OK, I’ve really got to move on with projects for this year, so that means all that fun time surfing the Web over the holidays really does need to come to an end. But one final note here, based on a series of predictions for 2009 from Yankee Group. As is always the case, annual wrap-up/forecast articles are all the rage around this time of year, and one of Yankee’s predictions caught my eye: “Subsidies on smart phones will strangle operator profits”. Wow!
As you may recall, I’m no fan of operators selling devices; such is a simple conflict of interest. A free market in handsets would likely lower prices, improve the variety of devices available, and end the frustration resulting from operators disabling features on handsets to suit their – and not their customers’ – business objectives. But I hadn’t considered that the practice of subsidizing and bundling handsets with service might actually be hurting the operators who do this – and that’s all of the US carriers, by the way.
Yankee’s thesis is that the two-year lock-in created by the subsidy prevents the more rapid turnover in devices that might otherwise be the case if consumers were free to move on to the next cool gadget more frequently. I think I might argue this point a little differently, in that, a deal being a deal, and the consumer is indeed locked in, but unsubsidized devices being more expensive to acquire (although less expensive than the artificially-high “retail” prices the carriers charge absent a contract), the consumer might not upgrade all that frequently anyway – especially during slow economic times. The carrier will regardless eventually offer an incentive – another subsidized device – to renew, so everyone goes home happy.
Or do they? If Yankee is right, carriers are squeezing their own profitability, and consumers are unhappy because they don’t always have the latest and greatest. I think competitive pressures will ultimately force the carriers to unbundle, and just maybe the opportunity to improve profits will spur this eventuality.
