SciTechTalk: It's a slow death for the contract-bound cellphone

By JIM ALGAR, United Press International  |  Dec. 8, 2013 at 6:30 AM
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AT&T has become the latest U.S. wireless provider to tacitly admit that the business model of the subsidized, contract-bound cellphone -- long the norm in the United States -- is becoming less and less attractive to increasingly sophisticated consumers.

Last week, the telecom giant joined T-Mobile in announcing a "bring your own phone" plan, offering reduced monthly costs for customers who pay for their own mobile devices.

Consumers are increasingly seeking alternatives to the longstanding arrangement whereby carriers offered seemingly low prices for high-end smartphones -- usually in the $100-$200 range -- but locked customers into 2-year contracts with high monthly costs that allowed carriers to recover the true $500-$600 cost of the phone, reinforcing that with hefty early termination fees for any customers wanting to go elsewhere.

Under AT&T's new offering, customers will be able to switch to cheaper plans if they buy their phone outright from the carrier or even bring their own phone purchased elsewhere.

Whether they bring their own phone or buy one from AT&T -- either outright or on a money-down, monthly installment arrangement -- they can take advantage of the growing industry trend of separating the costs of cellphone service from the cost of the device.

It's a trend spearheaded by T-Mobile, which, presenting itself as the "uncarrier," did away with contracts in March and introduced the "bring your own phone" concept.

While AT&T has offered its own version of a no-contract plan since July, it came without any discount for an unsubsidized phone, causing it to be seen as a poor deal, particularly since T-Mobile and Sprint have both been offering no-contract options that include discounted monthly plans.

With its new discounted plan, AT&T is acknowledging increasing competition in the industry, as both major carriers and budget outfits like StraightTalk, MetroPC, Virgin and Boost Mobile scramble to attract and keep customers looking for more effective ways to manage their monthly digital budgets.

"We see competitors on our left and on our right," AT&T representative Mark Siegel told CNET. "We're really focused straight ahead on what our customers are asking for."

Some of the budget firms have long been at the forefront of no-contract phones, selling phones directly to consumers.

Since they do not own the wireless network infrastructure over which they provide services to their customers, they buy bandwidth from major carriers to provide those services.

StraightTalk, dealing through WalMart, uses Verizon towers; another company, Solavei Mobile Service, runs on T-Mobile's 4G service and offers low-cost unlimited calls, text and data.

Solavei is even offering incentives to attract customers. Solavei users who enroll other customers get a recurring payment Solavei calls "referral income" based on the number of new users they help sign up.

Such strategies and other competitive pressures are why the major carriers are jumping on the bandwagon of offering consumers more flexible options.

In fact, with AT&T joining Sprint and T-Mobile in reacting to a shifting industry dynamic, it leaves Verizon as the only major U.S. carrier keeping its monthly plans unchanged despite the no-contract option.

If the subsidized, contract-bound cellphone eventually disappears in the United States -- as appears almost inevitable -- it will simply bring the country into line with the rest of the world, which has always sold phones at full price, separated from customers' monthly connection costs.

It may be inevitable as U.S. consumers are changing the way they think about how they buy their phones, and are increasingly pressuring wireless carriers to do the same.

AT&T's action is the most recent evidence the industry is getting that message loud and clear.

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