, what would you change?” My answer: I would remove device subsidies.
My answer wasn’t what Todd expected, but here’s why it makes sense…
Purchasing phones at steep discount (subsidized by wireless carriers) devalues the incredible technology innovations coming to market. It distorts the cost of devices and creates an uneven playing field for OEMs, carriers and retailers alike. Many Americans don’t realize the actual cost of the phones they’re purchasing with a two-year contract because the cost of that phone is included in the cost of their data plan and the fees associated with their contract. We’ve also unwittingly created a disposal marketplace for some pretty amazing products.
At T-Mobile, we think there’s a more transparent way to sell wireless, which is why we introduced T-Mobile Value plans. These plans break with the subsidy model. Instead, customers pay full price for a device in our line-up or set up payments in low, monthly installments. They can also bring their own device to our network. In return, we give them our most affordable rate plans.
In the future, my hope is we will see the U.S. industry follow our lead and move away from the subsidy-only model. Not only would this help level the playing field and foster competition, it would also help consumers by keeping rate plans affordable, providing more transparency in how they purchase wireless and it could encourage a robust, consumer-driven market for affordable (yet still amazing) used smartphones and tablets.