Subsidies, Smartphones And Conspicuous Consumption

Most Smartphones are bought with a contract. Talk to users about their Smartphone and you'll find the discussion eventual turns to how long they have left on their contract and can get their hands on a shiny new device for free.

Only it isn't free is it? The cost of the phone is lumped into contract and the value proposition isn't actually that good.

The contract has become a tool of more value to the phone manufacturer than to the carriers and Apple, in particular, has worked hard to use this as a lever to move sales. The two-year cycle of design refreshes plays to the two-year contract cycle nicely.
However the two year contract is an expensive way of buying a phone and service - and consumers are starting to wake up to this, especially in the US where carriers are starting to respond by moving away from contracts with subsidies.
That could hurt smartphone sales, as consumers realise the true cost of those $99 or $199 phones, once they have to account for the full cost and can't hide it in contract fees.
The thing is you have a iPhone 5 or Galaxy S4 they are still functional and capable phones. Neither is screaming out for replacement when viewed with one eye on the cost.


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