Subsidy.
Oh, how I hate contracts. I think most people will agree that while none of us enjoy signing two years of our lives away (and a decent portion of our pay checks every month) to wireless carriers, contracts are a necessary evil. Signing a contract with a carrier means two things: the upfront price of the phone is dropped dramatically from its retail value, and you are agreeing to pay your bill and continue service on that line for the length of the contract.
All of this is great – everyone wins, right? The carrier takes a loss on the price of the phone at first and earns back the money they originally lost (and much, much more) over the length of the agreement. And customers don't have to spend $500 to $800 for a phone like they would without such an agreement.
That said, there is a problem. Two years is a very long time, especially when it comes to the mobile industry. Multiple phones are launched every month on all carriers, it seems, and remaining content with the one you have (which was likely the flavor of the week when you bought it just a few months ago) becomes increasingly difficult with the launch of every new device.
So what's a guy (or gal) to do? Well, you can always play the buy, sell or trade game and try to score a new device for your current phone plus a little cash. But even this – which is what I have done for ages now – is becoming almost too difficult to bother with. Since there are so many phones out there and new phones launch at such a remarkable rate, the resale value almost any non-iPhone drops drastically just weeks after its launch. (What it really amounts to is the majority of people not understanding the full retail value of cell phones, no thanks to subsidization. I digress ...) You'll be lucky to get what you paid for your phone (with a contract) when reselling it.
The answer is to offer subsidization options.
Evan suggested nearly two weeks ago that carriers should offer further subsidization to bring down the price of phones. And I agree 100 percent. Many countries around the world offer three-year agreements instead of two-year for that very reason – they can lock in more money for the length of the agreement and the customers pay less for a phone. Not everyone cares about the latest and greatest gadgets and many would love nothing more than to pay less for their phone upfront. However, there are people on the other side of the fence, too. I hate signing two-year contracts. Two years in today's market (and with my job) is simply too long. With a one-year contract, while the upfront price of the phone would only be reduced to $300 to $500, you would only be tied down for half the time.
Again, some people aren't going to see the bright side of this. But being able to upgrade your phone every nine or 10 months would totally be worth it to me. For those thinking "What?! You'd pay $400 or $500 for a subsidized phone?" Maybe. It's better than paying $600 or $700, right?. And think about it, third-party dealers might even cut the price even more. Amazonwireless.com is notorious for selling newly released phones with two-year agreements for a $1.00 while Verizon or AT&T might sell the same phone with the same contract for $200 or $300. I wouldn't expect any $1.00 phones with one-year agreements from Amazon, but I wouldn't be surprised to see a $200 or $300 phone with them. (Keep in mind, with third-party retailers such as Amazon or Wirefly, you're agreeing to two contracts, not one.)
There was a time that all of the national carriers in the US offered one-year contracts. But all of that came to a pretty fast halt once the prices of phones started going up. T-Mobile, Sprint and Verizon Wireless all scrapped the ability for customers to sign one-year agreements over two-year terms. And AT&T? In April, they raised the price of phones on one-year contracts, but we haven't heard anything since. I couldn't find any documentation or anyone who knew the official word on their one-year contract status. But the important part is, if it still exists, they've made it extremely difficult for anyone to find.
None of the carriers really explained why they nixed one-year contracts, but it's easy to assume it's because people weren't buying into one-year contracts and the average price of phones subsidized for two years was quickly closing in on one-year pricing. Personally, though, no matter how unlikely it is, I'd like to see all of them offer the option to choose your contract length.
I have an upgrade coming up in June of 2012 and I'm seriously hesitant about signing another two-year agreement. Both signing a two-year agreement and buying at full retail only to resell and buy another phone I may want later are becoming terribly difficult to stomach. A one-year contract would be a nice balance between the two, and a three-year contract would be perfect for those who want to pay less and don't plan on switching phones in the next few years anyway. I say carriers need to offer options that suit each one of us best.
Tell me, readers, would you buy a phone on a one-year contract? Or would you stick to the more affordable (upfront) option of a two-year agreement? Three-year even? Should customers at least have options when it comes to subsidization?
