Author(s): Raghu Gopal
In 2013, T-Mobile USA changed the nature of the US mobile industry by eliminating the classic phone subsidy model. With contracts obliging customers to stick around for 24 months, phones were sold at deep discounts from the carrier's buy-in price. T-Mobile was first to move away from the contract-subsidy model, but its competitors caught on. Financing models replaced subventions as consumers began to learn about the real value of smartphones. At AT&T, more than 70 percent of post-paid customers are now on a no-subsidy option.
Now it appears that the US market is falling back to subsidies, though in a masked form.
Last week AT&T expanded buy-one-get-one-free offers to cover a large number of high-end smartphones. AT&T now offers such deals on devices like the Apple iPhone 6s and the Samsung Galaxy S7, Galaxy S7 edge, Galaxy S6, Galaxy S6 edge, Galaxy S6 edge+, Galaxy S6 Active and Galaxy Note 5. Other buy-one-get-one-free deals by AT&T include LG's G5 and V10 phones, Microsoft's Lumia 950 and HTC's One A9.
The deals are open to new and existing AT&T customers, but the second phone must be a new activation and be part of a qualified data plan. At the same time, Sprint launched a new buy-one-get-one-free plan for the iPhone 6s and 6s Plus. The terms are similar to AT&T's, requiring a new activation for the second line.
In reality these deals can be somewhat tricky and require some maths skills on the part of the consumer. The second device is actually bought using the carriers' financing plan and the payments are returned as service credits.
The growing number of deals — all major carriers in the US now have buy-one-get-one-free offers of some sort — is a sign of the growing competitive nature of the industry. Subscriber growth is slowing and the country's challenger carrier, T-Mobile, is grabbing more than its share of new customers and churning subscribers.
The buy-one-get-one-free trend started earlier in 2016 with the launch of Samsung's Galaxy S7 and S7 edge phones. The deal was contagious, spreading across all major carriers within days. But what might have been a temporary promotion for Samsung's hot new flagships appears to be staying and growing. It seems that subsidies are back in the US, dressed as devices. For smartphone makers, this is a welcome development and could mean some relief in a market that has matured and, according to CCS Insight's Global Mobile Phone forecast, is expected to remain practically flat at about 185 million units in the next few years — unless something triggers faster replacement rates. It will be interesting to see if the new buy-one-get-one-free smartphone deals from carriers are a hit with customers.