No more subsidies?

 

No more subsidies?! That makes us go:

 

 

 

 

 

Alright, crash course in subsidies!  A Subsidy is something you more than likely have used or been a part of. It’s a form of financial or in kind support extended to an economic sector, institution, business, or individual generally with the aim of promoting beneficial economic and social outcomes.

 

It’s also what happens when you buy a smartphone in this country, unless you buy it outright.

 

If you paid $199 for an iPhone 5S, or $99 for an iPhone 5C, your carrier subsidized the real cost of the smartphone. This means that you paid a certain amount, and because you signed a two year contract with them guaranteeing your continued business for a locked in period of time, they paid Apple the rest of the cost price of the iPhone.

 

 

All good, right?

 

Well, for now, yeah. Last week however AT&T CEO Randall Stephenson came out and dropped a little mini iPhone world bombshell on the future of subsidies in the smartphone industry.

 

His main point was that with smartphone saturation climbing rapidly towards 90% (!) carriers will need to move on to a different way of doing things, because the current model can’t be maintained at that rate.

 

Carriers like AT&T use the subsidies to drive demand, but with such a high percentage of the population of the country already owning a smartphone, demand moves to upgrades and the companies subsidy system was never meant to support a predominantly upgrading model.

 

So what now? & how will it affect you?

 

 

We’re heading towards a smartphone world with financing rather than subsidies. AT&T CEO Randall Stephenson said the company’s new AT&T Next program, which offers no-money down and 0-percent financing, “drives smartphone penetration in a way that is more sustainable over time.”

 

So if you buy an iPhone in the future, you’re still likely to sign a contract. That contract however will be broken up in a way where you can see that each payment period you are paying off a stated amount from the total cost of the smartphone. Separate to that amount would be what you are paying to use the carrier’s service- calls, texts, etc. You would of course also always have the option to buy the phone outright.

 

It’s the way that it’s done in a number of countries around the world and it will be interesting to see if and how the market here adapts and changes.

 

 

 

Images courtesy of 9to5Mac,  Macrumors, 

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