Sunsetting subsidies

AT&T Mobility's recent move to allow some iPhone 3G owners to upgrade to the iPhone 3G S ahead of schedule got me to thinking about the various pricing tactics employed by the nation's wireless operators. I think a bit of an overhaul is necessary.

But more on that later.

First, I think it's worth pointing out how AT&T's move could backfire. After all, what about the rest of the carrier's customers? What about the AT&T BlackBerry users out there who are a few months shy of their upgrade eligibility? Or maybe all those AT&T Nokia fans who will have to make sure they complete their contract, thereby presumably paying back AT&T's subsidy on their device, before they upgrade to something else? I guess it just seems like iPhone owners are getting all the attention lately.

Anyway, that's really not my point. My point is that the wireless industry could use some clarity in terms of pricing plans and subsidies. While the nation's Tier 1 carriers continue to tweak their postpaid plans with unlimited this and bundled that, I think in reality they're just making things more confusing--and as evidence I would point to the growing interest in prepaid (Strategy Analytics said one-third of total first quarter net additions in North America were prepaid, the highest level seen so far this decade). Don't get me wrong, I think there's still a big business for postpaid and unlimited, but I think we need a little retail sanity.

Specifically, I think carriers should separate the cost of the device subsidy from the cost of their service. This would essentially allow users to choose when their contract ends.

For example, on signing a contract, a shopper could be given several options:

  • Pay full price for their device and get onto a month-to-month postpaid contract.
  • Sign a one-year contract and spread the cost of their device over the course of that year.
  • Sign the standard two-year contract and spread the cost of the device over those two years.

    This sort of setup would allow shoppers to make more educated decisions about the products and services they're buying. And though I realize that this scenario introduces additional choices to an already complicated purchasing process, I would argue that bringing clarity to the sometimes shady subsidy model would endear customers to whatever carrier was offering it. (Getting rid of mail-in rebates would also be nice.)

     Further, such a practice could forestall problems like the one AT&T encountered with its iPhone 3G-to-iPhone 3G S upgrade process: If users know upfront that they're repaying the cost of their device over a certain period of time, they presumably would be much less likely to create an online petition urging their carrier to offer them a new device before they finished paying off their old one.

    Of course, this approach also implies that people would be willing to pay for what they get, and get what they pay for, which is not always the case. --Mike