John Wilson writes on GigaOm (mostly reproduced below) that carriers should
- Have 5 years contracts
- Allow customers to get phones for free every year
Me, I think there is a much better model out there - what they currently have in Europe/Rest-Of-The-World,
- Carriers have contracts
- These contracts do not include phones
- Customer bring their own phones
- The monthly bill is vastly lower
Decouple the Phone market from the Plan market.
- Customers that want new phones every year can get their own phones every year - and e-bay is always there to sell their old phones.
- They are 'auto-subsidized' - the plans are significantly cheaper (hello competition!)
This *could* happen - it already exists as a model, and phone companies are notoriously bad at tryign somethign that has not been tried before...
What do consumers get?
Carriers need to rethink the current model of phone ownership. It’s not working for them or consumers. So let’s propose a new one: phone leasing. It would work like this. A consumer can get a free phone, any model they would like, and can keep it for 12 months. No charge aside from their monthly bill. If there are any issues with the phone, they would most likely still be covered by the manufacturer’s warranty. And any reasonable issues not covered by the manufacturer’s warranty would be covered by the carrier for free.
What’s the catch?
The carrier owns the phone, and it must be returned after the 12 months is up. Moreover, instead of signing a two-year contract, consumers would have to sign a four- to five-year one. But, and this is a big but, when a consumer gives that 12-month-old phone back to the carrier, they’ll get a brand-new one of their choice — every single year of the contract.
What do carriers get out of this model?
Three things: More phone “sales” — lowering the cost of phone acquisition will lead to more contracts; longer contract means more customer loyalty; and leasing instead of selling phones means the phones can be resold once the 12 months is up (a typical iPhone goes for $300-400 on Craigslist). So instead of a carrier purchasing a phone for, say, $650 from a manufacturer and only getting $200 at retail from a consumer, losing $450 in the process, they’ll be able to resell that phone after 12 months for $300-400. This process will be repeated until the contract ends.
But why would a carrier go this route when the churn rate (the percentage of consumers leaving) is so low? More profit. Smartphone adoption is growing, but it would be growing much faster if smartphones were free. Moreover, carriers are basically competing with the same phones (barring T-Mobile, which still doesn’t have the iPhone) and very similar monthly plans. Adding such a plan would be a game-changer that would provide a worthy competitive advantage. Lastly, churn may be low — Verizon, for instance, reported 1.1 percent among 88 million contract subscribers. That equates to 88,000 people, or nearly half the population of Richmond, Va., leaving every quarter. With each subscriber worth $54.89 of revenue, $4.8 million worth of churn walks away each quarter.
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