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Sprint CEO says he may drop phone subsidies in 2015


joshnys8913
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I don't see this being beneficial for consumers until all devices are like the nexus 6 compatible with all nationwide carriers. So if I purchase a device from Carrier A and don't like their service I can try Carrier B, C, and D after paying off my device.

 

And that is not going to happen for CDMA2000 from the so called GSM operators, who act as if they are god's gift to wireless consumers.  T-Mobile, for example, wants VZW and Sprint variant devices to support 3GPP standards and be domestically unlocked.  But by no means will T-Mobile turn around and ensure its variant devices support 3GPP2 standards.  In other words, device portability is a double standard for those holier than thou GSM operators.

 

AJ

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I didn't think I would ever switch away from my old unlimited plan, but needed to add another line and wanted a new phone for myself. So, switched from Everything Data 1500 to the family share with 20GB (plus additional 10GB with promotion).  Added a line and got myself a new LG G3 on Easy Pay.  I'm paying about $30/mo. less than before and that's WITH a new phone and an additional line of service.  When the $25/mo with easy pay goes away I'll be saving more.  And will get a $100 prepaid Visa and got a free battery/charger as well.

 

In my opinion, Easy Pay is better than the subsidies since the additional monthly charge will eventually go away.  

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Changing the subsidy model will be a giant shock for a lot of consumers, but the reality will set in when they go across the street to the competitor's store, and see the same model.

 

I recently had a discussion with a Sprint store manager, who shared with me a customer story with a similar outcome. The customer was upset at the new Easy-Pay model, and threatened to port out to T-Mobile. They walked into the T-Mobile store, and came back to the Sprint store 30 minutes later, grumbling that T-Mo was doing the same exact thing.

 

If I'm not mistaken, when T-Mobile went Un-Carrier, all existing subsidy customers had to change their plans or move to financed devices when they wanted to upgrade. If that's the case, why can't Sprint follow in those footsteps?

 

At the end of the day, the real cost of the plan has dropped down significantly, $60 unlimited, all the time. That's simple, best value, and real savings.

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People just need to accept subsidies are going away. Tmobile started it, sprint and att are considering it and more than likely VZW will do the same.

 

Depending how many lines you have and the amount you finance it comes to be cheaper or roughly the same amount and once you pay off the finance fees your bill will significantly cheaper.

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Who will you go to?  Sprints newer plans are currently cheaper than the competition.

 

Well obviously it's impossible to tell what the industry will look like in terms of pricing. This is pure speculation on all sides. Also, my contract isnt up for a year so it's not even on my radar,

 

I just hope Sprint stays with the 2-year subsidies because for my account they are the best option.

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So, what's gonna happen to those that have special employee plans like SERO-P, EPRP, and SWAC ?

 

PS: 
Will he just drop the hammer like that or will there be a period after the announcement that existing users can upgrade their phones?

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Yes, correct.  Subsidies have helped maintain artificially high handset prices -- because those costs are hidden in the overall wireless service costs.  Eliminating subsidies pulls back that curtain, forcing everyone to realize that their iPhones do not cost $200.  They cost $700, and that is too high.

 

AJ

 

Isnt Europe a mostly no-subsidy model?

 

And yet prices are still astronomical...

 

It's a good theory, but there's no incentive for the cell companies to lower their price, even if the full price is "unmasked".

 

Remember, the iPhone launched at $600....with a 2 year contract.

 

If Apple sells at $700, Samsung sells at $700. TTheyre both happy.

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Isnt Europe a mostly no-subsidy model?

 

And yet prices are still astronomical...

 

You or someone else has used this parallel previously.  It does not work because, for various reasons, electronics prices in Europe are almost always exorbitant compared to those in the US.

 

AJ

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So, what's gonna happen to those that have special employee plans like SERO-P, EPRP, and SWAC ?

 

PS: 

Will he just drop the hammer like that or will there be a period after the announcement that existing users can upgrade their phones?

 

That would be a fringe benefit of eliminating subsidies -- the double super secret mostly sham discount plans also would go away.

 

AJ

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I still think the phones will cost. $600-$800 because people will only see the monthly payment cost/total bill being the same (on newer plans with unsubsidized rate cuts). Until all 4 carriers drop subsidies, prices will remain high. Also for older plans they would see a prige hike for device cost compared to new plans which would cause people to leave if they are forced to new plans. Not everyone likes change (older people mostly)

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I still think the phones will cost. $600-$800 because people will only see the monthly payment cost/total bill being the same (on newer plans with unsubsidized rate cuts). Until all 4 carriers drop subsidies, prices will remain high. Also for older plans they would see a prige hike for device cost compared to new plans which would cause people to leave if they are forced to new plans. Not everyone likes change (older people mostly)

 

Where will they leave to? Another company who is charging the same? I think this is a way to ween people away from legacy heavily discounted plans, and get folks to understand that the cost of owning a phone has gone up significantly. 

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Has anyone considered that Sprint could start giving discounts on cost of phone to get people to sign up? Negotiable phone prices can happen as the next big way for Sprint and T-Mobile to compete.

 

 

Sent from Josh's iPhone 6+ using Tapatalk

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If I'm not mistaken, when T-Mobile went Un-Carrier, all existing subsidy customers had to change their plans or move to financed devices when they wanted to upgrade. If that's the case, why can't Sprint follow in those footsteps?

This is not what happened. People who were on plans other than Simple Choice were converted to Simple Choice plans. There are actually two variants of Simple Choice: Simple Choice Value (no subsidy) and Simple Choice Classic (with subsidy). People who kept their legacy plans are being migrated to Simple Choice Classic automatically as their contracts expire. When they upgrade, they can choose to move to Simple Choice Value. But, they don't have to.

 

This is why T-Mobile doesn't expect penetration of Simple Choice Value to go much beyond 90% (it's at 85% now). Simple Choice Classic will remain around for folks coming from legacy plans who don't want to move up to Simple Choice Value plans.

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Where will they leave to? Another company who is charging the same? I think this is a way to ween people away from legacy heavily discounted plans, and get folks to understand that the cost of owning a phone has gone up significantly.

 

People refuse to do edge and next every day. I see it and hear its because they dont want to pay the full cost of the phone. Even if you tell the average customer the truth of it all they still will go with the subsidiary phone. People even have switched carriers because so and so forced their Next, Edge, and pay for your phone each month plan. The market isnt ready to completely abandon the 2 yr subsidized phone plan just yet.
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You or someone else has used this parallel previously.  It does not work because, for various reasons, electronics prices in Europe are almost always exorbitant compared to those in the US.

 

AJ

 

Not really. They look higher because the 22% (variable) tax is built into the advertised price, and of course exchange rate issues.

 

Apple iPad Air 2 64GB wifi is $599 at Best Buy in the US and 605 euros at FNAC, the French equivilent. Essentially, price parity once you add taxes and subtract exchange difference.

 

Anybody know about the Japanese and Korean markets? Do they use subsidies? What do prices look like?

 

I think it would be great if removing the subsidy would lower prices. I'd just like to see evidence on the matter, rather than hopeful thinking.

 

 

Edit: The New Nexus is an interesting data point. While the US industry has moved towards the easy-pay unbundled model....Google comes in with a massive price hike on their phone, setting up at parity with Apple and Samsung.

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Not really. They look higher because the 22% (variable) tax is built into the advertised price, and of course exchange rate issues.

 

Apple iPad Air 2 64GB wifi is $599 at Best Buy in the US and 605 euros at FNAC, the French equivilent. Essentially, price parity once you add taxes and subtract exchange difference.

 

One, that is NOT price parity.  You MUST take into account the exchange rate.  The French price is equivalent to $760 -- about $100 more than the US price with sales tax added.

 

Two, a single data point does not a trend make.  I said "electronics."  And you offered up one iPad.  Continue your research with the prices of A/V equipment in Europe versus those in the US.  My statement stands true.

 

AJ

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Has anyone considered that Sprint could start giving discounts on cost of phone to get people to sign up? Negotiable phone prices can happen as the next big way for Sprint and T-Mobile to compete.

 

 

Sent from Josh's iPhone 6+ using Tapatalk

Isn't this how the subsidy model started in the first place?  In an ideal world hardware providers should be separate from service providers where OEM's compete with each other and service providers compete with each other.  Thats the best way to keep prices at a minimum.

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Isn't this how the subsidy model started in the first place? In an ideal world hardware providers should be separate from service providers where OEM's compete with each other and service providers compete with each other. Thats the best way to keep prices at a minimum.

I don't know if that's how the subsidy model started.

 

And what you are saying is cell service stores and cell phone hardware stores? Is that how it makes it more competitive?

 

 

Sent from Josh's iPhone 6+ using Tapatalk

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I have no problem to be a loyal customer with Sprint but if I have to sign a contract, I want to have something in return. At the moment, there is so much chaos. I wanted to activate a line for six month in addition to the one I already hae, by bringing an old phone back to life. Sprint was unable to help unless I wanted to sign a contract AND I would have paid the higher rate because I am not financing my phone.

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Yes, correct.  Subsidies have helped maintain artificially high handset prices -- because those costs are hidden in the overall wireless service costs.  Eliminating subsidies pulls back that curtain, forcing everyone to realize that their iPhones do not cost $200.  They cost $700, and that is too high.

 

AJ

 

Agreed. 

 

Simply looking at the iPhone:

Its initial retail price was $599 and in 2007, they reduced it to $399 for the holidays (see costs below; even at $399 they were still generating attractive margins): 

On or around the release of the second generation, they reduced the price to an 'on contract' price of $199

With the release of the iPhone 6/6+, they have created an interesting frame of reference by not releasing a 32GB version.  This may have the effect of pushing more people to spend the extra $100 for the 64GB vs. settling for the 16GB through a fear aversion (fear of running out of space).  Note below that the marginal cost increase of the 6 to 6 plus is about $15 yet they charge $100.  The same is likely true on the marginal cost of memory going from 16 to 64GB

 

Under the shroud of the contract subsidy, Apple was able to increase the retail price of the entry level phone from $599 (first generation) to $649 (current generation) and was able to increase it's warranty adjusted gross margins up over the last several quarters from circa 35% to above 40% (Linked Google Docs is creation of Forbes Author Chuck Jones and is referenced in this article). implying that they were able to offset increased supplier costs by passing it along to the consumer.  In fact iSuppli estimated the BOM cost of each generation of base iPhone as the following:

 

Original:  $217.73

3G:  $166.31

3GS:  $178.96

4:  $187.51

4S:  $188

5:  $199

5S:  $199

6:  $196.10 BOM parts only ($4 for manufacturing):  $200.10

6+:  $211.10 BOM parts only ($4 for manufacturing):  $215.60

Source:  IHS iSuppli press releases

 

Bear in mind these are initial manufacturing cost estimates.  Apple has famously described their ability to 'ride the cost curve down' on component parts to increase margins over time.  That, compounded with increasing volumes of every subsequent generation, likely means that margins increase over the product's lifecycle. 

 

Bottom line is that Apple's phone business is hugely profitable and they are taking steps all the time to make sure it stays that way.

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Sprint CEO says he may lose my account in 2015

 

No 2-year contract, no sale. I have no interest in a rate hike, which is what it would end up being for me.

 

Unless my bill is drastically cut I will also leave, if I don't before the next Galaxy S6/ LG G4

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This is not what happened. People who were on plans other than Simple Choice were converted to Simple Choice plans. There are actually two variants of Simple Choice: Simple Choice Value (no subsidy) and Simple Choice Classic (with subsidy). People who kept their legacy plans are being migrated to Simple Choice Classic automatically as their contracts expire. When they upgrade, they can choose to move to Simple Choice Value. But, they don't have to.

 

This is why T-Mobile doesn't expect penetration of Simple Choice Value to go much beyond 90% (it's at 85% now). Simple Choice Classic will remain around for folks coming from legacy plans who don't want to move up to Simple Choice Value plans.

 

So essentially people had their plans switched to new plans, and lose their subsidy? I wasn't quite sure what T-Mo did in that regard. Say I was a legacy customer, who's 2 year term was up, and you're saying I would be migrated over to a Simple Choice Classic plan, regardless of what plan I had before, with whatever perks, data limits, etc.?

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