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Comment by sigkill | Hacker News Reader

THIS is what I don't understand. Why do people call it "subsidized" when you're locked in to a 2 year contract with an early termination fee.

IT IS NOT SUBSIDIZED, PEOPLE.

You may say, well I'm paying the same per month whether I take a new phone or not from the carrier, so... it's subsidized right? Nope, they're just gouging you when you're on an old phone. Taking the new phone just slightly reduces your disadvantage. Let's put it this way, if MVNOs can offer you piggybacked network rates at $X while traditional operators rates are $3X aren't you a bit surprised? It's not that the operators are going to sell to MVNOs for a loss, and not that MVNOs are going to sell to you for a loss.

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It's subsidised in that they are fronting you the money.

My wife has about £100/month disposable income and pays about £30/month for her handset and contract. When her renewal comes around she can buy the handset for, say £400. Apart from to get that £400 she needs to go without beer and eating out and new shoes for 4 months (never going to happen). Or make do with less for, say, a year (very unlikely given she doesn't really care enough about handsets).

Her alternatives are to take the contract and handset bundle or to buy the handset on credit. Assuming she takes a SIM-only plan like mine (£13/month with limits I've never exceeded) that leaves her with £17/month to pay off the credit on £400. I've not done the figures but I'd say that probably works out at around two years - so it doesn't really give her any advantage beyond avoiding lock-in; which she'll only care about if we change country (remember she's not really bothered about handsets)

Which is all a long way of saying that many people's priorities aren't the same as ours (by which I mean frequenters of Hacker News) - which alters the equation and makes buying off-contract less appealing than getting everything up-front and paying for it over time.

Edit: typos

If you come up with detailed numbers you can call it below market rate credit. Not a subsidised phone, subsidised credit.

In my experience, people like that aren't interested in getting a brand new phone every 24 months like HN users are. For someone like that, it makes much more sense financially to buy a phone outright, since they are unlikely to take full advantage of the subsidy.

Not sure how it works in the US but last time I bought a new phone in the UK I calculated the total cost of ownership over 24 months of various options, including buying the phone unlocked plus a SIM-only airtime deal, and getting the phone-plus-airtime on a contract.

The contract worked out cheaper. That's a subsidy isn't it?

Same here. It's grim on the wrong side of the pond.

No. It might be a rip-off if you have your own phone, though.

It could be all sorts of things (cheap credit, loss-leader etc.) but I doubt it ever qualifies as subsidy.

> THIS is what I don't understand. Why do people call it "subsidized" when you're locked in to a 2 year contract with an early termination fee.

The cost of early termination + subsidized price is still quite a bit cheaper than the full price of the phone.

ETF is $350, new phones are usually $2-300 so the total is $5-650.

Not really "quite a bit cheaper".

With the iPhone, the difference is $450, so it's usually cheaper. If you keep it for a while, the ETF goes down.

The ETF goes down, but so does the value of the phone - you're also paying off the difference in price every month.

On Tmobile when you bring your own device you can get a $50 everything plan - the equivalent plan is $100 on competing networks. Granted you could argue this isn't all subsidy and that Tmobile is also cheaper because their network is worse, but when you compare to international cell services this doesn't appear to be the case.

It's at least in part because the companies are near monopolies that don't need to compete (http://www.youtube.com/watch?v=7R4xhwy-1oI).

I doubt that anyone on this site is the least bit confused as to how the system actually works. It's not exactly a secret.

They still front the money, then get it back from you over time. I'd say that qualifies as "subsidized", especially when the "over time" payments are not broken out separately.

Regardless of how it works out afterwards, the fact is that most American buyers prefer to pay $200 up front with a contract versus paying all $650 themselves. If Apple wants the carriers to keep putting up $450 in exchange for locking people into contracts, they have to cooperate at least a bit.

Comparing oranges with oranges - you compare the "bundle" cost with the price you'd pay if you simply took the phone on credit from any electronics shop with the same upfront payment and length of contract, and added a cheap no-handset mobile plan.

The phone qualifies as "subsidized" only if buying it from your mobile company turns out cheaper than if buying it separately. Generally it isn't.

Where do I obtain one of these "cheap no-handset mobile plans" on my carrier of choice?

You can do such a comparison probably in any country worldwide except US. For US in particular the "subsidy" answer is simple - no, you're not getting any subsidies, in mobile comms pricing you're getting ripped off, and noone has any idea on how to fix it.

I don't understand this idea that subsidies are mutually exclusive with getting ripped off.

Yeah, I pay a lot of money. I also get ~$450 back to help pay for my phone. That's a subsidy. The fact that my monthly bill is ~$65/month/person is irrelevant to that.

It's actually a very good point - yes, in USA that is a cross-subsidy where phone service income is used to subsidize handset purchase. In other places, where the basic phone service is commoditized and cheaper, then the monthly handset payment usually isn't subsidized; it's just that when I see "$65/mth" I mentally think "$20/mth phone bill + $45/mth handset payment", which comes out as overpriced phone; but in your example it should be treated as a large phone bill subsidizing handsets.

Exactly.

Interestingly, it seems that the US market is slowly moving toward the way you're saying. T-Mobile, for example, now offers cheaper service by default, and if you want a "subsidized" phone, they treat it as a loan that you pay back over time, and charge that amount separately. The other providers have introduced plans for people who want to upgrade every year rather than the standard every two years, which involves paying an extra monthly charge on top of the regular bill.

A loan that you couldn't have gotten otherwise is still a subsidy, just as student loans are a subsidy for education.

The monthly service payment discounts (subsidizes) the phone purchase.

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