AT&T's top executive says the era of big subsidies for devices is coming to an end, as wireless operators can no longer afford to fund a constant smartphone upgrade cycle.
Speaking at an investor conference in New York City on Tuesday, AT&T CEO Randall Stephenson said that with smartphone penetration at over 75 percent and soon reaching 90 percent, wireless operators need to work harder to get customers to use more of the network rather than simply getting on the network.
"When you're growing the business initially, you have to do aggressive device subsidies to get people on the network," he said. "But as you approach 90 percent penetration, you move into maintenance mode. That means more device upgrades. And the model has to change. You can't afford to subsidize devices like that."
Last week, AT&T introduced a new pricing plan that offers an incentive to customers who keep their older phones, allowing them to save $15 a month on their service bill.
AT&T has been on the path toward creating a more balanced pricing structure for the past few years, Stephenson said. AT&T was the first major wireless carrier to eliminate unlimited data plans, replacing them with usage-based service plans. Now, more than 70 percent of AT&T's customers are on plans that charge customers based on consumption.
Stephenson also acknowledged that breaking customers of their habit of upgrading to a new phone every 18 months to two years is not an easy task. But he said a business models focused on financing rather than providing a subsidy would be "transformative" for the industry. He said the company's new AT&T Next program, which offers no-money down and 0-percent financing, drives smartphone penetration in a way that is more sustainable over time.
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