AT&T Subsidies for iPhone 5s, Galaxy S4 Likely Short-Lived

By Craig Galbraith Comments
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That $200 or $300 price tag you pay for high-end smartphones at the major carriers might double or triple in the near future.

AT&T, Verizon and Sprint typically discount the price of phones for its postpaid customers who sign up for those mandatory, two-year contracts. But AT&T's CEO says the carriers won't be able to maintain that business model for much longer.

"When you're growing the business initially, you have to do aggressive device subsidies to get people on the network," Randall Stephenson said at an investor conference on Tuesday, according to CNET. "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."

You only have to walk down the street to see that just about everyone has a cellphone – and the majority of those are smartphones. Not only that, people are upgrading on a regular basis.

Look for AT&T to shift its strategy in a number of ways going forward. First, Stephenson says his company will be very aggressive in the prepaid market. AT&T is getting ready to close on its acquisition of Leap Wireless, which operates Cricket Communications – one of the biggest names in the prepaid business.

Also, the carrier will offer incentives that encourage you to keep an older smartphone. Just last week, AT&T rolled out a new pricing plan that allows customers to save $15 per month if they keep older devices.

The first step in this shift happened more than a year ago when AT&T did away with unlimited data plans. Customers now pay depending on how much they use.

T-Mobile, which eliminated subsidies entirely earlier this year, is the first of the big four U.S. mobile operators to do away with contracts. Don't be surprised if the other big-name carriers follow that path. Many carriers now deliver device-upgrade plans that offer no-money down and 0-percent financing, a more sustainable business model, Stephenson noted.

Follow senior online managing editor @Craig_Galbraith on Twitter.

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