Random Musings and Nicknacks

I got a new cell phone last week, and got thinking about why the North American carriers insist on only using subsidized phones — especially the GSM carriers where it seems at first there is more risk than reward.

For manufacturers the motivation is obvious — you are going to move more phones at $75 than at $575, and if the carrier is willing to pay the difference the more the better.

For a GSM carrier it would seem on first blush that it’s all risk — you don’t have any exclusivity, since I can always buy an unlocked phone from eBay, and you risk someone unlocking a phone for $20 and now the carrier may be footing the bill.

But if you look closer there is a significant monetary benefit to the carrier too — everybody understands (I hope) that if you are given a $360 discount on a 3 year contract, over those 3 years the carrier is charging $10 a month to recover the cost of the phone — so a $35 plan is really $25 of network coverage plus $10 of phone repayment.

So let’s think about what happens at the end of the three years! Your first choice, sign a new contract, get a new phone, and the carrier happily gets your guaranteed business for several more years.

What happens if you don’t renew and just keep going on your current plan? You’re no longer paying back a subsidized phone, but your plan doesn’t drop by ten dollars a month either so … you are now overpaying for the network!

It seems like a great deal for the carrier — either you’re forced to sign a new contract or you’re now overpaying. Definitely worth the risk of a few unlocked phones.

Enter a world of unlocked, unsubsidized phones (like the rest of the world), then, and you get more choice on phones and cheaper network coverage — a win for the consumer.

So how does this cycle get broken? The carriers obviously have no incentive too. The governments really don’t care, otherwise it would have been forced on them already.

It would seem the only hope is for a new entry into the market, a hardware manufacturer that is powerful enough to change the rules, and popular enough that it cannot be ignored, to insist that their phone not be subsidized, and the plans be changed to take out the subsidy cost.

If so, I guess we can all hope that some rumours come true!

This entry was posted on Friday, April 6th, 2007 at 1:56 pm and is filed under Technology. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.