Subsidizing Smartphones May Soon Cease

Wireless providers tend to sell “smartphones” at a subsidized price when the consumer enrolls in a long term contract; generally for two-years. However, this may soon change if Europe’s new smartphone finance program is found to be successful.

Due to the increasingly high costs associated with subsidizing a smartphone, most European wireless providers have stop offering subsidies. The change is a direct result of the rising costs of smartphones which means wireless providers will have to start offering large subsidies in order to keep the phones affordable. European wireless providers are saying the cost associated with this are becoming too high and in order for them to keep their desired profit margins they had to stop the program.

Apple’s iPhone generally costs consumers $200 at the time of purchase with a two-year contract or upgrade. However, the phone actually costs approximately $500-600 and the difference in price is initially paid by the wireless provider and their customer repays it over the term of the two-year contract. But cell phone prices are increasing so much that wireless providers have decided to offer cell phone financing instead.

Most consumers aren’t crazy about the new program since they have to pay a higher initial cost or obtain a “loan“ to buy a smartphone. However, if Europe's new finance program proves to be a success, US wireless companies may start to follow suit and we (the customer) may soon pay “full price” for our smartphones.