Groups Again Take Aim At Cellphone Subsidies

from the teeter-totter dept

Fri, Mar 6th 2009 1:11am — Carlo Longino

There's been a constant clamor over the past few years from some consumer groups that want to see mobile operators forced to stop locking handsets they sell, so that phones will be able to work with any compatible operator. The argument is that locking handsets to operators diminishes the competition among the operators, particularly when operators compete by getting exclusive deals on particular devices (such as the iPhone, which is locked to AT&T). But it's always seemed that the groups are looking to have their cake and eat it too: the locked devices and contracts operators use allow them to recover the subsidies they spend to drop the upfront costs of handsets. So if the groups want to do away with locks and other techniques that support the subsidies, that's fine, as long as they're also willing to accept higher device costs. But somehow, that part always gets left out, just as it has in stories covering the latest push by the groups (via MocoNews) and some smaller operators to get the government to outlaw handset exclusives. If these groups want to eliminate cheap handsets for consumers, they need to explain that -- or explain exactly how these regulations they want won't serve to lower service prices, but offset that with much higher device prices.

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Filed Under: exclusivity, mobile phones, subsidies

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Michael Long, 6 Mar 2009 @ 2:35am

iPhone
And even if they change US law and "free" the iPhone... so what? AT&T is the only major GSM carrier in the US. T-Mobile is 4th and even uses a different 3G band.

Verizon and Sprint are both CDMA-based networks, so they'd be completely unable to sell or support it anyway. Or are they going to force a manufacturer to build and test a CDMA-based device just so someone else can sell it?

And the "competition" arguement is baloney. Or is it merely an coincidence that we're now seeing Bold's and Storm's and Pre's and Vu's all suddenly competing in the marketplace against the iPhone?
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Stefan Constantinescu, 6 Mar 2009 @ 2:53am

You know if it was up to me I would ban subsidies all together, make operators compete on things such as coverage and prices versus the handsets they offer.

Services should be sold separately to device as they are in Europe. I get incoming calls for free, incoming text messages for free, unlimited data for 9 € a month and back when I was on prepaid it was close to impossible to spend more than 25€ a month on credit.

I went to visit my mom during Christmas and I needed to submit so many forms of documentation just to get a prepaid SIM card. Where I live, Finland, it is as easy as buying a pack of chewing gum or a bottle of water.
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some old guy, 6 Mar 2009 @ 3:20am

You've confused me Carlo
Wait, you actually think there's a situation where an exclusivity deal BENEFITS the consumer?

Seriously?

Oh, come on, you must have been kidding.

April fools isn't for a few more weeks yet, Carlo.
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Anonymous Coward, 6 Mar 2009 @ 3:22am

There are several benefits of going that way

1. Quality of service. Since you can now easily switch your service provider, the telco's got to make sure you get the best service.
2. Lower call charges - here in India, it typically costs 2-3 cents per minute to make nation wide calls - even while roaming, and all incoming calls/sms's are free
3. You can club *any* handset with *any* plan from *any* service provider
4. Since there is no "exclusivity" for hand-sets, prices tend to be competetive (not subsidised though)
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Osno, 6 Mar 2009 @ 3:33am

Actually it's pretty simple. Companies should be able to do both: subsidies with 1 or 2-year plans attached to them and unlocked handsets that are more expensive. I don't know if you can buy a plan in the US without a handset (just the chip on GSM networks) but that's a big part of this. In some parts of Europe, when you buy your phone you get it free + a gift (say, an XBOX) with a 2-year plan attached. Taking out the exclusivity made the subsidies higher, not lower, because of the competition.
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Coach George (profile), 6 Mar 2009 @ 3:55am

Re: WHATT???????
1."Since you can now easily switch your service provider"?? Last time I checked anytime you do anything you are locked in to a 2 year agreement. Switching in the middle of an agreement is expensive. Once they have you, they do not want to let you go.
2.Oh, thats the answer, India.
3."Club" your handset????
4.???????
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Anonymous Coward, 6 Mar 2009 @ 5:04am

Re:
Companies are already able to do both. They choose locked handsets and contracts.

The obvious reason is contracts reduce competition, except for getting people to sign contracts.
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Comboman, 6 Mar 2009 @ 5:06am

Think again
Do people really want subsidized handsets? Sure, they'll take a free or cheap new handset every couple years when they renew their contracts if someone is offering one, but if they had the choice of lower contract price and keeping their old (still perfectly good) phone a couple extra years, I think most people would do that, especially in this economic climate. This is the perfect time to force concessions from mobile providers.

Imagine if cable/satellite TV providers locked TVs to their service. If you wanted a new TV, you had to buy from them and if you switched providers you had to throw away your TV and buy a new one. I don't think many consumers would stand for that, so why do it with cell phones?
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Michael Foord, 6 Mar 2009 @ 5:12am

Subsidy from contract not lock in
The subsidy comes out of the contract you agree to be bound by for a period of time. You pay for the phone in full. Removing the lock in won't remove the subsidy and needn't raise the price to the consumer.
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T, 6 Mar 2009 @ 5:49am

You can buy unsubsidized phones
I dont see the problem - you can buy unsubsidized phones with no contract. They just happen to be expensive.

You CAN buy an iPhone without a contract - it's just $500/$600.
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CmdrOberon, 6 Mar 2009 @ 6:27am

> explain exactly how these regulations they want
> won't serve to lower service prices, but offset
> that with much higher device prices.

I find the argument that these phones cost many hundreds of dollares ridiculous.

For the volume in which these phones are produced, they
should be considerably cheaper than computers. But, they
are not. Why?

Personally, I think that the public has been duped into
believing that they must be expensive. Well, there's
nothing particularly expensive or special in any of these
phones.

Has anyone ever done a cost breakdown on the phones --
in volume?

I bet at least 50% (at the very least) of the cost of
popular phones is markup.
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some old guy, 6 Mar 2009 @ 6:35am

Re:
Yes, many BoM estimates have been done on the iPhone, they all seem to put the cost to manufacture at about 115$.

Every other phone is cheaper.
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Usmcdvldg, 6 Mar 2009 @ 6:36am

I think people are missing the point
If say for instance, the iPhone, could be purchased from any carrier. Each carrier could still subsidize the phone with a contract. Competition for these contracts would increase, and subsidies would go up.

As it stands now, AT&T wants to make it just cheap enough so a majority of people can afford it, but still rape them. If t-mobile offered the phone, they would be competing for contracts, rates and subsidies would both go DOWN.

There's nothing to be explained Carlo, How does this not make sense.
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Matt, 6 Mar 2009 @ 7:10am

stupid
This is plain stupid. Other than the bad decision by apple to be exclusive with AT&T cell providers typically let you choose between subsidizing their phones or paying up front already. Why remove an option?
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Anonymous Coward, 6 Mar 2009 @ 7:15am

Re: You can buy unsubsidized phones
Agreed. Anyone can go out right now and purchase just about any phone they want that is unlocked and use it with any compatible provider. Why do we need a law to enforce something that we can already do? Heck, I as an AT&T customer can buy any of their phones from them (except the iPhone) without contract at a higher price. It's locked to them, but I'm not hunkered down by any contracts and can fairly easily unlock the phone on my own if I really want to. Google is your friend.
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Usmcdvldg, 6 Mar 2009 @ 7:19am

Re: You can buy unsubsidized phones
There not complaining that you can't buy a iphone without a contract, they're complaining that you can only buy an iphone from AT&T. And that the phone is locked so that you can only use it with AT&T.
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Usmcdvldg, 6 Mar 2009 @ 7:20am

Re:
Yes, and if T-mobile sold the phone, I bet they would drop some of this markup to undercut AT&T, then AT&T..............................
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usmcdvldg, 6 Mar 2009 @ 7:25am

Re: Re: You can buy unsubsidized phones
Yes, You could use an iphone with other carriers but the majority of un-tech savvy Americans can not. Plus, Unlocking a phone I believe is technically illegal.

If AT&T was competing with T-mobile for iphone sales and contracts, your phone and service would be cheaper.
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Anonymous Coward, 6 Mar 2009 @ 7:33am

Re: iPhone
Verizon is already planning on going to GSM at some point in the future. Its apparently been a plan for a few years now, so who knows how long it'll take. The Storm has GSM support already, but thats to allow worldwide support. So really, Verizon and Sprint should change to GSM, not phones change to CDMA.

"Competition" among operators, not manufacturers.
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Anonymous Coward, 6 Mar 2009 @ 7:35am

Re: Re: WHATT???????
1) These exist because of subsidies.
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manderso, 6 Mar 2009 @ 7:36am

Cell Phone Subs
While you can buy unlocked phones the down side is you don't get a discount on the rate plan. So there is no incentive for me to not buy a subsidized phone. The phone companies should have a rate for "owned" equipment then some companies would actually want to sell phones here in the US. Once you clear the lockin time they still don't change the rates. That is probably the real crime here.
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Evil Mike, 6 Mar 2009 @ 7:40am

Re: Re: Re: You can buy unsubsidized phones
"Yes, You could use an iphone with other carriers but the majority of un-tech savvy Americans can not. Plus, Unlocking a phone I believe is technically illegal."

Your satire is masterful!

It is not illegal to unlock your phone, provided you have purchased it. Though there are those who would prefer it to be illegal.
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Usmcdvldg, 6 Mar 2009 @ 7:43am

Re: Re: WHATT???????
1. You are never locked into a two year agreement unless you buy a new phone at a subsidized price. I always buy the phone outright and just get a data plan without the contract. You lose money short term but save it long term.

2. Simple economice, more compitition(whether its phones plans or new contracts) will drive prices down(especially on new contracts).

3. He means you could for instance, take an iphone and use it on t-mobiles 3g network where they offer unlimited data for about $30 a month. Way cheaper than AT&T.

4. There is no such thing as jail breaking a phone because no phones are locked. Once you buy a phone you can use it with any service provider without breaking any laws.
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Usmcdvldg, 6 Mar 2009 @ 7:57am

Re: Re: Re: Re: You can buy unsubsidized phones
Idk, I have heard both ways. My understanding was that when you purchased a phone it was just like purchasing an xbox or DVR. That it came with a EULA that is "technically" legally binding but that there simply isn't a manufacture willing to try his luck in court on individuals with there private phones.

This is why you can buy an iphone from third parties, but never see a company or entity selling unlocked iphone in mass quantities.

Maybe you could clarify the issue, maybe with a link to a definitive source.

I understand your position though. If I buy somthing, I own it and i do what I please with it.
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Mark Rosedale (profile), 6 Mar 2009 @ 8:24am

I'm willing to pay
Honestly I would be willing to pay full price for my phone if I could take it to any network and use it. $500, $800 yea sure why not. Honestly the competition between handset makers will likely drive the price down for all but the sexiest of phones (iPhone Palm pre ect). So I support breaking the lockin even if that meant paying more for the handset.
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Anonymous Coward, 6 Mar 2009 @ 9:08am

The tying is only egregious for high-end phones, where price is not a problem since it is already expensive. They can keep tying cheap, subsidized phones (like $0 phones) for all I care.
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hegemon13, 6 Mar 2009 @ 9:14am

Not necessary
Locking the phone is not necessary to support subsidies and contracts. A contract is legally enforceable, and the early termination fee could still be used with or without a locked phone.

Locked phones just mean a lot more waste, and a crippled resale market. The limited used phone market is the real reason that operators don't want phones unlocked.
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Jesse, 6 Mar 2009 @ 9:23am

I'm not so sure. I've always felt that the listed price of some these phones is rather inflated. It seems that this is a strategy done to encourage people into accepting a contract (i.e. they see how much they would "save"). It's kinda like inflating prices on jewelry by 250% and then having a 50% off sale. I think if phones were decoupled from providers, and there was more than one person selling a phone, it would be more open to competition and that non-contract listing prices would suddenly be closer to a fair market value. Hopefully. Or it will be the end of the world.
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MattP, 6 Mar 2009 @ 9:48am

Re: Cell Phone Subs
Bravo! I was waiting for somebody to make this comment.

The 2 year contract plans are in place so they can guarantee the return on the subsidy. You're still paying full price for the phone, but spread out over 2 years.

If I had the opportunity to purchase a handset outright and get a discounted rate plan w/ no contract there wouldn't be any hesitation.
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t, 6 Mar 2009 @ 10:16am

Re: Re: Cell Phone Subs
Not quite sure you're paying for it over 2 yrs. You're just agreeing to stay with them for 2 years - something you may just end up doing anyways.
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Anonymous Coward, 6 Mar 2009 @ 10:30am

Re: Re: Re: Re: Re: You can buy unsubsidized phones
I have heard both ways.

OK, then why did you choose to present it only one way? That seems rather deceptive.

Maybe you could clarify the issue, maybe with a link to a definitive source.

Maybe since you shot your mouth off about it being illegal, you should do the same.
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Anonymous Coward, 6 Mar 2009 @ 10:40am

Re: stupid
This is plain stupid. Other than the bad decision by apple to be exclusive with AT&T cell providers typically let you choose between subsidizing their phones or paying up front already. Why remove an option?

For one, that's not really a viable option. Unless, they've changed from the last time I checked, AT&T charges the same for a plan whether you get a phone or not. So you still pay for a phone even if you don't get one.

For another, even if you pay for the phone up front, it's still locked and crippled with whatever restrictions AT&T wanted on it.
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Weird Harold, 6 Mar 2009 @ 11:02am

If they don't like it, they can do like I did. I purchased my Moto Razr from a third party, paid market price for it, and it is not locked to any cell system. It's important to me because I travel often in asia, and I have sim cards and pay as I go plans for most of the major destinations. I arrive, I change cards, and I am on the local network at local (non-roaming) prices.

You cannot have both - I paid more for the handset to avoid a contract and a locked phone, but if I wanted to get in the door cheap I could have taken one of my local carriers free phone plus plan deals.

There is no way that the government (or anyone else) should be dictating to the cell companies and phone manufactures how they sell their products. Nobody is obliged to buy a phone from them.
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chris (profile), 6 Mar 2009 @ 11:12am

Re: Re: Re: You can buy unsubsidized phones
Yes, You could use an iphone with other carriers but the majority of un-tech savvy Americans can not. Plus, Unlocking a phone I believe is technically illegal.

unlocking phones is not illegal. there is even a proviso in the DMCA for unlocking phones.
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Amy, 6 Mar 2009 @ 1:51pm

Let's bring up one fact that I have not seen come up in this thread, and it is something that makes me very sad that not enough people know about. Both GSM carries in the U.S. will unlock your phone once you've had it on their service for two to three months. This isn't an ideal solution, but it is what's currently available to us. Once you've served your time in your contact, you could technically take your business to another carrier. If more consumers were made aware of this, it might help a little.

On the subject of taking away the subsidies, that's the wrong way to approach the problem. Instead of taking away the subsidies, we should make the carries unlock the phone if the person purchases it outright without the contract and discount associated with it. This lets people who wish for cheap phones and upgrade every year and a half like expected and desired by the industry to continue their habits, and those of us who'd rather have the option to float around as needed can get our unlocked phone just for paying up front.

It is also worth noting that while the primary band of GSM is different for T-Mobile and AT&T, both carriers provide quad band phones that will happily work with either network, and both carries primarily offer plans that do not charge roaming rates anywhere within the continental U.S.

Also, on the subject of unlocking phones, from what I've seen thus far it's still a legal battle that needs precedences set. Carriers want to claim that it's illegal to unlock your phone without their help, laws are conflicting and can be read either direction, and consumer rights advocates are rabidly waiting in the sidelines to get something rolling to set precedence towards it being legal. Someone just needs to push the whole mess into court and hope that the consumer rights advocates have the most rabid lawyers on the case.
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Griffon, 6 Mar 2009 @ 11:27pm

Locked type anyway
The thing is, even on a phone like the original iPhone that was completely unsubsidized you are where (and still are locked). That really dose not seem right, considering it is your device.
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Originalamazed, 7 Mar 2009 @ 11:07am

And What About After the Contract?
The small thing many folks ignore is what happens after you have saisfied your contractual obligation.

In other words, you have (at least in theory), allowed the wireless service provider to recover their cost and make a fair profit. In addition, you have (at least in theory), *PAID FOR* the wireless device you now have.

Why then, should you be stuck with a "brick" should you decide to opt out and go with another carrier at the end of your contract?

While there may be issues between GSM providers, the CDMA carriers (Verizon, Sprint, Virgin, Metro, etc.) all use the same technology. In addition, let's not forget that Sprint was sucessfully sued and forced to provide the procedures to "release" the phones so that they could be programmed for other service providers.

Therefore, while it might be "acceptable" under most circumsances to lock the phone during contract, at the end of the term, the phone does (and should "freely") belong to the customer.
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Moe Larry, 8 Mar 2009 @ 3:24pm

Huh?
Look, you are a sheepol and you buy your 2 year contract with the free or small fee phone. You end up paying them by the month for the so called free or small fee phone. Period.
Buy an unlocked phone, buy a pay as you go sim, and you have freed yourself from whatever you didn't like about the locked phone.

Why all the debate?
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dcjazzman, 26 Jul 2009 @ 9:19pm

dirty rotten cellphone service
does carlo work for the industry? he speaks of more costly new cellphones as being a result of 'consumer groups' wanting to rid themselves of contracts. there are usable older model phones available all day long that could be purchased if providers would just 'hook them up.' the concept of contracts for telephone service is Un-American and just another in the long line of corruptive business practices foisted on an increasingly an increasingly timid consumer. it is almost as if the businesses believe it is THEIR right to do and charge anything any way they want to. that is the epitome of arrogance. and stupidity rests on the shoulders of those of us who continue to let them have their way. fight dammit!
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