Telcom industry writer, Drew Clark
From "iPhone or iCarrot? "... Since the early days of the cellular industry, the justification for multi-year contracts has been handset subsidies. Since the cellular carriers subsidize the cost of the handsets, the argument goes, they need lock-in contracts to guarantee sufficient time to recover the up-front equipment costs. Holes in that story now appear with the iPhone. ... What AT&T may be trying to do is to redefine the business model for the entire American cellular industry. They may want to set a precedent for getting rid of handset subsidies altogether. And the reason for the two-year contract with the unsubsidized iPhone is to establish that lock-in contracts remain a part of the deal. ... That doesn't have to happen. If consumers say "no" to this Friday's launch of the unsubsidized, two-year-contract- required iPhone, then AT&T will realize that its new business model will not succeed in the American marketplace. They will have to modify the terms of the iPhone plan. If consumers instead say "yes" and buy the iPhone with the two-year contract, then it will only be a matter of time before all handset subsidies disappear and all cell phone users have to pay both the full cost of their handsets and still be locked into multiple-year contacts. Those who purchase iPhones under the current arrangement may very well be sealing that fate for all cell phone users.
Read more ...