iPhone, Galaxy S5 Among Smartphones That Could Feel the No-Subsidy Blues

Written by Channel
April 22, 2014

As more wireless operators in the U.S. look to be on the verge of abandoning subsidies, the question is whether consumers will pony up for full price.

**Editor’s Note: Click here for our ranking of March’s hottest selling smartphones to see how Apple’s iPhone and Samsung’s Galaxy S5 fared against the competition.**

Carrier subsidies on mobile devices, particularly the most expensive ones such as the Apple iPhone, could be on their deathbed.

More wireless operators in the United States seem to be moving toward a model where customers pay full price for their phones, via installment plans, according to a new report from the Wall Street Journal. T-Mobile already does this and AT&T CEO Randall Stephenson said at an investor conference last month that the “subsidy equation” is “fundamentally changing in a very short period of time,” the WSJ said.

Question is, will American consumers be willing to pay the hundreds upon hundreds of dollars out of pocket for an phone that’s virtually guaranteed to be old news within a year? That’s the conundrum, especially since Apple, for example, charges more for its smartphones than many companies charge for low-end laptops, as the WSJ pointed out.

The answer may be yes. AT&T sold 15 percent of its smartphones without a subsidy in the fourth quarter of 2013, the WSJ reported, and said UBS analyst John Hodulik projects that figure will rise to 35 percent in 2014.

Still, many industry analysts expect the ever-popular Apple to report flat iPhone growth in its earnings report Wednesday, due to strong competition and market saturation, so the answer may also well be no.

Of course, the iPhone is not the only device that could suffer from a move away from subsidies. Other top-end, Android-based devices such as the Samsung Galaxy S5 sell for at least $600 full price; the iPhone 5s costs about $650.

But abandoning subsidies is not a foregone conclusion among the operators themselves. Verizon Wireless, AT&T’s biggest rival and the largest mobile provider in the U.S., supports the model.

“We believe that the subsidy model is an extremely good model,” Verizon CFO Fran Shammo said last month. “It has done wonders for us in this industry. So I think to abandon that is a mistake.”