Mobile death watch starts as phone subsidies hammer carrier profits

the more smartphones carriers sell, the worse their profit margins get. The new phone you buy for $199 costs your carrier two or three times as much when they buy it from the manufacturer. They pay the heavy upfront subsidy to get you hooked on a long-term contract. The longer you hang on to your phone, the better their bottom line gets.

Citing heavy smartphone upgrades, Deutsche Bank lowered its earnings per share estimates on Wednesday by 25% for Verizon and 12% for AT&T.

via Carriers brace for a nasty quarter – Jan. 21, 2013. (Emphasis mine)

Two weeks ago I wrote about how US carriers could kill the mobile revolution by ending phone subsidies, thus making the cash outlay required for a new phone so large most people would update their hardware far less frequently. Not only would this put immense pressure on mobile sales, it would stunt the growth of a mobile app ecosystem that has come to depend on powerful, relatively inexpensive handsets and sufficiently fast network connections everywhere.

As with data caps, which AT&T introduced first, once either AT&T or Verizon drop subsides, the other will follow suit. Sprint may not have the same profit issues, but that be due in large part to their smaller, less expensive network which doesn’t fit the “everywhere” requirement mentioned above.

 

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