Comment by Camillo | Hacker News Reader

Comment by Camillo | Hacker News Reader

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Why would it break the contract model? A carrier could still pay a $150-200 subsidy and give you the phone for free, and people would lap it up.

I think people are looking at this from the wrong side. In the US, they don't sell you a phone with a service contract attached: they sell you a service contract with a bonus phone. Yes, Google or Amazon could give away phones for free to eliminate the value of the bonus phone, but you still need a strong alternative to contracts for service.

Currently you have carriers like T-Mobile that offer semi-decent prepaid service, although it's been hampered by technological issues (the band they use for 3G is incompatible with iPhones, although supposedly they're in the process of changing it). Why are so many people still buying contracts, though? Is it really just because of the subsidized phones? I'm not convinced.

Furthermore, Europe already has a very competitive phone service market, with extremely popular prepaid plans that are far cheaper than anything you can get in the US, and no locked phones; and they achieved all of this without resorting to phone dumping.

For all these reasons, I think selling phones at or below price has nothing to do with disrupting the American carrier model (which hardly makes sense for Google or Amazon anyway - they're not even in that industry!).

It might not be the primary thing driving the cutthroat price competition, but it does make sense for Google to want the carrier model disrupted. Currently, they are on the short end of a massive power imbalance that puts them at a competitive disadvantage against iPhone. (Just read John Gruber's gleeful posts deriding the (admittedly astonishing) lack of high-speed data on the Nexus 4.)

In fact, Google has been gunning for this disruption since the very first Nexus One. Remember, they introduced that phone -- their first -- unlocked and unsubsidized, with direct-to-consumer sales. At the time, that was a novel approach (and really exciting for knowledgeable consumers). However, they got their ass beat down by the carriers and had to whimper back home with their tail between their legs. They even stopped selling phones direct for a time.

So they failed at subverting the carrier's (anticompetitive, illogical, anti-consumer) business model the first time they tried, but you can bet they still want to. Apple actually does, too, for similar reason, but Apple didn't underestimate the power of the carriers, and waited until they had the most dominant phone in human history and the leverage that came along with to make the carriers lay down and take it however Apple deigns to give it to them.

Google would love to be in a similar position, but they won't be until either Google can make a phone close to the iPhone in popularity, or the carrier-subsidy model goes away or is at least greatly diminished (neither thing being very likely in the foreseeable future).

> Just read John Gruber's gleeful posts deriding the (admittedly astonishing) lack of high-speed data on the Nexus 4.

Lack of high-speed data? HSPA+ 42Mbps isn't "high speed"?

Yes, LTE may be "the future", but right now, there are few places you are going to get better speeds over LTE than HSPA+. And there's enough headroom in HSPA+ for the next couple of years; it can go up to a theoretical maximum of 168 Mbps. LTE definitely has more headroom, but given that people tend to upgrade phones every 2 years or so, I'd say that HSPA+ has plenty for the lifespan of the Nexus 4.

I think that selling an unlocked, unsubsidized, $300 phone with only HSPA+ is a much better strategic move for Google than a locked, subsidized phone on Verizon that does LTE.

> Why are so many people still buying contracts, though? Is it really just because of the subsidized phones? I'm not convinced.

Because in Verizon and AT&T (the major carriers, only option for most people), you don't get a lower price for bringing your own phone. Essentially, you can pay full price for the contract and get the phone subsidized, or you can pay full price for the contract and full price for the phone.

Is it surprising that most people choose the subsidized option?

Thanks for the info, I didn't know. That really strengthens my hypothesis.

I would just like to add, there is definitely economical benefits in buying your own device, even in the US. T-Mobile offers a discount on contract plans, if you buy your own phone. While AT&T/Verizon/Sprint don't give a discount on their contract plans, all three have various prepaid options that are cheaper than contract pricing.

For example, T-Mobile has a $60 flat price for unlimited text/voice and 2 GB data, which is far cheaper than their contract price. Similarly AT&T Go-phone has cheaper prices.

Next, there are various MVNOs that resell service from the big 4, and they also have much cheaper price on prepaid. However, I have noticed that US consumer are almost universally unaware that such cheap plans exist. Part of it is that prepaid is seen as something used by people with low credit-worthiness, and other reason being that the subsidized contracts make it possible for far more people to have high end phone than normal. I have met quite a few people with iPhone, who would never be able to purchase it if they had to pay $700 upfront in store.

I was one of the people who tried to get prepaid/pay-as-you-go plan for the iphone on Verizon by paying upfront. At the time, it was impossible, and I eventually gave up.

So, given that I did want an iphone, and therefore needed a contract, I tried to get one without providing my SSN. Those were another fun couple of days - it began with about 10 different Verizon employees telling me that would be impossible, and ended up with a $400 deposit and no SSN.

So, I paid for the phone upfront, but I'll get $400 back when the contract ends - as of feb 2012, that was the best deal one could get on the iphone 4s from Verizon.

And while it is easy to get coverage of any kind in NYC or SF, that is not true in general. T-Mobile's high speed coverage is lesser, and many of the MVNOs have a really limited coverage area (and non-trivial roaming charges outside those areas)

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