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Sprint CEO debates dropping subsidies from 2015

Sprint's CEO is considering the idea of ending the carrier's subsidized pricing structure in order to stem growing losses. Is this good or bad?

Published onNovember 4, 2014

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Many years ago in Japan, phones cost about $100-200 on a 2-year contract. Then things changed and the cost rose to around $600. A bit later, the entire game was altered: Softbank, one of the country’s big three, started offering phones at $0 down, with a monthly installment plan structure divided over 12 or 24 months. Immediately, the other two started following suit. $0 for a brand new device sounds extremely affordable, to be sure. The catch however, is that the carrier itself makes the customer pay the full price of the device.

As time goes by, America seems to be following the same basic path. Last year, T-Mobile began its “Uncarrier” system, which essentially mirrored the Japanese structure mentioned above. Other companies would eagerly follow suit. Things may be changing even more, however.

Sprint looking to stem losses

Sprint, which is owned by Softbank, now seems poised to drop all subsidies from phones as early as next year according to its CEO, Marcelo Claure. While not decided yet, the company is looking to stem its growing financial trouble with more cost-efficient business practices. It’s plausible that beginning next year, customers will be left with the following options: either buy the device outright at true-market prices (a cost that most can not afford less they buy unlocked to begin with), opt for an installment plan, or lease the phone.

This plan has become more of a necessity as Sprint’s performance and earnings slip, as the carrier no longer wishes to be saddled with the brunt of the phone subsidy. It’s unclear what to make of this new trend: on the one hand, Sprint and company might end up selling more flagships, as customers don’t have to put down so much (if any) money up front. Sales may increase and OEMs will be happy. Likewise, because the customer is going to end up paying for the whole price of the device over time, Sprint won’t be eating the costs. On the other hand, this translates to a larger bill each month, and absolutely no savings on the device itself.

What are your thoughts on this issue? Would you prefer an installment plan on your new purchase? Or do you like the current subsidized model?

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