During a recent speaking engagement at an investor conference in New York City, AT&T CEO Randall Stephenson said wireless networks can't afford to continue to subsidize devices like they have been for years.
During the early days when it was critical to get customers to join wireless networks, it made sense to entice customers in with subsidized smartphones. But now, Stephenson said, smartphone penetration is over 75 percent and will soon reach 90 percent. Instead of simply getting people on the network, carriers need to focus on getting customers to use more of the network. The model has to change, he said.
AT&T appears to be moving along the path of eliminating traditional subsidies. Following in the footsteps of recent trendsetter T-Mobile, the wireless carrier launched an early upgrade program known as Next over the summer that would allow customers to upgrade handsets once a year and spread the price of the device out over the course of 20 monthly payments.
The problem, however, was that AT&T didn't offer a discount on regular plans to make up for the fact that you were now also paying extra to finance your own phone subsidy. The company finally got with the times and introduced cheaper rates this past Sunday for off-contract customers.
Stephenson said the changes in the business model will be very powerful as it is where they see the market going now that most carriers have seeded the market with smartphones.