Following T-Mobile‘s lead in the industry of ending subsidies on smartphone purchases with a two-year contract, Sprint is the latest to consider such a move after rival Verizon Wireless said it would observe how the market reacts to T-Mobile USA’s plans. Sprint Nextel CEO Dan Hesse said that Sprint would wait and see before making any final decisions.
News of Sprint’s decision comes from Eric Zeman of Phonescoop.
If Sprint does end subsidies for smartphones, it could potentially save money on high-end smartphones that are heavily subsidized, like the iPhone 5. When Hesse brought the iPhone to Sprint’s network, the Sprint CEO was widely criticized because of the huge initial impact that the iPhone has on Sprint’s bottom line. Essentially, while the iPhone is beneficial to Sprint’s long-term strategy of retaining customers, the iPhone also was costly for Sprint as heavy subsidies meant that Sprint had to take a big loss up front and then recoup the subsidies over the life of the two-year contract.
Right now, though Zeman reports that Sprint “has no immediate plans to change the way it subsidizes its handsets.” However, if T-Mobile is successful in changing the behavior of its customers, we can see a shift in the U.S. wireless industry to an un-subsidized nature.
Verizon Wireless is in the midst of that shift as we speak. Though the carrier still subsidizes handsets for customers on new Share Everything plans, customers on grandfathered unlimited plans who do not want to lose the unlimited data and want a new phone could only get a new smartphone without subsidies. The other option would be to switch to the shared data plan and get subsidies from Verizon.
T-Mobile USA is justifying its action by saying that it could potentially deliver more to its customers with the money it saves up front from subsidies. The carrier, which is expected to carry the iPhone this year on its network, is requiring a down payment and then a small equipment surcharge is added to a customer’s bill every month for a finite amount of time, similar to how financing would work.
Though unsubsidized handsets are common practice in many other parts of the world, American customers have often been spoiled by the $200-$300 price for a new, high-end smartphone. Few Americans recognize that the value of the smartphone, without a contract, exceeds this price and is often $500-$700 without a contract.