T-Mobile CMO blasts device subsidies, but says they won't go away

T-Mobile USA CMO Cole Brodman said that the way wireless carriers heavily subsidize the cost of devices for consumers is ultimately hurting the industry, but he conceded that the status quo is not likely to change any time soon.


"It actually distorts what devices actually cost and it causes OEMs, carriers--everybody to compete on different playing fields," Brodman said Thursday, speaking at the GeekWire Summit in Seattle, according to GeekWire. "And I think it is really difficult, especially from a consumer perspective, because it causes consumers to devalue completely the hardware they are using ... It is amazing hardware, but it has become kind of throw away. So, it is unfortunate, you've got dual-core, multiprocessor devices with amazing HD screens that get thrown away at 18 months."

As smartphones have proliferated in the wireless industry, carriers have taken on continually higher equipment subsidy costs to keep prices lower. Smartphones typically cost between $400 and $700, but carriers subsidize the cost in exchange for customers signing contracts, often as two-year agreements. There has also been a strong push to get cheaper devices into the market. Flat-rate player MetroPCS (NYSE:PCS), for example, intends to launch LTE smartphones by the end of the year that cost between $99 and $150. 

Swype CEO Mike McSherry quipped to Brodman at the panel discussion: "You are one of four kings in the country to do that, right?"

Brodman noted that the other three Tier 1 carriers would have to go along with any plan to change the way devices are subsidized, and that the situation likely won't change anytime soon. "It's hard when the other three don't want to play along," he said. "It becomes difficult because consumers vote with their pocketbooks, and they will almost always pick a low device price oftentimes over a low rate plan price or a bundled rate plan price. We've experimented with that model more than anyone in the country."

Unlike many carriers in the United States, T-Mobile offers customers the option to sign up for its unlimited Value plans, which allow them to pay for the cost of their device via a larger upfront payment and then pay the rest in monthly installments.

T-Mobile is the only major carrier without Apple's (NASDAQ:AAPL) iPhone, and although Brodman said T-Mobile can be successful without the device, its absence in T-Mobile's lineup hurt the company in the fourth quarter. Still, the silver lining is that, unlike Verizon Wireless (NYSE:VZ), AT&T Mobility (NYSE:T) and Sprint Nextel (NYSE:S), T-Mobile did not see a hit to its margins due to higher subsidy costs for the iPhone. T-Mobile's adjusted OIBDA margin actually increased in the fourth quarter to 31 percent from 29 percent in the year-ago period. 

For more:
- see this GeekWire article
- see this The Verge article

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