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Fed up with bleeding subsidy cash to Apple, Samsung and HTC, carriers rev the prepaid engines

Fed up with bleeding subsidy cash to Apple, Samsung and HTC, carriers rev the prepaid engines
The business consultants from Pricewaterhouse Coopers have done an extensive North American carriers survey and if the results mark the start of a trend, the subsidy model might be in for a surprise.

Faced with declining customer loyalty, huge LTE infrastructure outlays and diminishing voice and text usage, carriers have to on top of those subsidize up to 2/3 of a smartphone price. A T-Mobile exec recently raised a red flag about the subsidy model, but was realistic enough to admit that it is not going away any time soon, as people are so used to it.

The survey found that carriers are fully aware about the inevitability of the subsidy model, but are trying ways to diversify from it, instead of just upselling people to smartphones - an exercise which didn't prove fruitful, as the average customer loyalty fell from 59 months in 2010 to the abysmal 48 months in 2011, and is still falling. Let's not forget one calculation according to which it used to take AT&T 17 months into a contract to recuperate the $450 subsidy for the iPhone. 

Since the voice and text revenue is on a rapid decline, carriers are focusing more on data services and the next generation networks, says  Dan Hays, U.S. advisory wireless leader, PwC:

There is significant pressure on carriers to migrate to the most efficient networks while needing to address the issue of spectrum scarcity.  We are beginning to see carriers shut off legacy networks and force customers to migrate to new technologies. The challenge ahead will be to balance slowing subscriber growth and pricing pressure with investment in much-needed network improvements to enable the broader move to smartphones. To drive future growth, operators are expected to pursue new partnerships that create greater value for customers and consider network sharing agreements in order to prevent network redundancy.
The carriers are also increasingly looking into the prepaid market and creating lucrative offers for it, the way it is done in Europe - you pay the handset full price, but are not shackled by the two-year contract, and get good rates. As a result, their revenue from prepaid has risen with 30% over the course of a year. The networks are increasingly introducing buyback and leasing initiatives, as well as "bring your own device" policies to try and combat the bleeding of cash from the subsidy model.

source: PwC (PDF) via FierceWireless

36 Comments
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posted on 26 Mar 2012, 02:59 4

1. Lucas777 (Posts: 2137; Member since: 06 Jan 2011)


well u know if they didnt do stuff like put stupid data caps on their best customers, they might have more loyalty… also, how more loyal could it get then a contract… they better not expect us to buy a full phone and a contract…

posted on 26 Mar 2012, 16:38

30. -box- (Posts: 3869; Member since: 04 Jan 2012)


Personally I think NA carriers could/should rethink the option of 1-year contracts with commeasurably higher prices. It would distance the gap between simple, basic phones, the 'quick-messaging'/feature phones, and smartphones. Might even see some new and improved feature phones as a result. For those that don't want contracts, stay with the no-commitment pricing and offer lower monthly charges as an incentive, like T-Mobile is doing

posted on 26 Mar 2012, 03:24 1

2. sheepygalaxy (Posts: 68; Member since: 10 Mar 2012)


I still dont get this how come in the usa you have to pay such a high price for a handset and contract where in uk nearly all handsets are free can some one plz explain

posted on 26 Mar 2012, 08:32

7. jacko1977 (Posts: 398; Member since: 11 Feb 2012)


same here in australia 95% of handsets are free on plans and on lower plans there anywhere from $5 to $20

posted on 26 Mar 2012, 03:49

3. Droid_X_Doug (Posts: 5926; Member since: 22 Dec 2010)


Somehow, I doubt there will be any reduction in rates for going to pre-paid with no subsidy for the handset. The carriers are just looking for ways to reduce/avoid paying the subsidy to the handset manufacturers.

Now, if rates were reduced by a worthwhile amount and there was no contract period, that might be compelling. Of course, any semblance of loyalty would last only as long as the other carriers weren't offering better deals or service/coverage options. Careful what you wish for, carriers....

posted on 26 Mar 2012, 09:22 1

9. remixfa (Posts: 14080; Member since: 19 Dec 2008)


umm dude.. T-Mobile has been ahead in this game for a while.

$30 prepaid = 5gig 4g web w/ throttle, unl text, 100 mins
$50 prepaid = unl talk/text, unl slow web
$60 prepaid = unl text/talk, 2gig 4g web w/unl throttle
$70 prepaid = unl text/talk, 5gig 4g web w/unl throttle

compare that to ATT/VZW/Sprint.

posted on 26 Mar 2012, 09:25 2

11. remixfa (Posts: 14080; Member since: 19 Dec 2008)


and since its GSM, u can use any GSM phone you want. i cant tell you how many unlocked iphones are on that $50 plan.

posted on 26 Mar 2012, 15:27 2

25. CM_Punk (banned) (Posts: 173; Member since: 13 Mar 2012)


remixfa, stop spreading incorrect information. You can not use just any GSM phone. It has to be compatible with T-Mobile's network.

#pipebomb

posted on 26 Mar 2012, 16:41 1

31. -box- (Posts: 3869; Member since: 04 Jan 2012)


@CM_Punk pretty much any GSM phone will work on (at least) AT&T and T-Mobile's 2G EDGE networks. The differentiation is for 3G and higher networks. i.e. an unlocked AT&T phone won't get anything faster than 2G on T-Mobile, just as an unlocked T-Mobile phone won't get anything faster than 2G on AT&T, with a few exceptions for phones that carry the correct bands (some Nokias, for example)

posted on 26 Mar 2012, 13:51 1

22. Droid_X_Doug (Posts: 5926; Member since: 22 Dec 2010)


The only problem for T-Mo. is lack of coverage in the areas I frequently am present in. A co-worker who has T-Mo service (and I think it is the $50/month plan) has limited coverage. Some coverage at the office, but no coverage when we go to Lunch. Adding insult to injury is the VZW LTE speed - 20+ mbps is the norm for my RAZR.

posted on 26 Mar 2012, 15:39

28. remixfa (Posts: 14080; Member since: 19 Dec 2008)


Tmo doesnt differentiate between prepaid and postpaid for network like ATT and VZW does. The only thing is you dont get the roaming with ATT. On VZW/ATT, they limit prepaid to certain towers on the network to make it not as appealing.

The $50 a month plan isnt 4g (ok, 100mb, but who is gonna not use that in 3 seconds?). The 30,60, and 70 plans are 4g. And its fully capable.

Your phone cant use 20+ any better than it can use 15. Dont get caught up in a numbers game. Anything over like 10-15 and u will never notice the difference. Besides, Tmo's 42mb/s 4g gets like 10-25 at any given time, with obvious spikes higher/lower depending on the time of day.

And at $30 bux a month for 5 gigs of 4g before throttle, and unl text, u can keep LTE and the price tag associated with it.
Like anything, its all about location. Here in Jax, my Tmobile coverage is spot on, even in the middle of the hospitals while im at clinicals. The only place i have trouble with it at all is in the middle of walmart by my house.. and thats OK, because I hate the idiots at walmart, so it keeps me from going there. :)

Mizzy,
like normal, you are clueless. You can use ANY GSM phone u like. The only difference is, if you want 3G/4G HSPA+ you need to have a 1700/2100 capable phone or be in one of the new ATT roaming areas since the failed merger that support ATT HSPA+ signals..
Any GSM phone will work, but it will be stuck on Edge if not..

posted on 26 Mar 2012, 14:48 2

24. TOYMAN (Posts: 29; Member since: 23 Feb 2012)


BOOST MOBLIE
$50/ month
View plan detailsShop all plansMonthly UnlimitedIncludes unlimited nationwide talk, text, web, 411, IM & email.

$55/ month
Android Monthly UnlimitedIncludes unlimited nationwide talk, text, web, 411, IM & email.

$60 / day
BlackBerry Monthly UnlimitedIncludes unlimited nationwide talk, text, web, 411, IM & email.

posted on 26 Mar 2012, 16:45 1

32. -box- (Posts: 3869; Member since: 04 Jan 2012)


@TOYMAN Boost = cheap phones, poor customer service, and locked to a network that'll be shut down in a few years (Sprint) after they change to the new network technology. I'd rather have AT&T or T-Mobile prepaid. About the same per month, with better phones (or choice of GSM phones though may not have 3G or 4G speeds), and waaaaay better customer service and coverage

posted on 26 Mar 2012, 17:18

36. blaze456 (Posts: 51; Member since: 06 Oct 2010)


you are so right ive had both t mobile and boost mobile prepaid..and although boost is cheaper t mobile is way better..with boost u get very slow 3g and terrilble indoor service..plus they take forever to come out with new android phones. i just wish for t mobile $30 plan would give atleast 300 mins 100 is not enough

posted on 26 Mar 2012, 15:28 1

26. CM_Punk (banned) (Posts: 173; Member since: 13 Mar 2012)


Yup, so ahead that they're still in 4th place.

#pipebomb

posted on 26 Mar 2012, 04:14 2

4. Sniggly (Posts: 7180; Member since: 05 Dec 2009)


There's no way smartphone enthusiasts will start switching to prepaids until there are actually worthwhile prepaid smartphones.

Also, the amount of money one would have to sink into one of these phones at full retail price would be ridiculous. A greater focus on prepaid would kill smartphones as we know it unless a good compromise between features and price could be reached.

posted on 26 Mar 2012, 06:40

6. TrainFromUkraine (Posts: 63; Member since: 26 Mar 2012)


You don't need "prepaid smartphones" to enjoy benefits of prepaid services. MVNO's like Straight Talk and Simple Mobile allow you to use your own device.

posted on 26 Mar 2012, 09:24 2

10. remixfa (Posts: 14080; Member since: 19 Dec 2008)


why do u need a prepaid smartphone?

when im out of school and away from the cell game, i have full intentions on buying unlocked smartphones and using T-Mobile's $30 unl text/web w/ 100min talk prepaid plan. Only VZW/Sprint can try to lock you into certain phones since its cdma/imei, not a sim.

posted on 26 Mar 2012, 15:32

27. CM_Punk (banned) (Posts: 173; Member since: 13 Mar 2012)


There's so much inaccurate info in this comment. Buying a phone off contract and using it would actually save you more money in the long stretch. But I see your game, focusing more on prepaid and off contract purchases would make wireless phone sellers obsolete and unnecessary.

posted on 26 Mar 2012, 04:23

5. Droid_X_Doug (Posts: 5926; Member since: 22 Dec 2010)


Look for a reduction in the amount carriers are going to subsidize handsets before you see carriers going to no-contract pre-paid. $200 handsets will become $300 handsets.

posted on 26 Mar 2012, 12:30

14. downphoenix (Posts: 2393; Member since: 19 Jun 2010)


Verizon already does this, and AT&T has started to with the Galaxy Note.

posted on 26 Mar 2012, 16:47

33. -box- (Posts: 3869; Member since: 04 Jan 2012)


Galaxy Note is a quasi-tablet, hence its higher pricing. Considering almost every other tablet AT&T offers is about $500 on contract, it's a relative bargain. The LTE phones started off at $250 for the Samsung Galaxy S2 Skyrocket, but that's a more advanced device with more features like LTE. All of AT&T's LTE phones (Note isn't just a phone) are under $200 now, with the Vivid and Nitro going for $100, and the Burst for $50

posted on 26 Mar 2012, 08:33 2

8. JunitoNH (Posts: 968; Member since: 15 Feb 2012)


Loyalty!! Carriers!!! Show your subscribers some, and maybe you'll get some reciprocation from us. Let me count the ways of your love:
1. You take away unlimited data, then you try to bleeds us if we go over
2. You ask for my first born, so I can have unlimited text
3. I have to count my minutes, unless I'm willing to give you my right arm
4. You take my wallet if for some reason I decide to end our relashionship early
5. You calls us stupid, and expect us to pay for data AGAIN, if we desire to share it with our other devices.
- seem like an unbalance relashionship, almost like……

posted on 26 Mar 2012, 16:50

34. -box- (Posts: 3869; Member since: 04 Jan 2012)


It's an industry selling devices and services that aren't necessities, and really are closer to luxuries. They can price it however they want. It's a relative bargain compared to satellite phones

posted on 26 Mar 2012, 12:12

12. QWIKSTRIKE (Posts: 909; Member since: 09 Mar 2010)


JunitoNH you are so correct in your points list.Subsidized phones are a gimmick.....You could always get a phone for a good price until they became smaller. I needed a phone for work in 1990 and I bought one for the car for 200.00. To keep me as a customer I would get a free phone from Cellular One at that time. AT&T bought Cellular One, and I was offered a free install until the carry phones came out. Still they were 200.00. These carry phones were almost the size of your home phone lol.

Once Sprint arrived with the Startac in 1997 myself and many others were for ever hooked on paying for phones that could fit in your pocket at an obscene price. The smaller sized phones were now being sold at a premium because of demand. This carried over to other carriers, but when sales slowed the carriers bought back subsidized phones. The problem is that carriers look to nickle and dime customers every step of the way to satisfy stock holders.

The root of every take back is driven to drive stock prices higher. Now they want to kill subsidies, and maybe give a price break in monthly fees like they used to offer many years ago. This procedure of offering no contract for phones paid in full by consumers isn't new. They changed the paid in full, and reduced monthly fees to paid in full, and still rolling you into a 2 year contract regardless. Stop scamming your customers and we won't feel a need to change after feeling jaded.

posted on 26 Mar 2012, 12:22 2

13. remixfa (Posts: 14080; Member since: 19 Dec 2008)


OMG, i never get so aggrivated as to hear about how "i used to get free phones.. waaaaaah".

Yea, and you used to pay 100 bux for 300 minutes a month, and the phones only dialed and barely played snake. Phone plans used to be 0.50-1.50 a minute. Would you like to go back to paying that, just to get a free iphone??? ugh.

the phones do 30k more things than that old 1997 startak, and the plans are exponentially cheaper, but yet you still think you are "owed" a free high end phone. .

just.. shut.. up. ugh. That is the exact problem with the industry. We cant get cheaper plans because idiots still demand free phones. "why isnt this SGS2 or i4s free!? ive been with the company for 10 years!!" Every time I hear a customer say that I fight every urge to just slap them.

you pay a higher monthly rate because you want the phones cheaper. Some companies do cheaper plans if you bring your own or buy it out right. That is EXACTLY what T-Mobile does with their Value contract plans and their prepaid plans.

posted on 26 Mar 2012, 13:05

15. QWIKSTRIKE (Posts: 909; Member since: 09 Mar 2010)


Who said anything about free you douche bag. I merely stated what companies did to lure customers in the past. You are an FN idiot to assume that because I mentioned what companies did in the past that I was looking for a free ride idiot. I never mentioned I wanted any thing for free.

Where have I ever mentioned that I want a free phone I paid $699.00 for a Startac that was a piece of s**t. Talk about rip off. I have paid premiums ever since, and have paid premium for junk phones so blow me about free. Hell I just write it off as a business expense as well as the monthly fees since I use my phones for business. Stop being a self righteous ass ok!

I would not mind paying full price as long as I am not locked into a contract, and get a lower monthly rate . As I mentioned in the "past" this is what carriers did when I was with AT&T many years ago. When I switched to Sprint they let you buy un-subsidized phones and gave you a reduction in monthly fees, but then changed that when they introduced subsidized only plans. WTF

posted on 26 Mar 2012, 13:27 1

18. remixfa (Posts: 14080; Member since: 19 Dec 2008)


You can do that now, its called prepay.

posted on 26 Mar 2012, 13:42

20. QWIKSTRIKE (Posts: 909; Member since: 09 Mar 2010)


Well if this is happening with Sprint now it is a news flash because in the past when I bought a phone they put me into a 2 year plan even though I paid full price for it originally, and when I lost my phone I bought a new one and was told I had to agree to a new 2 year agreement even though both phones were paid in full!
Talk about rip off!!!!

posted on 26 Mar 2012, 13:35

19. QWIKSTRIKE (Posts: 909; Member since: 09 Mar 2010)


Also let me say that I have been in business for over 25 years in the medical industry, and I can tell you that as a company we, and most other companies can not buy computers, or any other capital equipment like new trucks for shipping, and fork lifts and then pass the cost to our customers. This comes out of our profit, and is added to the bottom line, and deducted at years end.

These carriers stocks are the only reason why cost are going up. There is an article on PA I believe about just this topic of stocks possibly causing carriers like Verizon to look for ways to raise fees to satisfy stock holders.

Don't think for a minute that during the earnings call that if they show a loss due to R&D that the stock won't tank. See Google's stock last year when they took a R&D loss during an earnings call.To offset this situation they pass infrastructure cost to us the consumer in the name of data congestion fees, sms add on fees, and infrastructure improvement of something like LTE.

These companies get tax deductions at the years end for any capital equipment cost, but they raised their fes to you to cover what should be coming out of operating cost. This is done so that they can show financial improvement for their stock every quarter to keep investors happy, while still taking capital equipment deductions at years end.Wake up!

posted on 26 Mar 2012, 13:43

21. remixfa (Posts: 14080; Member since: 19 Dec 2008)


lolz, im aware. I also know that VZW operates in the 30s for profit margins. You pay a premium for that coverage.

But over all the value to the consumer has gone up exponentially. People scream about the loss of unlimited. People forget how short the life of "unlimited" was. We didnt always have it. It was just introduced a few years ago when phones barely pulled data. You didnt really think it would last forever did ya? Not at today's downward pressure on pricepoints... thats for sure.
All those old phones you mentioned.. do you remember the crazy expensive plans that went along with them? For less than what 300 minutes would have cost back in the day you can have unl talk and text and web as well. When I first started at VZW, they had a 3000 minute plan that started at like $300 bux, without text or web. Now you can go to T-mobile and get unl talk text, and 2gig of web for 5 lines and still have money left over for that. Things have gotten much cheaper.. thats my point.

You have a choice.. either take it, or go to another carrier. Vote with your dollars or nothing will change. The more people that leave the big guys and go to the cheaper guys, the more downward pressure it puts on the industry to lower pricing. The lower the pricing, the more likely we will see "unsubsidized" pricing plans come available from major carriers.

As long as ATT and VZW are adding mass quantities every quarter they will never lower their pricing down to what sprint and Tmobile have.

posted on 26 Mar 2012, 16:03

29. QWIKSTRIKE (Posts: 909; Member since: 09 Mar 2010)


This we can definitely agree on, and this is where I was headed all along. Vote with your dollar for sure. Plan prices have become lower because of more people. It's better to have 30 million at 100.00-150 than a million at 69.00 and 1/2 million at 300.00 When Mobile Trends was 1st introduced I paid 75.00 for like 300 minutes. They were bought out by cellular one, which was bought by AT&T. Sprint and competition from Tmo, and other carriers like Cingular that were bought out by AT&T, and Verizon caused lower plans not good will. Those bought out carriers are now causing the reduction in Competition, which is why a Tmo buy out would not have been good for the consumer.

There is a GN thread on XDA where someone did just this. Went to pre paid with a GN on a straight talk plan for $45.00-$50.00 I think for a few gigs and unlimited text and calling or something to that effect.

No contracts, and pop a sim from Tmo, or AT&T and is showing every how to ditch contracts for half the price. I was thinking buy a GSM GNex, and go that route since I never use more than a gig of data.

BTW unlimited was a plan to bait you now data is a plan to hook you. Some people don't want data and are being forced to smart phones because data adds revenue. Don't be fooled by the hype data is just another way of squeezing more profit form a plateauing service. Again read the article that also corroborates this.

posted on 26 Mar 2012, 16:58

35. JunitoNH (Posts: 968; Member since: 15 Feb 2012)


You get it!! good points.

posted on 26 Mar 2012, 13:12

16. ngo2dd (Posts: 791; Member since: 08 Jul 2011)


Why would I want to be on a contract, if I have to paid full price for a phone? T-mobile is in 4th place for a reason. The point of the contract is to recoup cost of the subsidy, so what is the point of this contract for t-mobile. If I want unhappy with t-mobile I still paid full price of the phone and have to pay the ETF.

posted on 26 Mar 2012, 13:26

17. remixfa (Posts: 14080; Member since: 19 Dec 2008)


the only reason there is a contract on the value plan is to recoup the cost of the phone should you cancel. You may be paying full retail for the phone, but you pay it off over time. They tried it once without the contract and it was too expencive for the carrier. That was the Even More + plan. It was cheap with full retail phones, but there was no contract... so you could buy a $600 phone, put like $150 down on it, and then never pay the rest. If you dont care about your credit or are a credit thief, you could resell those phones for 400-500 on ebay and make quick money.
Chalk it up to a large amount of a-holes in the world that ruined the no contract version of the plan.

So Tmobile reintroduced it as the value plan. Same as it was, except now it has a contract with a $200 etf to recoup most of the phone, but the plans are an extra $480 cheaper than the EM+ plans were, so its an even better deal.

Dont be so stuck on "contract". Look at the over all price of it. Even on "contract" your saving hundreds and thousands over other plans over 2 years. A $200 ETF is worth an extra $480 in savings from other Tmobile plans, and about $1500-2000 over ATT/VZW, especially if you dont plan on jumping.

posted on 26 Mar 2012, 14:10

23. ngo2dd (Posts: 791; Member since: 08 Jul 2011)


I paid 64 dollar with sprint with the subsidy. So T-mobile is not that much cheaper. I am still on a contract with a ETF even if I did not got a phone so what is the point of contract again for t-mobile? Because the plan don't change if you get a phone or not.
If that is the case i would just go for Metro which use the Verizon network or any of the local company because they have better network and it is cheaper.

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