AT&T’s Ralph de la Vega: Subsidized Phones Are Going Away

Like unlimited data plans, the two-year contract and the subsidized cellphone are on the endangered species list. “I think it is one of those options that is going to go away slowly,” said AT&T CEO of mobile and business solutions. The shift will happen, de la Vega said, “not because we insist on it but because customers will choose it less often.” Already AT&T has been shifting its focus toward plans where customers pay full price for their phones by financing them over a period of months. An iPhone that would cost $199 with a two-year contract would cost $649 paid over a period of 18 to 30 months on these new plans. Nearly two-thirds of last quarter’s smartphone sales were on one of the so-called Next plans where devices are sold without a subsidy.

AT&T took a huge step toward doing away with subsidized phones by eliminating two-year contract pricing at third-party stores such as Best Buy and the Apple Store. Smaller rival T-Mobile spearheaded the move away from subsidized devices when CEO John Legere eliminated the two-year contracts back in March 2013 and began selling all phones unsubsidized. Though T-Mobile was an outlier at the time, it is a move embraced across the industry with all major carriers focusing on plans that separate the cost of a device from the cost to provide wireless service.