For years, the way that most people get their hands on a new smartphone is to buy one with a new contract for two years with a carrier. Those two-year contracts bring with them big subsidies on the expensive smartphones form the carrier. The days of those big subsidies might be numbers.
CNET reports that AT&T CEO Randall Stephenson recently said that wireless carriers can't afford to keep offering massive subsidies on new smartphones. The executive says that offering those big subsidies was a requirement to lure the customers the network needed to grow. Now that the smartphones have massive penetration rate, Stephenson says that carries can't afford to keep funding customers constant upgrades.
"When you're growing the business initially, you have to do aggressive device subsidies to get people on the network," he said. "But as you approach 90 percent penetration, you move into maintenance mode. That means more device upgrades. And the model has to change. You can't afford to subsidize devices like that."
One way that AT&T is trying to stop the subsidies on upgrading smartphones is by offer cheaper plans that give customers an incentive to keep their older devices that are no longer under contract. AT&T is doing this with its new plans that offer about $15 monthly off the cost of the service with a phone that isn't under contract.
"If you are a customer and you don't need to upgrade your device, you can get unlimited talk and text and access to the data network for $45 all-in," he said. "You can use your own device or finance it. I think this will be very powerful. It's where we see the market going."