With all four major US carriers announcing an end to 2-year contracts and device subsidies, smartphone financing and sales will likely undergo a transformational change which will invariably move the US smartphone distribution model closer to that of the rest of the world and expose the real cost of devices to the end consumer.
Ever since the iPhone debuted in 2008 at $199 with 2-year contract, US wireless carriers had locked themselves into the business model of making subsidy payments to the tune of $450 for every iPhone activated. The industry has been slowing moving away from that financing program to a cash flow neutral scheme whereby consumers finance the totality of the cost of the device and service over the contract period, essentially moving from a one-time $199 purchase to a $30 per month installment payment.
This move will have the effect of returning normal market pricing signals to the US market and the end consumers will ultimately benefit from knowing the true cost of the devices used with their service. Also, this move will prove beneficial to value seekers in the market as new options for mid-tier priced smartphones are made available. OEMs keen to capitalize on this new openness will be brands such as Alcatel, ZTE and the newly announced Honor brand from Chinese giant Huawei. Smartphones with cost of $200 to $250 with similar specifications will not be able to compete for consumer dollars next to $650 iPhones and sub $100 entry level smartphones giving way to further market segmentation and device diversity in the US market.