Contracts. Why?

At 09 Jan 2008 13:55:43 -0500 Elmo P. Shagnasty wrote:

> > You get roaming for free on the post-pay plan ... there is no roaming on
> > pre-pay plans. Thus, you get less coverage for the $1. You probably
don't
> > get unlimitted nights and weekends either ... or free mobile to mobile,
etc.
>
> The no roaming and less coverage is exactly why the T-Mo pay as you go
> plan sucks.

There IS roaming on T-Mo's prepaid plans. A couple of slightly more
expensive (to T-Mo) carriers are not available to prepaid users (mostly in
the midwest) but T-Mo prepaid and contract users have virtually identical
coverage. (This hasn't always been the case however- prepaid roaming was
added two or three years ago.)

In alt.cellular.sprintpcs Paul Miner <pminer@elrancho.invalid> wrote:
>
> Ok, so mid-2005. Then why do you still call them Sprint PCS?
>

Because I feel like it ... it is the name of this group isn't it?

--
Thomas T. Veldhouse

America is the country where you buy a lifetime
supply of aspirin for one dollar, and use it up in two weeks.

At 09 Jan 2008 18:44:13 +0000 Thomas T. Veldhouse wrote:

> And what I have been saying is they don't really discount those prepaid
phones
> at all ... or very rarely.

I strongly disagree. Often the prepaid models are the same current models
the carriers offer to contract customers (although typically low-end,
understandably- there's little point offering mobile TV enabled phones to
customers who can't buy the TV service on prepaid plans!)

> Most are phones that were high volume sellers and
> became excess inventory, so they sell those as prepaid [or offer them as
> "free" to subsidized customers]. Clearing excess inventory that they
would
> otherwise write off because they need room for newer more profitable
models
> makes a lot of sense ... and thus, the prepaid companies tend to be
> subsideries or completely different companies altogether that got to buy
these
> phones on clearance.

Look at Virgin's or Tracfone's offerings- these are handsets that were
never sold by the underlying carrier, and have custom UIs to support the
MVNO. There's no way Tracfone is buying those $15 retail Motos for less
than the $10 they sell them to Target or Walmart for. According to the
trade papers, the lowest end phones currently manufactured wholesale for
$30-40US, and these are featureless monochromatic-display models you and I
will never see at WalMart- they're built for carriers in emerging nations.

> I bet buying one of those $30 prepaid phones provided
> a net revenue of $15 for the carrier offering the pre-paid phone, even if
it
> is never activated ...

Unlikely- an MSRP $30-40 prepaid phone probably is sold to the mass market
retailer for 60-70% of that (Walmart wants to make a buck as well!) T
ere's no accounting depreciation trickery that can make it profitable to
sell a new handset to WalMart for $20 without the expectation of future
airtime purchases.

> because the phone is not worth $30 to them, but, in teh
> case of my example, only $15.


Not a chance.

> BTW ... it is such inventory price depreciation that they write off, not
the
> subsidies ... just referencing another part of the thread.


I'm not so sure. Customer acquisition cost, including a subsidy, is a
legitimate cost of doing business, not a capital invenstment, and could be
written off- not as a depreciation, but as a loss- it's not a lease- it's a
sale. (At least that's how I did it when I was a cellular dealer- I sold
the "free" phone at a $200 loss, which was offset by the $300 commission
from my carrier, resulting in a $100 profit.)


> They didn't lose money on that Sanyo phone the sold this guy because the
phone
> isn't worth to them as much as he paid for it in the first place [hence
they
> made a profit]. That is why the cheap comittment free pre-paid phones are
> older models [or some current models where inventory is well in excess of
what
> it should be], the phone is now worth less to them, so they sell them for
> less.

You're overthinking this- prepaid phones (at least those sold outside a
carrier's own corporate stores) are packaged in different retail packaging,
with different manuals ad inserts, often with different (fewer) included
accessories- they aren't excess inventory reboxed in blister packs to sell
at Walmart- these particular phones were always intended to be sold as
prepaid models.

> The goal is to not have to write off any losses at all and that is what
> these phones do for the carriers; they take a loss due to depreciation
not due
> to some pre-paid guy buying the phone and using it on another carrier ...
the
> goal was to get rid of the phone, not whether it was activated or not.


Not true, particularly in the case of a carrier like Verizon with
"exclusive" models. Look at Verizon's low-end- twenty virtually indentical
sub-$50 retail (subsidized) flip phones from a variety of manufacturers
with virtually identical (lack of) features. These phones' mothers
couldn't tell them apart. Now look t Verizon's retail prepaid low-end
(sub $50) one blister-packed model in "Verizon InPulse" packaging- a
Samsung (or is it Starcom, I forget?) recently replaced a Nokia 26-
something that held the niche for a year. If your theory was correct, we'd
see a steady rotation of discontinued or overstock product as the low-end
prepaid model du jour, but we don't- the prepaid lineup is stable, and
bears little relation to the current postpaid lineup.


> To the guy who bought the Samsung at Walmart ... did you ever price that
phone
> to what is available on Ebay as new for the same model? I bet the price
was
> similar or even higher at Walmart.

Actually I found the opposite- when I wanted to buy a low-end Verizon phone
to use on PagePlus prepaid) eBay's prices were similar or higher than
Walmart's. Luckily I stumbled upon a good deal on an old Samsung WinMo
smartphone on eBay, since PagePlus (and Verizon, I suspect) are offering
free 1X data on prepaid (most likely by accident) which allows me
Contacts/Calendar sync with my Exchange server and IMAP e-mail access,
which the low-end prepaid phones wouldn't.

To summarize, prepaid handsets ARE subsidized, but to a lesser extent than
postpaid obviously. Rather than using a contract to "enforce" recouping
the subsidy, Verizon relies on "incompatibility" with other carriers (Sprint,
Virgin, etc. won't activate Verizon handsets, AT&T and T-Mo can't), and GSM
carriers use SIM locks to enforce use of prepaid handsets on the "right"
network. Undoubtedly, some handsets end up on the "wrong" network,
resulting in the "loss" of the subsidy, but this represents a small number.

What will be interesting is how the prepaid landscape changes in this new
supposed era of "open" networks (which I'll believe when I actually see it!)
I suspect prepaid models will become far more crippled than their
postpaid counterparts (i.e. data capabilities disabled) to discourage use
on other networks. For example, some T-Mo prepaid phones have the ability
to edit the GPRS access point disabled, so even if SIM-unlocked, would work
for voice only if used on AT&T or overseas, greatly limiting their appeal
if used off-network.

At 09 Jan 2008 18:16:52 +0000 Thomas T. Veldhouse wrote:

> > True- but they're making money either way; whether you pay the full
> > unsubsidized price, or re-up for two years. Again, the point is, if the
> > "Uberfone 5000", or whatever model you really want can be obtained $150-
200
> > cheaper with a contract, why not? If circumstances change and you need
to
> > break the contract, you pay the $150-200 EFT and no harm done- it was
the
> > amount of the discount anyway.
> >
>
> This is precisely what I was trying to say, except that their EFT is
usually
> MORE than the subsidy, so the carrier comes out ahead ...

I guess that depends on your POV. I find the subsidy and EFT are in each
other's ballpark, at least.

> and they don't lower
> the price of your monthly plan when the subsidy is paid up ... which
means you
> should threaten churn to keep your money, as otherwise it is pure profit
for
> them ... a greedy model.


You also are no longer under contract, either. I liken it to a magazine
subscription- a subscription is cheaper per issue than the "no committment"
newsstand price. Instead of a service discount for your two-year
"subscription" you get a phone subsidy.

> I would rather have the option to buy a phone that is not locked to any
> carrier and buy that phone at full price. Then I should be able to
activate
> it with any carrier and not pay the plan price that subsidized buyers pay.

I agree fully. On the other hand, it's probably better for the free market
to eventually come to that conclusion that through forced regulation.

Plus, you never know what you as an individual can negotiate. When T-Mo
was out of stock on a particular handset I wanted in April 2006, (my
current WinMo phone,) I convinced them to apply a $200 "subsidy" directly
to my account in exchange for a one-year committment so I could buy the
handset I wanted from an independent dealer who had it in stock. It took a
bit of convincing, but I managed to get them to do it. (I did have to fax
them a receipt to "prove" I bought the handset before they applied the $200
credit.)

While I agree with your previous post that CDMA offers certain
technological advantages over GSM, GSM offers certain practical advantages-
namely it's not used by Verizon or Sprint, so GSM users aren't bound by
those carrier's oppressive handset policies! ;-)

"Thomas T. Veldhouse" <veldy71@yahoo.com> wrote in
news:5ukh4pF1gqpq4U2@mid.individual.net:

> In alt.cellular.verizon CozmicDebris <isheforreal> wrote:
>>
>> Except that it gives them a healthy loss to write off every quarter
>> for equipment subsudies.And I'll gurantee that neither the IRS or SEC
>> woudl allow them to either make up or artificially inflate that
>> number.
>>
>
> They better not be writing it off as a loss ... it clearly is NOT. It
> is an investment [I don't get to write off my investments ... in fact,
> I have to pay taxes on the earnings when I get them]. They "invest"
> $150 in your phone so that the phone is cheaper for you, and in
> return, they over charge you by a certain amount for one or two years
> to make up that money ... and if you quit early, they charge you more
> than the $150 the initially invested in you, so they still get a
> profit.
>

It is clearly a loss. The monthly charge paid to the company is for
services rendered to use the phone, not equipment subsidized. This is
clearly stated in every service agreement.

In any event, every carrier reports the loss as a seperate line item on
their quarterly financials, and has done so for years. The government
(specifically the IRS and SEC) do not share your opinion. Grocery stores
and other big box stores get to right off the loss on their loss leaders
(products sold below cost to generate traffic)- this is no different.

On Tue, 08 Jan 2008 20:50:32 -0700, Todd Allcock <elecconnec@AmericaOnLine.com> wrote:
> Having said that, unlike most carriers who seem to offer prepaid as a "last
> resort" for credit-challenged consumers, and at a price designed not to
> cannibalize their bread-n-butter postpaid biz, T-Mo aggressively pursues
> the pre-paid market, seeming to assume that anyone their prepaid offering
> lures from pstpaid is likely a high enough volume user that it'll be worth
> it. That seems to work for them, considering that their prepaid ARPU is
> (relatively) high, and their total ARPU is also relatively high considering
> their high percentage of prepaid customers compared to other carriers.

The cost to T-Mo for a prepaid customer is probably a lot lower than
their cost per post-paid customer. There is a customer support
organization for both, but all the freebies, billing, billing support,
payment processing, collections, etc. are only for post-paid.

The only ongoing costs for a "glove box" phone on prepaid are the
minutes that are actually used, and a tiny bit of the amortized
infrastructure necessary to deliver service (from the cell tower to
providing a means to refill the minutes). Probably the most expensive
(costly) t-mo prepaid customer is the one that buys a phone, uses the
allotted minutes just before they expire, then replaces the phone.

sdb
--
What's seen on your screen? http://PcScreenWatch.com
sdbuse1 on mailhost bigfoot.com

Does uscellular have service in your area? They are CDMA, but
cellular not PCS.

Jerome Zelinske <zelinskej@sbcglobal.net> wrote:
> Does uscellular have service in your area? They are CDMA, but
> cellular not PCS.

I my immediate area there is only Sprint and Verizon (and perhaps QWest .. who
joined/partnered with Sprint and share PCS spectrum and systems). Alltel
bought up a bunch of regional carriers and is getting to be a bigger presence
in rural MN. I think US Cellular might have some towers up North, but I am
not sure. But, in the Twin Cities, there is just Sprint and Verizon on CDMA
(note my previous exception of QWest).

--
Thomas T. Veldhouse

America is the country where you buy a lifetime
supply of aspirin for one dollar, and use it up in two weeks.

In alt.cellular.sprintpcs CozmicDebris <isheforreal> wrote:
>
> It is clearly a loss. The monthly charge paid to the company is for
> services rendered to use the phone, not equipment subsidized. This is
> clearly stated in every service agreement.
>

You know very well that a subsidy is not a loss on the balance sheet; it is an
expense. To make a profit, they have to earn more revenue than they put out
in expenses [which include the subsidy, labor, infrastructure and other fixed
costs]. A loss is only if they fail to net a profit. Another write off [or
loss] is depreciation, and that clearly is a category that a subsidy does NOT
fall into [although it is a category their inventory of phones can fall into].


> In any event, every carrier reports the loss as a seperate line item on
> their quarterly financials, and has done so for years. The government
> (specifically the IRS and SEC) do not share your opinion. Grocery stores
> and other big box stores get to right off the loss on their loss leaders
> (products sold below cost to generate traffic)- this is no different.
>

Yes, it is for depreciation of depreciable assets. Company vehicles,
depritiating inventory, even infrastructure all allow for that kind of loss.
A subsidy, however, is NOT a loss, it is an expense.

--
Thomas T. Veldhouse

America is the country where you buy a lifetime
supply of aspirin for one dollar, and use it up in two weeks.

In alt.cellular.sprintpcs Todd Allcock <elecconnec@americaonline.com> wrote:
>
> I guess that depends on your POV. I find the subsidy and EFT are in each
> other's ballpark, at least.
>

It really depends. Some of the phones they give away for "free" when you sign
up, are often old inventory that they want to clear for newer models and are
perhaps worth $30 to them on the balance sheet. So, you get a free phone that
is worth perhaps $30 to the carrier, but to quit you owe them $175, well, that
is quite a deal for the carrier no matter how you look at it. Basically, if
you buy new high end models in demand, then you are probably closer to that
equitable case where ETF is close to the subsidy.

> You also are no longer under contract, either. I liken it to a magazine
> subscription- a subscription is cheaper per issue than the "no committment"
> newsstand price. Instead of a service discount for your two-year
> "subscription" you get a phone subsidy.

It is really a source of revenue to the carrier ... they really hope users
keep the same phone for years or upgrade hardware, plans and re-contract.

It is this reason why the retention department is usually able to accomodate
you, because they know that it is free revenue anyway.

--
Thomas T. Veldhouse

America is the country where you buy a lifetime
supply of aspirin for one dollar, and use it up in two weeks.

At 10 Jan 2008 19:29:14 +0000 Thomas T. Veldhouse wrote:

> I my immediate area there is only Sprint and Verizon (and perhaps
QWest .. who
> joined/partnered with Sprint and share PCS spectrum and systems).

To clarify that comment a little, these days Qwest is simply a Sprint MVNO.
Qwest sold their wireless spectrum and assets long ago, and uses Sprint's
network and infra tructure, but but their own Qwest-branded handsets,
billing systems and customer service. Sort of like a postpaid Virgin Mobile.


Ironically, the "old AT&T" (the LD company that SBC bought) had just signed
an agreement with Sprint to offer wireless service in the same MVNO fashion
as Qwest, to back in the wireless biz two years after spinning off the old
AT&T Wireless (which has just been purchased by Cingular at that point.)
That deal was invalidated by their (AT&T's) acquisition by SBC.

Sorry for the top post here, but it is easier to address all your comments in
one place.

First, yes, it is possible there are a few subsidized pre-paid model phones
[carrier locked], but it is also clear that the business model is such that it
is not the case for the vast majority of cases. In fact, if it was, a
competitor could simply buy all the retail assets of a smaller competitor and
not activate service and quickly put them out of business. A company can not
operate under such a business model.

What you failed to do was address depreciated inventory along the entire
supply chain. I illustrated this for the carrier only, but not the
manufacturer or any other part of the supply chain. Any part of the supply
chain will, at some point, find it has significant quantities of depreciated
inventory, and it is this that turns into the "free" or very low cost phones
used to capture new customers (i.e. buy this phone and get three free) for
pre and post paid customers. The difference is that the subsidy is part of
the business model for post paid, because they have a contract with ETF
penalties to support it. With pre-paid, they largely rely upon the inventory
depreciation [somewhere along the supply chain] to offer low cost phones.

In summary, any subsidies on pre-paid contractless phones are almost certainly
not the standard business model [especially for GSM based phones and carriers
where unlocking a phone is common place], it exposes a carrier to a lot
of risk that a phone will be purchased and not used on their plan (Grandma has
her E911 backup in her car).

In alt.cellular.sprintpcs Todd Allcock <elecconnec@americaonline.com> wrote:
> At 09 Jan 2008 18:44:13 +0000 Thomas T. Veldhouse wrote:
>
>> And what I have been saying is they don't really discount those prepaid
> phones
>> at all ... or very rarely.
>
> I strongly disagree. Often the prepaid models are the same current models
> the carriers offer to contract customers (although typically low-end,
> understandably- there's little point offering mobile TV enabled phones to
> customers who can't buy the TV service on prepaid plans!)
>
>> Most are phones that were high volume sellers and
>> became excess inventory, so they sell those as prepaid [or offer them as
>> "free" to subsidized customers]. Clearing excess inventory that they
> would
>> otherwise write off because they need room for newer more profitable
> models
>> makes a lot of sense ... and thus, the prepaid companies tend to be
>> subsideries or completely different companies altogether that got to buy
> these
>> phones on clearance.
>
> Look at Virgin's or Tracfone's offerings- these are handsets that were
> never sold by the underlying carrier, and have custom UIs to support the
> MVNO. There's no way Tracfone is buying those $15 retail Motos for less
> than the $10 they sell them to Target or Walmart for. According to the
> trade papers, the lowest end phones currently manufactured wholesale for
> $30-40US, and these are featureless monochromatic-display models you and I
> will never see at WalMart- they're built for carriers in emerging nations.
>
>> I bet buying one of those $30 prepaid phones provided
>> a net revenue of $15 for the carrier offering the pre-paid phone, even if
> it
>> is never activated ...
>
> Unlikely- an MSRP $30-40 prepaid phone probably is sold to the mass market
> retailer for 60-70% of that (Walmart wants to make a buck as well!) T
> ere's no accounting depreciation trickery that can make it profitable to
> sell a new handset to WalMart for $20 without the expectation of future
> airtime purchases.
>
>> because the phone is not worth $30 to them, but, in teh
>> case of my example, only $15.
>
>
> Not a chance.
>
>> BTW ... it is such inventory price depreciation that they write off, not
> the
>> subsidies ... just referencing another part of the thread.
>
>
> I'm not so sure. Customer acquisition cost, including a subsidy, is a
> legitimate cost of doing business, not a capital invenstment, and could be
> written off- not as a depreciation, but as a loss- it's not a lease- it's a
> sale. (At least that's how I did it when I was a cellular dealer- I sold
> the "free" phone at a $200 loss, which was offset by the $300 commission
> from my carrier, resulting in a $100 profit.)
>
>
>> They didn't lose money on that Sanyo phone the sold this guy because the
> phone
>> isn't worth to them as much as he paid for it in the first place [hence
> they
>> made a profit]. That is why the cheap comittment free pre-paid phones are
>> older models [or some current models where inventory is well in excess of
> what
>> it should be], the phone is now worth less to them, so they sell them for
>> less.
>
> You're overthinking this- prepaid phones (at least those sold outside a
> carrier's own corporate stores) are packaged in different retail packaging,
> with different manuals ad inserts, often with different (fewer) included
> accessories- they aren't excess inventory reboxed in blister packs to sell
> at Walmart- these particular phones were always intended to be sold as
> prepaid models.
>
>> The goal is to not have to write off any losses at all and that is what
>> these phones do for the carriers; they take a loss due to depreciation
> not due
>> to some pre-paid guy buying the phone and using it on another carrier ...
> the
>> goal was to get rid of the phone, not whether it was activated or not.
>
>
> Not true, particularly in the case of a carrier like Verizon with
> "exclusive" models. Look at Verizon's low-end- twenty virtually indentical
> sub-$50 retail (subsidized) flip phones from a variety of manufacturers
> with virtually identical (lack of) features. These phones' mothers
> couldn't tell them apart. Now look t Verizon's retail prepaid low-end
> (sub $50) one blister-packed model in "Verizon InPulse" packaging- a
> Samsung (or is it Starcom, I forget?) recently replaced a Nokia 26-
> something that held the niche for a year. If your theory was correct, we'd
> see a steady rotation of discontinued or overstock product as the low-end
> prepaid model du jour, but we don't- the prepaid lineup is stable, and
> bears little relation to the current postpaid lineup.
>
>
>> To the guy who bought the Samsung at Walmart ... did you ever price that
> phone
>> to what is available on Ebay as new for the same model? I bet the price
> was
>> similar or even higher at Walmart.
>
> Actually I found the opposite- when I wanted to buy a low-end Verizon phone
> to use on PagePlus prepaid) eBay's prices were similar or higher than
> Walmart's. Luckily I stumbled upon a good deal on an old Samsung WinMo
> smartphone on eBay, since PagePlus (and Verizon, I suspect) are offering
> free 1X data on prepaid (most likely by accident) which allows me
> Contacts/Calendar sync with my Exchange server and IMAP e-mail access,
> which the low-end prepaid phones wouldn't.
>
> To summarize, prepaid handsets ARE subsidized, but to a lesser extent than
> postpaid obviously. Rather than using a contract to "enforce" recouping
> the subsidy, Verizon relies on "incompatibility" with other carriers (Sprint,
> Virgin, etc. won't activate Verizon handsets, AT&T and T-Mo can't), and GSM
> carriers use SIM locks to enforce use of prepaid handsets on the "right"
> network. Undoubtedly, some handsets end up on the "wrong" network,
> resulting in the "loss" of the subsidy, but this represents a small number.
>
> What will be interesting is how the prepaid landscape changes in this new
> supposed era of "open" networks (which I'll believe when I actually see it!)
> I suspect prepaid models will become far more crippled than their
> postpaid counterparts (i.e. data capabilities disabled) to discourage use
> on other networks. For example, some T-Mo prepaid phones have the ability
> to edit the GPRS access point disabled, so even if SIM-unlocked, would work
> for voice only if used on AT&T or overseas, greatly limiting their appeal
> if used off-network.
>
>

--
Thomas T. Veldhouse

America is the country where you buy a lifetime
supply of aspirin for one dollar, and use it up in two weeks.

"Thomas T. Veldhouse" <veldy71@yahoo.com> wrote in
news:5unabiF1imehhU5@mid.individual.net:

> In alt.cellular.sprintpcs CozmicDebris <isheforreal> wrote:
>>
>> It is clearly a loss. The monthly charge paid to the company is for
>> services rendered to use the phone, not equipment subsidized. This
>> is clearly stated in every service agreement.
>>
>
> You know very well that a subsidy is not a loss on the balance sheet;
> it is an expense. To make a profit, they have to earn more revenue
> than they put out in expenses [which include the subsidy, labor,
> infrastructure and other fixed costs]. A loss is only if they fail to
> net a profit. Another write off [or loss] is depreciation, and that
> clearly is a category that a subsidy does NOT fall into [although it
> is a category their inventory of phones can fall into].

All fine and dandy- none of it applies here. And I don't need the
accounting lesson, so you can save it for someone that does.

>
>
>> In any event, every carrier reports the loss as a seperate line item
>> on their quarterly financials, and has done so for years. The
>> government (specifically the IRS and SEC) do not share your opinion.
>> Grocery stores and other big box stores get to right off the loss on
>> their loss leaders (products sold below cost to generate traffic)-
>> this is no different.
>>
>
> Yes, it is for depreciation of depreciable assets. Company vehicles,
> depritiating inventory, even infrastructure all allow for that kind of
> loss. A subsidy, however, is NOT a loss, it is an expense.
>

No- that is another seperate line item. You should look at a few 10-Q's
and then come back when you know what I'm speaking of.

And trying to convince me of your point of view is useless- I don't make up
the accounting rules for the industry. I simply stated a very publiv piece
of knowledge.

In alt.cellular.sprintpcs CozmicDebris <isheforreal> wrote:
>
> No- that is another seperate line item. You should look at a few 10-Q's
> and then come back when you know what I'm speaking of.
>
> And trying to convince me of your point of view is useless- I don't make up
> the accounting rules for the industry. I simply stated a very publiv piece
> of knowledge.

Really? Very public? How about a link?

--
Thomas T. Veldhouse

America is the country where you buy a lifetime
supply of aspirin for one dollar, and use it up in two weeks.

"Thomas T. Veldhouse" <veldy71@yahoo.com> wrote in
news:5uo4hbF1ja9eqU1@mid.individual.net:

> In alt.cellular.sprintpcs CozmicDebris <isheforreal> wrote:
>>
>> No- that is another seperate line item. You should look at a few
>> 10-Q's and then come back when you know what I'm speaking of.
>>
>> And trying to convince me of your point of view is useless- I don't
>> make up the accounting rules for the industry. I simply stated a
>> very publiv piece of knowledge.
>
> Really? Very public? How about a link?
>

www.sprint.com

www.verizon.com

www.att.com

Go to any of their investor pages and pull up any one of their quarterly
reprts that are filed with the SEC. Each and every one will have a line
item for equipment subsidies.

It doesn't get any more public than that. And you can argue the semantics
of the terminology used all you want- that's not going to change the
reality of the situation.

At 10 Jan 2008 21:44:50 +0000 Thomas T. Veldhouse wrote:

> First, yes, it is possible there are a few subsidized pre-paid model
phones
> [carrier locked], but it is also clear that the business model is such
that it
> is not the case for the vast majority of cases.


Go to the website of any major carrier, and compare the prices of their
prepaid phones to the same models unsubsidized without contract. The
prepaid version is less- usually far less.

According to posts on Howard Foums (I'm not a Verizon customer so I have no
first-hand knowledge) Verizon recently instituted a policy (at corporate
stores) when you can buy any Verizon phone at the one-year contract price
(not the lower two-year) if you activate it prepaid on the spot. If that's
not a direct subsidy, what is?

> In fact, if it was, a
> competitor could simply buy all the retail assets of a smaller competitor
and
> not activate service and quickly put them out of business.

How? Send a memo and tell every company employee to buy every competitor's
prepaids and bin them? We're talking about major carriers like T-Mo,
Verizon and AT&T. How could one of those guys retailiate on the others in
that fashion?

Due to prepaid subsidies, most, if not all, carriers institute purchase
limits. T-Mo's website only allows two prepaid purchases per person at a
time, and only so many (5 or 10- I forget- I'm only at 3 so far in the last
12 months) to any person/address per year. AT&T also has a yearly limit
(as FatWallet.com customers constantly complain!) WalMart limits prepaid
phone purchases per visit.

If selling these handsets at $15-40 was so lucrative, why would companies
care if I bought 50 and stored them in my garage? Could it be that they'd
actually incur a loss?

> A company can not
> operate under such a business model.

Sure they can, if the abuse is small enough as to not upset the total
profits. How many people are going to buy prepaid handsets and not use them,
or use them on other carriers? How many as a percentage of customers who
activate service "properly?"

Prepaid is an insanely profitable business. As soon as one carrier
discounts handsets to spur adoption rates, the others have tofollow suit to
conpete. It was Tracfone- a company with expensive airtime, that started
the downward spiral. They cripple their phones with custom firmware which
is difficult to "unTracfone" and prevents it's use on other networks. In
fact, Tracfone's biggest problem with retail sales is "accessory theft."
People can buy a complete $15 Motorola phone cheaper than they can buy a
battery or spare charger for the same model! You could buy the phone, take
the battery, and throw the rest away and Be $5 ahead (a replacement battery
for the $15 phone at WalMart is $19.99!)

> What you failed to do was address depreciated inventory along the entire
> supply chain. I illustrated this for the carrier only, but not the
> manufacturer or any other part of the supply chain. Any part of the
supply
> chain will, at some point, find it has significant quantities of
depreciated
> inventory, and it is this that turns into the "free" or very low cost
phones
> used to capture new customers (i.e. buy this phone and get three free) for
> pre and post paid customers. The difference is that the subsidy is part
of
> the business model for post paid, because they have a contract with ETF
> penalties to support it. With pre-paid, they largely rely upon the
inventory
> depreciation [somewhere along the supply chain] to offer low cost phones.

That's true of certain promotional models, perhaps, but it's not the norm-
it doesn't explain how carriers introduce the same NEW model to pre- and
post-paid at the same time- i.e. T-Mo's Nokia 2610, Sidekicks or Samsung
Stripe. The difference is that the prepid models tend to hng around
longer, but that's attributable to the separate packaging- they may guess
how many they need for say, a year, and guess badly. (Carriers don't
repack a retail prepaid phone for postpaid sales or vice-versa, if one
model sells out before the other.)


> In summary, any subsidies on pre-paid contractless phones are almost
certainly
> not the standard business model [especially for GSM based phones and
carriers
> where unlocking a phone is common place]

Manufacturers have taken great pains to make unlocking more difficult these
days- it's often not as simple as getting a code off a web-based calculator
and typing it in. Many phones now require dedicated unlocking hardware or
unlocking by shops that charge a fee often equal or higher than what you
paid for the phone.
I've given plenty of examples that preaid subsidies ARE the standard
business model- look at Virgin's line- a group of unique phones built
specifically for them alone and retail from $14.99 and up. Sorry, but
there is no way in H-E-double-hockey-sticks that any manufacturer on the
planet has figured out how to manufacture a CDMA phone and bundle a battery
and charger to hit a $14.99 RETAIL price point. They can't currently hit
$15 wholesale!


> it exposes a carrier to a lot
> of risk that a phone will be purchased and not used on their plan
(Grandma has
> her E911 backup in her car).

Again, how many? 1 in 20? 1 in 10? The vast bulk of prepaid phones are
used on the intended carrier, which makes up for the losses. The
alternative is to make entry-level prepaid $99.99, which would severely
reduce the market for the lucrative sales of minutes. Again, it's a case
of "giving away the razor" (or, in this case, the RAZR) "to sell the
blades."


You're operating under a flawed principle (IMHO) that carriers and
manufacturers, in thirty years of cellular sales, haven't figured out how
to balance production, inventory, and sales, and glibly accept there will
be thousands of excess phones left over that they'll be thrilled to sell
for 10-cents on the dollar due to 'depreciation.' No one likes
depreciating inventory and certainly doesn't plan an important facet of
their business (like retail prepaid) around it.

Frankly, subsidized prepaid is actually one of the reasons I'm no longer a
cellular dealer. I was an SBMS (eventually Cingular) dealer, and built a
good portion of my business around prepaid- particularly to the elderly,
who often wanted the security of cellular but used very few minutes.
One Christmas season (2001 maybe?) Cingular corporate stores offered a new
Nokia 5120 phone on prepaid, including activation and starter airtime for
the (then) amazing price of $99, and was promoting it heavily. Trouble
was, they wouldn't sell these prepackaged kits to their independent
dealers, in fear that we'd just cannibalize the phones for postpaid sales
(wholesale price at that time for the 5120 was about $125) and $10 airtime
card (wholesale value $8.50.)

At that time I was bundling decent refurbished analog phones ($50-65
wholesale) and $10 airtime and selling them for $99- that couldn't compete
with my own carrier's corporate offering. That was the straw that broke
the proverbial camel's back (but, in fairness, that camel was already
carrying a bunch of straws!) and I terminated my agent agreement.

Subsidized prepaid is a standard practice and has been for a long time.
Obviously the subsidies are far less than with conract phones, but they're
subsidized nonetheless.

Is verizon PCS or cellular in your area? What are the two
cellular carriers? Sprint PCS is one of your PCS carriers. Are there
more PCS carriers?
Here the two cellular are att and uscellular. The PCS are Sprint
PCS, t-mobile, and verizon.

Jerome Zelinske <zelinskej@sbcglobal.net> wrote:
> Is verizon PCS or cellular in your area? What are the two
> cellular carriers? Sprint PCS is one of your PCS carriers. Are there
> more PCS carriers?

Verizon is cellular. Sprint is PCS. AT&T is cellular and PCS and T-Mobile is
PCS.

> Here the two cellular are att and uscellular. The PCS are Sprint
> PCS, t-mobile, and verizon.

Is Verizon native there? The only Verizon PCS that I am aware of is in
Florida.

--
Thomas T. Veldhouse

America is the country where you buy a lifetime
supply of aspirin for one dollar, and use it up in two weeks.

In alt.cellular.sprintpcs CozmicDebris <isheforreal> wrote:
>
> Go to any of their investor pages and pull up any one of their quarterly
> reprts that are filed with the SEC. Each and every one will have a line
> item for equipment subsidies.
>

No no. You said they list equipment subsidies as a loss. I said they do not.
They are two distinctly different things. They are expenses, as I said, and
not losses. You don't consider buying food a loss do you? You trade money
for food. A loss is giving something and getting nothing in return.

> It doesn't get any more public than that. And you can argue the semantics
> of the terminology used all you want- that's not going to change the
> reality of the situation.

It is not meerly semantics that I am arguing. You used a well defined word
very much incorrectly and applied it to subsidies. Subsidies are very much
NOT a loss to a carrier.

--
Thomas T. Veldhouse

America is the country where you buy a lifetime
supply of aspirin for one dollar, and use it up in two weeks.

In alt.cellular.sprintpcs Todd Allcock <elecconnec@americaonline.com> wrote:
>
>
> Go to the website of any major carrier, and compare the prices of their
> prepaid phones to the same models unsubsidized without contract. The
> prepaid version is less- usually far less.
>

OK ... Let's use T-Mobile as an example as they are one that does their own
pre and post paid (unlike Verizon or Sprint who use subsideraries and
partners).

Nokia 2610: Pre=$29.99 Post=Free
Motorola V195: Pre=$39.99 Post=19.99
Samsung t219: Pre=$49.99 Post=Free

I just went to the prepaid list and took the first three phones I saw and then
checked the price for post paid customers.

Need I say more?

I will, that means that the subsidy for T-Mobile for these phones is no more
than $50 and yet, the ETF is much higher than that, so they get something
other than a subsidy rebate from the ETF, but that is for another discussion.

> According to posts on Howard Foums (I'm not a Verizon customer so I have no
> first-hand knowledge) Verizon recently instituted a policy (at corporate
> stores) when you can buy any Verizon phone at the one-year contract price
> (not the lower two-year) if you activate it prepaid on the spot. If that's
> not a direct subsidy, what is?
>

Depends upon any terms associated with it, I am not aware of the terms except
one is already obvious, activation. Like I already agreed, I didn't say there
are no subsidies, I said it is not the standard business model, and in
particular, I have mentioned it is not the standard business model for
commitmentless phones. I believe I have been very consistant on that point.

> How? Send a memo and tell every company employee to buy every competitor's
> prepaids and bin them? We're talking about major carriers like T-Mo,
> Verizon and AT&T. How could one of those guys retailiate on the others in
> that fashion?
>

I am strictly speaking in the hypothetical. But yes, you could do significant
damage to a competitor by buying up prepaid assets if that was something they
wanted to do. And, BTW, that kind of bulk does occur. A van was recently
pulled over and seized in Michigan driven by immigrants crammed full of
pre-paid phones. Homeland security got spooked, but it turned out these guys
found it cheaper to buy these phones in Texas and resell them up north at a
profit. It seems that holding onto them for a while would damage the carrier
if they were subsidized, eh?

> Due to prepaid subsidies, most, if not all, carriers institute purchase
> limits. T-Mo's website only allows two prepaid purchases per person at a
> time, and only so many (5 or 10- I forget- I'm only at 3 so far in the last
> 12 months) to any person/address per year. AT&T also has a yearly limit
> (as FatWallet.com customers constantly complain!) WalMart limits prepaid
> phone purchases per visit.
>

Hmm ... see above. I will find the link for the news article.
I don't think this is the same article, or if it is, then my memory mutated
the van into a car, but in event:

http://www.freerepublic.com/focus/f-news/1679939/posts

> If selling these handsets at $15-40 was so lucrative, why would companies
> care if I bought 50 and stored them in my garage? Could it be that they'd
> actually incur a loss?

No, actually, they won't. If the phone was only worth $10 to them in
inventory and you paid $15 for it, then they got to keep the difference and at
least got some profit on their depreciated inventory. The loss is the
depreciation, not the sale to you for $15. In this example, they would
potentially pay taxes on $5 in profit and would write off depreciation losses
whatever they happened to be. They get to write off the depreciation losses
no matter whether you buy the phone or not.

<snip>

I cut all the rest because all the content was supported by your comments
which were refuted above.

--
Thomas T. Veldhouse

America is the country where you buy a lifetime
supply of aspirin for one dollar, and use it up in two weeks.

At 11 Jan 2008 13:23:44 +0000 Thomas T. Veldhouse wrote:

> > Go to the website of any major carrier, and compare the prices of their
> > prepaid phones to the same models unsubsidized without contract. The
> > prepaid version is less- usually far less.


> OK ... Let's use T-Mobile as an example as they are one that does their
own
> pre and post paid (unlike Verizon or Sprint who use subsideraries and
> partners).

Actually only Sprint, of the major carriers, relies solely on MVNOs- Verizon,
et al, does their own prepaid (as well as use MVNOs.)

> Nokia 2610: Pre=$29.99 Post=Free
> Motorola V195: Pre=$39.99 Post=19.99
> Samsung t219: Pre=$49.99 Post=Free
>
> I just went to the prepaid list and took the first three phones I saw and
then
> checked the price for post paid customers.

I'd forgotten that T-Mo doesn't sell no-contract phones on their website to
non-T-Mo customers, so I logged in to check the no-contract-extension price
of phones. For your three examples, the prices were $69.99, $89.99, and
$99.99 respectively- all $40-50 higher than prepaid, putting the prepaid
subsidy at about $50.

> Need I say more?

I'm not sure- the goalposts keep moving. I thought we were discussing
whether prepaid was subsidized. The amount of post-paid subsidy was a side
issue at this point! ;-)

> I will, that means that the subsidy for T-Mobile for these phones is no
more
> than $50 and yet, the ETF is much higher than that, so they get something
> other than a subsidy rebate from the ETF, but that is for another
discussion.


Again, you're using the prepaid price as a baseline, not the no-contract
price. The NC price puts the low end contract subsidy at $70-100, but yes,
it's less than their current $200 EFT. Higher end phones' subsidies, like
Blackberries, and WinMo phones are closer ($150-200.)


> > Verizon recently instituted a policy (at corporate
> > stores) when you can buy any Verizon phone at the one-year contract
price
> > (not the lower two-year) if you activate it prepaid on the spot. If
that's
> > not a direct subsidy, what is?
> >
>
> Depends upon any terms associated with it, I am not aware of the terms
except
> one is already obvious, activation. Like I already agreed, I didn't say
there
> are no subsidies, I said it is not the standard business model,

But that's my point- prepaid subsides, while less that their post-paid
counterparts ARE the standard business model due to competitive pressure
from other carriers.

> and in
> particular, I have mentioned it is not the standard business model for
> commitmentless phones. I believe I have been very consistant on that
point.


If you recall my original response, I did say I was "splitting hairs"- I
said prepaid and no-committment weren't necessarily the same thing. No-
committment phones are indeed unsubsidized. Prepaid phones sold at retail,
are. You seemed to disagree because of the "risks" involved in selling
below cost without a committment.


<snip pile of Tracfones in a Van/car story>

I recalled the story as a van instead of a car as well- there's apparently
multiple similar instances:

http://www.msnbc.msn.com/id/14347754/ seems to be the story we remember and
references similar others.

I also recall the reason the buyers gave for the bulk purchase was for
resale. If these phones weren't heavily subsidized, why would bulk
purchase at full retain be preferable to a wholesale purchase? The low-end
$15 Tracfone (a Moto C139, IIRC) wholesales to dealers for about $60 (in a
non-Tracfone customized version of course.)

> > If selling these handsets at $15-40 was so lucrative, why would
companies
> > care if I bought 50 and stored them in my garage? Could it be that
they'd
> > actually incur a loss?
>
> No, actually, they won't. If the phone was only worth $10 to them in
> inventory and you paid $15 for it, then they got to keep the difference
and at
> least got some profit on their depreciated inventory.

That's nonsense. How is a relatively NEW phone, like a Nokia 2610 or
Samsung Stripe "depreciated" by a manufacturer, carrier or dealer? The
phones debuted as postpaid and prepaid at the same time.

> The loss is the
> depreciation, not the sale to you for $15.

And why is one loss preferable to the other? You're entire argument seems
predicated on the idea that inventory depreciation is ok, or actually
desirable. Again, prepaid is big business. Carriers can't count on
leftovers and overstocks to fuel prepaid sales, and they don't.


> In this example, they would
> potentially pay taxes on $5 in profit and would write off depreciation
losses
> whatever they happened to be. They get to write off the depreciation
losses
> no matter whether you buy the phone or not.


Again, cellular is far too mature for me to belive that tens or hundreds of
thousands of a particular model are sitting around wareghouses depreciating
into $10 phones, while Nokia and Motorola are beating their heads against
the wall trying to hit the $30 price point for Indian and Chinese carriers.
Hundreds of thousands of prepaid phones are hanging on peghooks at big-box
electronics retailers, drugstores, convenience stores, grocery stores, etc,
all over this country, and they aren't a pile of random overstocks and
leftovers- they're a calculated, pre-planned group of phones packaged
specifically for retail prepaid sales.


> I cut all the rest because all the content was supported by your comments
> which were refuted above.

Your entire theory is based on the fact the depreciation write-offs make
under-cost sales somehow "profitable," and therefore desirable. The
depreciation itself is undesirable and would rather be avoided. Prepaid is
too important a side business for carriers to rely on continual accidental
overstocks as the source for equipment. You've not addressed any of my
main points:

* Retail prepaid phones are often (but admittedly not always) the same
models available for contract use, and often introduced at the same time
(rather than closeout/overstock.)

* Wholesale cost of the dirt cheapest cellphones (not even the better low-
end phones we're discussing! is between $30-40 (source RCR Wireless News'
constant articles about emerging nations wireless.) So a "profitable" $15
sale is simply impossible.

* Depreciation shuffles money around the books from one column to another,
but any depreciation expense is still an expense, and doesn't make selling
below cost desirable in order to rack up more depreciation expense!

The bottom line is that prepaid phones are subsidized by carriers, and this
IS the standard prepaid business model. However, the prepaid phones are
subsidized to a lesser extent than contract phones are, obviously.

And, frankly, I don't find your theories and arguments surprising- over a
decade of availability of "free" phones tend to blind us to what these
little marvels actually cost to manufacture, package and distribute.

On 2008-01-11, Thomas T. Veldhouse <veldy71@yahoo.com> wrote:
> Jerome Zelinske <zelinskej@sbcglobal.net> wrote:
>> Is verizon PCS or cellular in your area? What are the two
>> cellular carriers? Sprint PCS is one of your PCS carriers. Are there
>> more PCS carriers?
>
> Verizon is cellular. Sprint is PCS. AT&T is cellular and PCS and T-Mobile is
> PCS.

Same as where I live. Also, MetroPCS is PCS.

>> Here the two cellular are att and uscellular. The PCS are Sprint
>> PCS, t-mobile, and verizon.
>
> Is Verizon native there? The only Verizon PCS that I am aware of is in
> Florida.

Verizon is a PCS-only operator in a lot of the southeast and central parts
of the country, i.e. Florida, some of Alabama, some of Mississippi,
Louisiana, much of Texas, some of Arkansas, much of Missouri, some of
Wisconsin. Verizon also has PCS licenses in places where I've not
found any native coverage at all, e.g. west Texas, rural Wisconsin.

Dennis Ferguson

"Thomas T. Veldhouse" <veldy71@yahoo.com> wrote in
news:5up7fvF1im164U2@mid.individual.net:

> In alt.cellular.sprintpcs CozmicDebris <isheforreal> wrote:
>>
>> Go to any of their investor pages and pull up any one of their
>> quarterly reprts that are filed with the SEC. Each and every one
>> will have a line item for equipment subsidies.
>>
>
> No no. You said they list equipment subsidies as a loss. I said they
> do not. They are two distinctly different things. They are expenses,
> as I said, and not losses. You don't consider buying food a loss do
> you? You trade money for food. A loss is giving something and getting
> nothing in return.
>
>> It doesn't get any more public than that. And you can argue the
>> semantics of the terminology used all you want- that's not going to
>> change the reality of the situation.
>
> It is not meerly semantics that I am arguing. You used a well defined
> word very much incorrectly and applied it to subsidies. Subsidies are
> very much NOT a loss to a carrier.
>

You didn't look, did you? You asked for a link, I provided three, and you
didn't look. If you did, you wouldn't be posting anymore.

Take a look at the way it is reported and then come back.

Until then, go away. I'm not going to argue perceived technicalities with
the clueless.

Cyrus Afzali wrote:
> On Mon, 7 Jan 2008 13:28:35 -0500, "Carl"
> <crothman@NOSPAMoptonline.net> wrote:
>
>> Richard B. Gilbert wrote:
>>> News wrote:
>>>>
>>>>
>>>> LHA wrote:
>>>>
>>>
>> Yep. But I bought mine rather than lock into a contract. It cost me
>> a couple of hundred dollars to be free of the yoke. I'll get much
>> of it back if and when I sell the phone. I learned that awhile ago.
>> Meantime, technology changes are happening too quickly these days
>> for me to want to be locked in.
>>
>>
> That depends on what kind of phone you want and how up-to-date you
> want your technology to be. A business user that wants a relatively
> new smartphone, like the latest Blackberry, or a techie that wants to
> have the newest phone capable of video/audio, etc. isn't going to get
> that for anywhere near $200. If I were to have bought my Blackberry
> 8700 privately when it first came out, it would have set me back
> probably some $400 at least.
>
> So in reality, you have a choice: (1) pay top-dollar for up-to-date
> technology with no subsidy or 2) if you're happy with your carrier,
> get newer equipment at a much-reduced price. Of course, everyone who's
> knowledgeable will tell you to pick the network that works best for
> you and next the best device that fits your needs.
>
I think your two points are inarguable since (1) covers about anything else
one can do and (2) is just a restatement of the logical. It's just your last
statement which I'll take umbrage with. One shouldn't need to 'settle' for
anything over a couple of hundred bucks upfront.

In my case, I wanted to remain with Vz for now but am enamored of the
iPhone's general capabilities, but not the EDGE data service, nor the
iPhone's lack of 'business-related' functionality. I can't help but think
that if I locked myself intoVz another two years and, hypothetically,
sometime in March or April the next gen of iPhones, complete with PIM
capability and level 3 data, was introduced, how I'd be kicking myself.

So I bought a phone I liked (the next best device that fits my needs), an
8130, for about $400, instead of the $150 it would otherwise have cost me. I
still got the $50 rebate. So, $350 net. I figure if the pipe dream phone
does show up, I believe I can get $250-300 back for my well-cared for but
slightly used 8130. I take a small beating, but I would have gotten a few
months use out of the phone for a small cost, and I'm free to go without
hassle. Worth it to me for now. It's a gamble. We'll see if it pays out.
;-)

At 11 Jan 2008 23:46:26 -0500 Carl wrote:

> In my case, I wanted to remain with Vz for now but am enamored of the
> iPhone's general capabilities, but not the EDGE data service, nor the
> iPhone's lack of 'business-related' functionality. I can't help but think
> that if I locked myself intoVz another two years and, hypothetically,
> sometime in March or April the next gen of iPhones, complete with PIM
> capability and level 3 data, was introduced, how I'd be kicking myself.
>
> So I bought a phone I liked (the next best device that fits my needs), an
> 8130, for about $400, instead of the $150 it would otherwise have cost me.

Just to clarify, you paid $250 extra to avoid potentially paying a $150 or
200 ETF?

> I
> still got the $50 rebate. So, $350 net. I figure if the pipe dream phone
> does show up, I believe I can get $250-300 back for my well-cared for but
> slightly used 8130. I take a small beating, but I would have gotten a few
> months use out of the phone for a small cost, and I'm free to go without
> hassle. Worth it to me for now. It's a gamble. We'll see if it pays out.
> ;-)

If the uberphone doesn't materialize, and two years from now you're still
with Verizon, you've simply sacrificed the discount you could've had.