Mobile Phone Prices – Why Providers call all but Give their Phones Away

We all know the drill. It’s time for your upgrade and you head on in to your local retailer to pick out your new toy. You get a discounted cost for a phone and, in turn, are asked to sign that pesky two year contract. But what exactly does this mean to you?

Well here’s how it works. The carrier wants your contract. That contract guarantees that you owe them money every month. That means monthly revenue for them. In return for signing that contract they have to offer you some kind of perk, right? Well that perk usually comes in the form of a discounted phone. This may all seem like common sense to you at this point. But a lot of folks don’t understand the intricacies to this model. When you understand how this works, you can get a lot farther in the future having to handle warranty issues and your cell plan.

Now, I can go on all day writing a book about this. The business model is twisted and intricate. But I’m going to try my best to stay on track and explain only the subsidized cost part.

All retailers, whether it be a corporate owned store, an authorized reseller, Walmart, Best Buy, etc… all get these phone from the same place. They don’t come from the carrier, but rather the manufacturer like LG or Samsung. It doesn’t really matter which business buys the phone to resale, they all pay the same price. Meaning AT&T, Verizon, Sprint, Best Buy, Walmart; all of them pay Samsung the same price per unit for that phone to sell.

But that doesn’t make much sense. They all have different prices. Well that is an article for another time. Like I said, the business model is twisted. Okay, so you know all resellers buy the phones from the same place. They all offer subsidized pricing for you to sign the contract. What happens is that the reseller you buy the phone from eats the cost of the phone. In reality these phones from $300 on up depending on which model we’re talking about. Some smart phones even retail for a higher cost then a laptop. These bloody things are expensive.

So what does that mean for the carrier? The carrier only cares about the contract. They offer the service, not the phone. There’s a reason why Best Buy and Wirefly sell phones for a different cost. As far the the carrier is concerned you purchased the phone and brought it to the plan on your own. They offer help and support for the phones to make your life easier, but they don’t have to.

You would think that because this phone says Verizon or AT&T on it that the phone was made by them. Again, this isn’t the case. That branding is only there so you, as a consumer, know that this phone will work on this network. AT&T, Verizon, Sprint, and T-Mobile all use different bands. Meaning you can’t take a T-mobile branded phone to Verizon and expect it to work. The manufacturers have to adhere to certain standards set by the carrier, hence the branding.

So that brings us back to the subsidized pricing. Like I said, this is kind of twisted. Think of the subsidized pricing as nothing more than a perk when you sign the contract. You are buying the phone on your own terms. It’s very akin to buying a Chevy and getting a free year of OnStar, or buying a used car and negotiating a new set of tires and a free tank of gas. Ultimately that car is yours, but the other stuff is just perks to get you to buy it. Chevy doesn’t support OnStar after you buy the vehicle, OnStar does.

All right, so this is all said and good, but at this point you’re asking, “What does this mean for me?” Like I said, the carrier doesn’t care about your phone. They support it to make life easier and to make the customer happier, but at the end of the day it’s not their phone. It’s yours. The service is theirs. You rent and pay for the service. Not the phone. With that being said most carriers have some sort of policy in place that if you have continual documented issues with a phone, they will offer a different model phone to keep you on the service because that monthly bill means more then the early termination fees, or worse yet, a dead contract that no one is paying for.

Knowing this also makes negotiating terms easier. Yes, you can slightly negotiate. Don’t get me wrong, pricing for plans is usually set in stone. Corporate stores and agents don’t have any say in this. But corporate stores and agents are able to swing the cost of the phone and accessories. Meaning the sales people have the power to give you that accessory for free or match the price of a phone sold else where. You’re going to have better luck with this at an agent or a corporate store then a big chain like Best Buy. But don’t be afraid to shop around and negotiate.

Here’s another fun tidbit of information. If you buy a phone out right you don’t have to sign that contract. This goes with all carriers. It’s made out to be common knowledge that you have to sign that contract so you might as well pick out a cheap phone. But you can bring your own phone and not sign a contract and just sign up for month to month service. Phones can be bought on the cheap from various places like EBay and Craigslist. Hopefully with this new found knowledge you have a better understanding of what you are walking in to.

Now you know, and knowing is half the battle.