One of the main reasons mobile has seen such rapid growth in the consumer market is phones currently cost a lot less initially than PCs do. Combine that with the deals on new hardware many carriers offer users every 2 years, and suddenly you have a firehose revenue source based on what is essentially a hardware subscription service.
All of that could come to a screeching halt, however, if AT&T and Verizon follow T-Mobile’s plan of ending phone subsidies as they are considering doing. On Verizon Wireless, for example, current full retail prices of base (i.e. lacking more expensive storage options) Galaxy SIII, Note 2, and iPhone 5 models are $600, $700, and $650 respectively. At that price point, would you choose a laptop or a phone?
@jdrch laptop. Def.
— K8e barbee (@barbeedoll08) January 9, 2013
Such a policy would change the dynamics of the mobile market to function more like those of the PC market, in which monolithic device purchases are made every 3 – 5 years, and most users replace hardware only when it’s broken or largely unusable instead of trading up to the latest model every time their contract is up.
This would have a significant impact not only on smartphone sales, but also on mobile development. The entire mobile ecosystem – with rich, resource hungry apps – depends on user access to powerful relatively low initial cost devices. Can you imagine mobile devs having to accommodate performance on 3 to 5 year old hardware that was optimized more for low power consumption than computing speed?
Of course, tablets have been sold at full price for a while now and are red hot. But a price increase in phones would mean that something would have to give in most peoples’ budgets. And that something might be a tablet that’s useful as a consumption device but not nearly as adept at creation (email, word processing, printing, etc.) or general tasks as a PC is.
This explains several things:
- Why some OEMs are optimistic about PC sales growth in Asia, where carrier subsidies are nonexistent (in some countries).
- Why Google’s Nexus 4 skimped on specs: so it could be priced well below any would-be PC competition at $300.
- The continued ostensibly pointless existence of Chromebooks.
Of course, knowing Verizon and especially AT&T, this could just be a sabre rattling to get better revenue deals from OEMs such as Apple and Samsung. But if it were to actually happen, Google’s dream of dominance via cloud and mobile delivery in lieu of the desktop would be in serious trouble. Apple might be hurt too, but at least they have a desktop business to fall back on. Amazon might rethink their phone plans, but then again their devices have always been loss leaders for their content store and larger retail ecosystem.