We've been writing about mobile phone subsidies for quite some time. As you probably know, most of the time (especially in the US) when you buy a mobile phone, it's heavily subsidized by the mobile operator, which is part of the reason why they require a long-term contract with expensive penalties if you break the contract early. Of course, they really make up that "subsidy" by charging higher prices on the service, and they do so over such an extended period of time that the higher service fees almost certainly outweigh the amount of the original subsidy. So, despite it appearing "cheaper" up front to consumers, subsidies are frequently against the consumer's best interest, and somewhat silly. We all buy computers without subsidies from our ISPs. Why shouldn't we do the same with mobile phones?
Even though these subsidy programs really benefit the mobile operators the most, they've been complaining about them for years. It really was almost exactly a decade ago, that we wrote that operators in the US were exploring the idea of ditching
subsidies, even as we also discussed how mobile operators didn't seem to realize that those subsidies probably helped the operators more
. However, it took until now for one of the major operators to finally make the break. T-Mobile has officially announced the end of phone subsidies
. The T-Mobile plan is actually pretty smart and consumer friendly. You'll pay $99 upfront, and then effectively "finance" the rest of the phone purchase with $15 or $20 payments added to each monthly phone bill -- but those payments go away once the phone is paid off. And, yes, the fees for ongoing service are cheaper
. So, as long as you keep your phone past the time when you pay it off, you're likely to save money.
As some are pointing out, this actually could save consumers are fair bit of money and
allow them to avoid a lot of hassle later. That's because without subsidies, the reasons for super long term contracts become less important. That also means operators have less reason to focus on "locked" phones, and can be much more open to allowing unlocked phones on their network.
And... at the same time, the massive growth of the smartphone market worldwide, might even mean that you don't even need to pay more for your smartphone. Jimmy Wales recently noted that his smartphone of choice was a cheap Android-powered smartphone
, made by Huawei in China and sold in Kenya for $50. As we're now reaching massive economies of scale for smartphones, and as Moore's law churns along, the phones themselves can get cheaper and cheaper -- as we've seen with lots of other technology, including computers.
As such, it's not hard to see this working out spectacularly for consumers, where both the phones and
the service can end up being cheaper, without the annoying lock-in and lock-down with subsidized phones. Hopefully other US operators will start to follow suit as well. They've only talked about it for a decade. And with T-Mobile leading the way, perhaps others will finally take the plunge.