Filed under: Analysis / Opinion, Apple, iPhone
Counterpoint: AT&T isn't cheating iPhone 3G customers
In my youth, I sold cell phones for Verizon. It was not a rare occurrence to have a customer sign up for a new account and get their free phone, only to come back a week later and tell me they dropped it in a toilet and wanted another one. They were shocked when the phone they got for free just a few days before now cost them close to $200. To a lesser extent, the same thing is happening with iPhone 3G owners wishing to upgrade to the 3G S for the subsidized price. A year ago, 3G owners bought a $600 cell phone (assuming we're talking about the 8GB model) for just shy of $200. The 2-year contract guarantees that AT&T makes their $400 back over the length of your contract. So far, 3G owners are only about 1 year into their contract, so they've really only paid off about half of their subsidy to AT&T.
Most carriers would stop there, and offer no additional incentives until you've come close to reaching the end of your contract. AT&T is being about as generous as they can be by offering 3G owners half of the subsidy after completing half of their contract. Once 3G owners have fulfilled a year of their contract, they can get the 3G S for the base price ($199) plus half the subsidy ($200) for a grand total of $399.
Read on for some fun cell phone contract math.
Let's say, hypothetically, that a 3G owner takes advantage of this "early upgrade" offer from AT&T. That means this particular customer paid $200 for 3G and $400 for their 3G S, and has received $600 in subsidies from AT&T ($400 subsidy from the 3G, $200 for 3G S) over 3 years. This is a $200 subsidy per year, which is the exact same per-year subsidy you signed up for originally.
3G owners are complaining loudly about this policy, saying that AT&T should reward loyal customers with a 2-year subsidy on what is essentially a 1-year contract. That's a $200 discount per customer, per year. That's a huge hit to AT&T, and one they're not going to take. And I don't blame them.
Apple tried selling unsubsidized phones originally, and the price was a big pill to swallow for most customers. The subsidy means you get a little more for your money, but unfortunately it means you've got to play by AT&T's rules when it comes to upgrading. And, in this case, their rules seem pretty reasonable to me.
Believe me, I am no fan of AT&T. Coverage in my hometown of Peoria, Illinois leaves a lot to be desired, and no 3G yet, seriously?! And what's up with MMS and tethering at launch? And putting that annoying woman from The Hills in their commercials? They have a lot to answer for in my eyes, but in this particular case they're being about as generous as you can expect a cell phone carrier to be.
3G owners can take comfort in the fact that they can sell their current phone to make up for some of the cost of upgrading, and also that they still have an amazing piece of hardware that, through the 3.0 update, is about to become a whole lot more useful. It's almost like getting a whole new phone! Almost.
3G owners are complaining loudly about this policy, saying that AT&T should reward loyal customers with a 2-year subsidy on what is essentially a 1-year contract. That's a $200 discount per customer, per year. That's a huge hit to AT&T, and one they're not going to take. And I don't blame them.
Apple tried selling unsubsidized phones originally, and the price was a big pill to swallow for most customers. The subsidy means you get a little more for your money, but unfortunately it means you've got to play by AT&T's rules when it comes to upgrading. And, in this case, their rules seem pretty reasonable to me.
Believe me, I am no fan of AT&T. Coverage in my hometown of Peoria, Illinois leaves a lot to be desired, and no 3G yet, seriously?! And what's up with MMS and tethering at launch? And putting that annoying woman from The Hills in their commercials? They have a lot to answer for in my eyes, but in this particular case they're being about as generous as you can expect a cell phone carrier to be.
3G owners can take comfort in the fact that they can sell their current phone to make up for some of the cost of upgrading, and also that they still have an amazing piece of hardware that, through the 3.0 update, is about to become a whole lot more useful. It's almost like getting a whole new phone! Almost.
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Reader Comments (Page 1 of 8)
DXtrMStDrD said 11:10AM on 6-15-2009
ATT will still make up that lost subsidy as long as the 3G phone remains activated, and lets face it, who is going to upgrade to a 3GS and let the (old) iPhone 3G linger around.
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William said 12:20PM on 6-15-2009
Your wouldn't have any problems getting a subsidized price from ATT if you leave your old 3G phone activated. What I think you are saying is if you get the 3GS you would still leave 3G active which means you would adding a new line to your account, hence allowing the subsidized price.
brian said 1:41PM on 6-15-2009
What I saw in black and white was "twice the speed, half the price."
http://www.product-reviews.net/wp-content/userimages/2008/06/apple-3g-on-store.jpg
http://www.apple.com/pr/library/2008/06/09iphone.html
brian said 1:44PM on 6-15-2009
(Oops, meant to put that under HG, below, who said "just read the contract you signed; it's all there in black and white." My point being, it is Not Cool when what is advertised prominently is very different from what is sold. The bold print giveth, the fine print taketh away.)
RS said 11:10AM on 6-15-2009
Why is it though that you explain it better than they do? Nice job, big fan of the site....
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PSM said 1:08PM on 6-15-2009
Exactly, the problem is not their rules, the problem is that AT&T and Apple did not adequately explain the pricing when we bought our 3G (i.e. that $499 WAS a subsidized price), and they do not explain our pricing options now (that it's still available for $499 with the signing of a new contract, and not just for $699).
I was really confused because I thought I had not bought a subsidized phone in 20 months, and Apple was only giving me the option to pay $699. Neither of those things is true, and as someone who follows mobile, and especially iPhone news religiously, the fact that this was unclear says a lot about the misinformation Apple and AT&T have been providing about how iPhone pricing works. And it's not even information they'd WANT to hide. After being set straight, it makes total sense, and I feel good about my upgrade choices.
HB said 1:25PM on 6-15-2009
@ PSM
Seriously, just read the contract you signed; i's all there in black and white. The only reason why you got 'burned' was because you didn't pay attention.
I honestly don't see what the big fuss is anyway. Every other mobile phone contract works like this. If you don't want to be contracted, buy a Pay as You Go phone. There is a reason why the Pay as You Go version is quite a lot more expensive!..
Thomas said 11:13AM on 6-15-2009
I've not looked into the specifics of how AT&T are doing it, but O2 are charing customers the full balance on contracts, the full monthly balance for however months remain.
It's one thing making people pay off the cost of the phone in full, I have no problem with that. If you sign a contract to get something cheaper by having it's cost subsidised as part of a monthly payment schedule then it only makes sense that if you break that contract you lose the subsidy and have to pay it off. I just find it hard to take that customers have to pay off the value of all the texts/minutes/data that they won't be able to use
Strictly speaking the contracts may say that's what they can do, but if they're getting the contract to extend their contract effectively then surely they should make allowance for the fact that they're having to pay for all the phone service twice. They're just making more money at the expense of making their customers hate them (even more).
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Mitchel said 1:37PM on 6-15-2009
in simple terms, the contract says you have to pay at least 'x' amount to 'y' provider over 'z' amount of months. If you want to reduce the amount of months, you have to pay the rest.
O2 make their profits by selling you minutes and texts, the subsidised phone is merely an incentive to join the network.
Businesses in general - not just phone networks - exist solely to make a profit out of Joe Consumer. If you are simply paying off the subsidy, they are not making a profit. It would be the same no matter what network the iPhone was available on
Neuro said 3:25PM on 6-15-2009
Mitchel: well, the "pay just subsidy" option might be available only for upgrade, not for any contract cancellation - in that case they would still get money, right. Also it would obviously need to contain more than just subsidy - some fixed cost connected to your contract (salary of the guy who handled you the contract?) and at least part of the profit you promised them. But yes, it gets complicated and all in all, I think the situation with the current update won't change (after all, contracts are signed and any change would be just o2's good will - naturally there are situations when goodwill makes business sense, but not always).
But the takeaway for o2 should be: there is a demand for 1 year contract, or (if they don't like short contracts for some reason) for 18/24 month contract which can be extended mid-way for a specified fee. In a way, that's better than 24 month contracts - if you assume o2 will lose the exclusivity eventually, then you can switch freely providers every 18/24 months. But, if they implement this type of rolling extension contract, then you're effectively stuck with them as long as you want to upgrade the hw regularly (or pay the full penalty for canceling). Sounds nice, doesn't it?
I also think the discussions get often sidetracked by the fact it's iphone users shouting - but there's no reason, why this shouldn't apply to any phone.
Last point - it seems many people react with "that's the way mobile contracts worked for centuries, get used to it". What sort of crap is that? We were burning witches for centuries too. Customer surely should be able to give a feedback to the company by saying what he likes or doesn't like? Others acknowledge it with "if you don't like it, leave" which is slightly better but still - the feedback to the company shouldn't be just "I accept your offer" or "I refuse your offer". Why should the companies need to guess their customer's mind? It makes perfect sense to say "I refuse your offer, because of ...." and also "ok, I will still stick with it, but I don't like ...." (ie. signal that you might leave as soon as the cons prevail over the pros).
p.s. I don't currently own iphone
Thomas said 3:13PM on 6-15-2009
They are still making the profit because by signing up to a new contract they're still keeping you for the same months you had remaining, plus the extra months. They're also keeping you with them for that little bit longer which means that another network won't get you. I know they're a business and they're there to make money, but a large number of iPhone customers will just wait until their contract runs out, and then who knows, maybe they'll go elsewhere. Why not at least meet them halfway and foster some goodwill in their customers. By just letting people pay up the cost of the phone they are not losing any money, they're just not making as much. I suppose the ultimate problem is that everyone thinks phone companies are bastards already so they've nothing to lose.
Nic Wise said 11:13AM on 6-15-2009
"Apple tried selling unsubsidized phones originally, and the price was a big pill to swallow for most customers"
Well, I wish they would give us that option! I'd LOVE to have an unsubsidised phone - I'd save the cost of it (assuming around £400?) in about 12 months, easy, and get a LOAD more for what I'm spending.
Other than that: good/great points :)
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TJ said 11:29AM on 6-15-2009
you can buy an unsubsidized phone from the apple store, you just have to ask for it. You'll pay around 600 bucks for it though.
rawman said 11:38AM on 6-15-2009
Hehe. You can buy unlocked/no contract/unsubsidized iPhone from T-mobile (in Croatia). All perfectly legal.... For 1.200eur apiece :-)
Nic Wise said 11:39AM on 6-15-2009
Are you SURE? 'cos you can't in the UK, not without an O2 contract. I can get a pay-as-you-go one, which is un-subbed, but it's also locked to O2. Same with AT&T in the US I think.
I just want to buy a phone - and $600 would have been fine - with ZERO ties to a carrier. NONE. And I can't do that. Even when I come out of contract, I can't get it unlocked.
Michael Hodges said 11:53AM on 6-15-2009
the first time around, I paid full price for an unsubsidized phone.. AND a two year contract.
TJ said 12:15PM on 6-15-2009
I am pretty sure, I know people who have done it. All you do it pay for the phone, no contract signing or anything. It's also another way to buy the physical iphone as a gift instead of getting a gift card.
Plus the other day people were raving about being able to purchase an unsubsidized iphone from the apple online store as well. It's totally fine to buy one without a contract you will just pay the premium price.
Thomas said 12:17PM on 6-15-2009
to clarify, im talking about the US only. Not sure about other countries.
Ben said 1:03PM on 6-15-2009
I believe buying the full-price phone the first time around with a 2-year contract had something to do with Apple's agreement with AT&T at the time. Remember all the fuss about Apple getting monthly payments as a percentage of AT&T's iPhone revenue? That's why there was a two your contract. Apple gave up that arrangement to instead have subsidized prices at the time of purchase which would serve to boost sales. Under the current arrangement, AT&T buys the phones at full price from Apple, sells them to consumers at a subsidized price, and looks to make up the subsidy over the 2-year contract.
The optimal solution (for me at least) is this: If Apple is going to continue releasing new hardware every 12 months or so (we have a precedent here), AT&T should offer the option of a 1-year contract with a reduced subsidy. Let Apple continue to advertise the 2-year price ($99, $199, and $299 sound a lot better than their higher alternatives), but for us fanboys who want the latest hardware every year, a one-year contract would be great.
PSM said 1:18PM on 6-15-2009
@ Ben That's what this article is saying: by paying $499 every year, the math works out so that it's the same as a 1-year subsidy. The only time you'd see a difference is if you ever wanted to leave AT&T, you'd have that last year hanging around to be paid for or pay the ETF. But I don't expect AT&T to have any competition for iPhone users for at least a couple more years, and they suck far less than they used to, so I'm OK with the 2-year contract for now.