Smartphone subsidies are fading away in favor of payment plans

For years, it’s been standard practice to buy an expensive smartphone from your wireless carrier at a reduced price in exchange for signing a contract that commits you to that carrier for a couple of years. However, more and more people are abandoning this payment method in favor of cellular plans that spread out the full cost of a smartphone over the course of several months. People prefer this so much, in fact, that AT&T believes that smartphone subsidies will soon vanish entirely. 

President and CEO of AT&T Mobile and Business Solutions Ralph de la Vega said Tuesday that phone subsidies will soon vanish as customers move away from two-year commitments in favor of new financing plans. According to Re/code, de la Vega believes customers will increasingly choose cellular plans that spread out a handset’s full cost over a set period of months. Unlike traditional two-year models, customers don’t have to pay an up front fee and have the option to trade in their phone for newer hardware once the term is complete. “I think it is one of those options that is going to go away slowly,” de la Vega said. The comment comes a year and a half after AT&T CEO Randall Stephenson said carriers will inevitably need to wean subscribers off handset subsidies. Initially, subsidies were instituted to ameliorate the cost of high-priced smartphones, thus incentivizing customer growth and billings. With higher penetration, early subsidy models become unsustainable, Stephenson said at the time. AT&T already fields an installment program called AT&T Next that spreads out full handset pricing over 12, 18 or 24 months.