Ina Fried

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New Plans From AT&T, T-Mobile Put U.S. More in Line With Rest of World

smartphone_compareThough Americans are used to getting a steep discount on a new cellphone in exchange for signing a new contract, that’s less common in most parts of the world.

Elsewhere, it is more typical to buy a cellphone at full price and then use it with one’s phone provider of choice. In exchange for bringing one’s own device, subscribers in many places pay far less each month for their cellphone service.

While some prepaid carriers have replicated this model in the U.S., subsidized phones have long been the norm here. However, that may be about to change.

And it is T-Mobile — the smallest of the four major U.S. carriers — that has been at the forefront of that shift.

For a time, T-Mobile offered both traditional American plans and lower-cost “value” plans for those who paid full price for a device or brought their own phones. Since March, T-Mobile has made the value plans standard and unbundled the phone from the service plan.

Doing so, said T-Mobile chief John Legere, is what paved the way for further innovations, such as the recently introduced Jump program that allows customers to upgrade their phones as often as twice a year.

AT&T on Tuesday introduced its Next plans, which allow customers to upgrade more frequently and also see customers paying full price for their devices. While AT&T’s program does pave the way for more frequent updates, the company isn’t making any move to cut its monthly fees.

Verizon is also rumored to be nearing launch for an early upgrade program of its own. A Verizon representative, however, declined to confirm the company’s plans.

The key question on many customers’ minds is whether all of this experimentation will lead to bills going up or down.

Those wondering what a cut in subsidies can do to a cellphone market should have a look at Spain, where subsidies were the norm until Telefonica underwent a bold experiment in 2012. The move resulted in lower revenue for the carrier, but also boosted overall profit margins.

Most likely this change — like others in the market — will lead to both higher and lower prices.

As support for that theory, one need only look at the current prepaid market, which offers both some of the best bargains around as well as pay-as-you-go options that end up costing far more than a typical contract plan.

But the latest shifts aren’t just about cost. A key element is flexibility, particularly the ability to upgrade more frequently that the two-year cycle made rigid through contract plans.

Carriers — and even device makers — are struggling to keep up with consumer desires. Often by the time a new model goes on sale, something even newer is being announced.

Take Nokia, for example. By the time Verizon was ready to launch the Lumia 928, Nokia was off in London launching an even newer model, the Lumia 925, that was headed to T-Mobile but not Verizon. And last week, just as T-Mobile was in New York, in part to announce availability for the 925, Nokia was in Manhattan to talk about its next project, the Lumia 1020 for AT&T.

Carriers are trying to tap that desire for more frequent upgrades as justification for a needed shift in their economics. It’s an approach that the operators have used with success in the recent past.

The arrival of shared data plans, such as Verizon’s Share Everything plan, filled a key customer demand. However, both Verizon and AT&T used the shift to fill one of their own needs, as well. Before the arrival of such plans, the bulk of a customer’s bill was for voice and text messaging, even though it was data that had become the key component. Plus, carriers could see both voice and text were rapidly commoditizing thanks to over-the-top services such as Skype and WhatsApp.

With their shared plans, AT&T and Verizon included unlimited voice and texting, and shifted the equation to focus on data as the variable worth paying for.

So what does all that mean? As usual with cellphone options, it pays to read the fine print and do the math.

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There’s a lot of attention and PR around Marissa, but their product lineup just kind of blows.

— Om Malik on Bloomberg TV, talking about Yahoo, the September issue of Vogue Magazine, and our overdependence on Google