As we've mentioned before, cell service providers are moving away from contracts and the subsidization model that many shoppers are familiar with. And as a result, many of us may have to pay full price for our next phone. With this drastic change to the pricing landscape, it begs the question: How will this affect phone deals?
Well, the first promotion for the iPhone 6s might have given us our answer.
No Subsidies Means Paying About $649 for Your Phone
But first, let's review how things have changed.
Prior to the shift away from contracts, shoppers could sign up for a 2-year contract with a wireless provider in exchange for a reduced-cost smartphone. That's why, for the longest time, flagship phones would debut at $199; that was the cost that providers were willing to charge if you committed to their company for two years, usually with a very expensive monthly plan.
But now, only AT&T is left offering subsidies. Verizon, T-Mobile, and Sprint all push contract-free plans, which requires a shopper to pay full price for their phone. You can do that up front and pay about $649 for a top-of-the-line, newly-released phone, or you can opt for an installment plan that, coincidentally, breaks up the cost over a 2-year period of time. (But remember, it's not technically a contract... you just can't leave unless you pay off that phone. It's totally different!)
No More Free Phones
In the past, the subsidization model meant that we would frequently see promotions that would heavily discount these in-demand phones, sometimes even making them "free" when you resigned a 2-year contract. But freebies no longer make sense for carriers to offer if there's nothing binding a shopper to their service. After all, no contracts and no installment payments makes it easier for a customer to fly the coop.
However, it's unrealistic to think that promotions will go away entirely, so what kind of deals will we see in this new, non-subsidized world?
The Future is Gift Cards, Rebates, and Credits
This week, Costco became the first store to offer a promotion for the newly-announced iPhones.
Both the iPhone 6s 16GB model and the iPhone 6s Plus 128GB model are available at full price with a $100 mail-in rebate, which comes in the form of a Costco gift card. (Assuming you use the gift card, that's a net price of $550 and $850 for the phones, respectively.) These models are both offered through T-Mobile, which allows customers to use its installment plan, dropping the 6s to $27.08 per month and the 6s Plus to $31.25 per month.
With this deal, the customer is getting a sizable gift card in exchange for buying (and paying, likely in installments) through T-Mobile. It follows then that we can expect more "credit"-type offers for phones, now that subsidies are a thing of the past.
Promos for phones sold at stores, like the Costco deal, will likely include store gift cards, while buying directly from the carrier may yield bill credits (e.g., $50 off your first three months of service). We might also see manufacturers themselves offer traditional rebates for their handsets, although obviously don't expect Apple to do this. And naturally, deals on unlocked phones, with no carrier involvement, will continue as well.
This is Actually Better Than Past Deals
While the idea of paying a net sum of $550 might be a tough pill to swallow, this is actually a pretty good "first deal" for the iPhone.
In 2013, Walmart was the first store to offer a discount on the iPhone 5s, offering a meager $10 off the subsidized price. The retailer once again was first in 2014, cutting $20 off and offering a $15 gift card.
While it's not apples to apples (ha!), the $100 Costco gift card is a greater value than Walmart's "first deals" from years past. And while you're now paying off the full price of the phone, it can be spread out over two years, and you're free to choose one of the cheaper plans from T-Mobile as well, potentially netting a comparable monthly payment to what you might have had with the subsidization model.
Regardless, it seems possible that gift cards, rebates, and credits will be the main promotional tools that stores and carriers will wield when trying to entice paying customers.
Readers, what do you think? Do you miss the subsidization model, or are you excited about the future of phone deals?
This article first appeared in DealNews.