The unbundling of the handset subsidy and the coming mobile price war
Real quick here – I wrote you on Friday about T-Mobile USA’s moves to unbundle handset subsidies and to reduce pricing. Apparently this is having an impact as all the major carriers have now reacted. Sprint has lowered its unlimited contract pricing and AT&T and Verizon have also partially unbundled handset subsidies. I believe US consumers will benefit.The big loser here will be handset makers.
We have a price war now – both in terms of mobile telecom contract pricing and in terms of handset subsidy unbundling. Sprint had already made its move on the contract pricing when I wrote on Friday. Yesterday, however, AT&T and Verizon moved to meet T-Mobile.
What has happened is that T-Mo is the low man on the totem pole nationally, the smallest carrier with the worst network coverage. The company has been haemorrhaging customers. It attempted to solve this by merging with AT&T. But this merger was blocked. And so, T-Mobile USA has effectively been warned via its failed merger with AT&T that it has limited strategic options. It must make a full scale assault on the other carriers in order to win share because the US market is maturing and subscriber growth is slowing; the only option for T-Mo is to stop the loss of customers and steal customers from competitors by differentiating its offering in ways that compensate for its poor network while this network gets upgraded. So that’s what it has done.
T-Mo’s lowering prices and unbundling its handset subsidy through its Uncarrier promotion and its JUMP program is a direct threat to the big three carriers; and so they have responded in kind.
AT&T counters T-Mo’s Jump with Next, its own phone upgrade program. Is it a better deal? — Tech News and Analysis
Leaked Verizon plan would let you upgrade phones after paying off half of your current one | The Verge
These are semi-subsidized handset plans. Don’t underestimate the effect of T-Mo USA’s actions. We could be looking at the end of the subsidized mobile handset model. I expect this chase to continue. What we are likely to see over the next few years therefore is a move away from contract plans that only make sense because of handset subsidies; if you get rid of the handset subsidy and have people pay directly for their handset, then people have no reason to go under contract. The more people that move to this unsubsidized model, the more price sensitive potential handset customers will be. That means downward pressure on handset prices and margins, which will be the most negative for Apple. Yes, many people will still be willing to pay $499 for an iPhone if they go on an instalment plan. But that price will be more transparent, making people much more likely to trade down. Previously, the mobile telecom carriers offered iPhones at incredibly low prices anywhere from free to $200 and locked customers in to expensive contracts to make up for the loss revenue. Because of T-Mobile USA, that model is going the way of the do do bird.
Watch margins decline for mobile telecoms like AT&T, Verizon and Sprint. But watch even more for a margin compression at Apple.
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