Eric Dutram: Many smartphone users in the U.S. have become very accustomed to paying $200 or less for the latest and greatest phones. This is because many of America’s telecom giants eat the $300-$400 difference (if not more) between this low price and the actual retail cost, and then slowly get this back thanks to high data cost plans over the next few months and years.
This has become standard among many telecoms, though some smaller providers have tried to break this mold as of late. But based on some recent rumblings in the telecom world, this practice could soon be ending in the U.S. market.
This is especially true if you listened to AT&T (NYSE:T) CEO Randall Stephenson and a recent talk he gave at an investor presentation in New York City. At the presentation, Stephenson declared that with smartphone penetration already at 75% and fast approaching nearly universal adoption, the current subsidy model doesn’t make sense anymore.
“When you’re growing the business initially, you have to do aggressive device subsidies to get people on the network,” Stephenson said in a CNET article. “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.”
So if companies like AT&T and Verizon (NYSE:VZ) become unwilling to subsidize new phones, full retail prices will have to be paid by the consumer. For new Apple Inc. (NASDAQ:AAPL) iPhones, this could be as much as $849 for the 64 GB version, a price that is probably far too steep for many in the smartphone market.