Phone Subsidies Have Upside, as Well as Downside, for Carriers and Device Suppliers

With T-Mobile USA and Verizon Wireless both promoting some form of installment plan purchases for devices, there is a move towards “transparency” in pricing, to a greater or lesser extent: greater in the case of T-Mobile USA, less in the case of Verizon Wireless.

In fact, the last time I looked, I did not find that monthly recurring service fees had been reduced by Verizon Wireless for customers who opt for the installment plans. Since the typical practice has been to recover the cost of device subsidies in the monthly recurring fees, one would expect a “transparent” model to feature lower recurring costs for customers who are not paying for a device subsidy.

That essentially boosts Verizon Wireless potential profit margins on service plans. One senses we are not yet done with the changes in device retailing. But as much as there are elements of device subsidies that service providers do not like (lower operating profit, for example), there also are advantages.

So much of the change will come as service providers and handset suppliers think about ways to retain the value of subsidy plans while minimizing the downside.

                                                                                                        source: Yankee Group and CNet