Nobody Likes ETFs, But Nobody Wants to Pay Full Retail, Either

Consumers don't like early termination fees. But neither do they like paying full price. A new Apple iPhone 4 with 32 GBytes of memory can be purchased now for $299 with a two-year contract, or at full retail for $699, without a contract.

Which option do you suspect most people will choose? If you want to know why the hated ETFs exist, it is the subsidy.

AT&T’s ETF on a smartphone like the iPhone is $325, up from $175 in May. Why? Some will carrier greed. But under the old pricing rules, a consumer could buy a phone for $99 on contract, instead of $600. Then the consumer could break the contract, pay the $175 fee, getting the device, without a contract commitment, for $274.

The customer then could sell the device on eBay or simply sign up for service with no contract.

Nobody likes contracts or ETFs. But nobody wants to pay full retail, either.

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