US number-four operator T-Mobile USA is set to drop handset subsidies, as it looks to follow its “challenger” strategy in the US market.
The company, which is the smallest of the “big four” players in the country, is looking to unbundle device and service charges in its monthly tariffs, citing reduced costs for itself as well as increased flexibility for consumers.
In a presentation, John Legere, president and CEO of the company, said that customers will be able to pay for devices up-front, or stagger the cost through financing plans.
Coupled with low-cost service plans, this will enable it to offer a proposition with costs “much lower than the out-of-pocket costs for the traditional business”.
Legere said that customers will be able to trade devices in at any time, and it will pay a residual value for them. Handsets acquired by the company in this way can be refurbished and resold.
In a presentation, Legere indicated that the move will reduce customer acquisition costs by US$200 to US$250 per subscriber.
T-Mobile USA is not the first operator to attempt to reduce subsidies, with a number of its peers in Europe following a similar path in order to reduce their costs in the face of a tough competitive environment.
With smartphones becoming more and more capable, but costing more and more to manufacture and buy, subsidies have proved an effective way to keep them affordable to consumers, with the upside of driving increased data adoption and service revenue.
However, with pressure on data pricing meaning there is less for operators to gain in this regard, subsidies are having a significant impact on margins among what should be the most lucrative customers.
And with smartphone penetration now above 50 percent in developed markets, the subsidy issue is a significant one for operators to address – although with the caveat that they still need to be able to offer devices to consumers at an appealing (and affordable) price.