In the US most people[1,2] get their phones on contract, and a $600 subsidy is standard. If you plan to mostly forgo the prepaid market then US customers are cost insensitive, and pricing a phone at less than $600 is giving money away to the carriers. Similarly if a customer plans to stick with Verizon, Sprint or AT&T then they are throwing away money if they don't use the "free" upgrade on an expensive phone every chance they get.

My father-in-law recently realized that he had paid Verizon about $1200 extra for his Samsung Alias 2, and promptly switched carriers to one where you start saving money after 2 years.

[1]about 75M prepaid http://money.usnews.com/money/personal-finance/articles/2013...

[2] out of 327M total http://en.wikipedia.org/wiki/List_of_countries_by_number_of_...

Getting us to call these usurious loans "subsidies" is probably the most ingenious bit of underhanded marketing the cell carriers ever concocted.

I think you should generally be suspicious when a vendor tries to get you, the customer, to use the vendor's own internal jargon. As a customer, I shouldn't need to know your jargon; I don't give a shit about your internal policies and terms. If you're encouraging me to speak your unnatural language, you're probably trying to give me a false sense of security and savvy that makes it easier to pick my pocket.

One sees similar moves in many complicated transactions like real estate, automobile leases and purchases, etc.

"usurious loans"

Beyond the correct analysis of marketing-speak the market looks like contract phones are basically a "worse than payday loan" interest rate of a couple hundred bucks and couple year payback period. So you get a $500 phone at a cost of maybe $2000 over the course of the loan. The MVNO resellers mostly seem to go prepay, I know I paid $300 for my phone some time ago, but I only pay $22 per month for voice and psuedo-unlimited data so I'm pretty happy.

It is interesting that Amazon is kinda in between, kinda a subprime loan seller and kinda a phone service reseller, probably for financial reasons.

Amazon does seem to be financializing itself, they do push their credit card every time I buy. It is no great modification to drift sideways into phone loans.

In the long run I expect to see them continue to financialize themselves into perhaps subprime car loans (outright buy Car Max or a competitor?) and eventually home equity loans (to buy more stuff at Amazon) or home loans (complete with prime membership to help fill your house with trinkets from china)

So it makes sense as a grand strategy thing to move away from Amazon the book retailer and into Amazon the bank. Nobody in America can make a living doing anything but FIRE sector in the long run by intentional regulation, so they kinda have to do this.

What carrier is your $22 pseudo-unlimited data though? I'm looking at some alternatives and T-Mobile's $30 unlimited seems like a decent bet. But $22 for pseudo-unlimited would still be a step up from AT&T's 300 MB plan that I'm on.

I pay $25 a month for actually unlimited data and text and talk. Republic Wireless can afford to do this because they are a wifi first provider meaning that when I make calls at home or at work it goes over wifi costing them nothing.

Thank you. I've been grumbling about subsidies for a long time, while still calling them subsidies. You're right though. They're extremely high-interest loans that nobody in their right mind would ever willingly take out.

Hear, hear. T-Mobile calls it what it is - a 0% rate equipment loan. That's what shows up on my statement.

I don't know about other carriers but AT&T has recently changed their model, so if you bring your own device (or buy one from AT&T at full price) you get a discount on your monthly bill.

I just bought an unlocked Moto G for ~$200, which is honestly a good enough device for my needs and a huge money savings over paying $200 up-front, plus an additional monthly charge, for a flagship device.

I see that they offer a discount for BYO devices now. That was not obvious to me earlier, even after looking at their web page.

Cell phone pricing should be a simple formula, but it is surprisingly difficult to find a good comparison of costs for an iPhone (or similar) from all of the different companies. What is AT&T Next, for example. The implications of paying $32/month and then saving $15 on the bill are not obvious.

This is absolutely correct.

Additionally, even if you like the cost structure of prepaid service better, you can't buy the same quality of service. The prepaid networks (and resellers like Cricket, etc.) are limited to a single carrier's network, and there are no roaming agreements for prepaid customers. So where a Verizon contract holder could hop on to a Sprint tower, a Verizon prepaid customer will have no service. Same with the other networks.

Most MVNO's do not offer roaming, but a few do. I am currently using Republic Wireless, which is Sprint based, but includes all of the regular Sprint roaming on Verizon.

$20/month for unlimited Voice, Text, and Data! Really.

The downside is that they only have a few phones to pick from, and I will probably in a few months for a provider with an iPhone option.

Subsidies on smartphones have traditionally been $400 to $450, not $600. Most current-generation iPhones have still required a $200+ upfront purchase on contract.

I hate this system, which is why I have a MotoX on Republic Wireless. I paid $300 for the phone and $25 a month for unlimited everything.

All three major U.S. carriers now offer plan rate discounts for buying the phone up front. E.g. AT&T offers $15-25 off per month, or $360-600 over the life of the plan. And of course T-Mobile doesn't subsidize at all.