AT&T CEO Randall Stephenson today said that the modern practice of device subsidies is unsustainable for the wireless industry. In order to convince people to use their network, wireless operators generally subsidize the cost of the handset.
This is what makes a $649 device appear more affordable when priced by the carrier at $199. The carrier recoups the $450 in subsidies over the lifetime of the contract. “When you’re growing the business initially, you have to do aggressive device subsidies to get people on the network,” said Stephenson. “But as you approach 90% 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.” AT&T recently dropped the cost of service plans for those customers who bring their own device to the network, or continue to use an old one. AT&T also allows more frequent device upgrades as long as customers agree to pay for a larger share of the device’s actual cost.
Stephenson didn’t announce any concrete plans to move away from providing device subsidies, but the company has already laid the groundwork. Stephenson also noted that once it completes its acquisition of Cricket Wireless, it will move more aggressively into the prepaid space.
AT&T has already said it will merge Cricket with its own Aio Wireless prepaid service.
