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While cellphones have gone from giant bricks to flip phones to smartphones, consumers in the U.S. have generally bought the things in the same way. They pay a fraction of the true cost of the phone, with carriers subsidizing the difference and making it back on the monthly service fees they charge.
Led by T-Mobile’s move in 2013, carriers have been gradually shifting away from that approach, separating out the cost of the device and making consumers pay for it upfront or in monthly installments. Beginning Jan. 8, AT&T is completely doing away with subsidies and two-year contracts for consumers.
“With $0 down for well-qualified customers, the ability to upgrade early and down-payment options available with even lower monthly installments, our customers are overwhelmingly choosing AT&T Next,” AT&T told Re/code. “Starting January 8, AT&T Next will be the primary way to get a new smartphone at AT&T.” It will actually be the only way for consumers to get them. Some business customers will still have the option to buy phones and get discounted pricing in exchange for a two-year contract.
Engadget first reported on AT&T’s plan, citing an internal memo.
AT&T has been signaling in this direction for months, having stopped offering two-year contracts through third parties and allowing them only through AT&T’s stores and website. Ralph de la Vega told Re/code in June that two-year contract phone discounts were going away and clearly he wasn’t kidding.
Sprint and Verizon have also been moving away from two-year contract pricing.
While the shift changes the way consumers buy their phones and cellphone service, overall pricing has remained roughly similar. The most interesting thing will be how the move affects the length of time consumers keep their phones.
The contract approach gave customers a built-in incentive to upgrade their phones every couple of years, while the new pricing allows customers to save money by keeping their phones a bit longer, since their bills actually go down once they are done paying off the phone price installments. On the other hand, all the carriers have also introduced early upgrade programs that allow those who want the latest and greatest to trade in their device and get a new one as often as once a year or in some cases even more frequently.
This article originally appeared on Recode.net.
