Is the Mobile Market Due For a Revolution?

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It seems like only yesterday that Google (Nasdaq: GOOG  ) wanted to turn the mobile industry on its ear. The Nexus One was launched using a novel distribution method, and Big G wanted to undermine the reigning system of networks that held all the power in the smartphone space.

That grand experiment fizzled out when Verizon (NYSE: VZ  ) and Sprint-Nextel (NYSE: S  ) refused to play along. In no time flat, also-ran T-Mobile USA was the only Nexus One supporter among American networks. Meanwhile, AT&T (NYSE: T  ) threw its considerable weight behind the iPhone and arguably did remake the mobile industry -- but Ma Bell still used the time-honored method of exchanging long-term contracts for low sticker prices. And most of the profits flowed straight to Apple (Nasdaq: AAPL  ) . To this day, Sprint and other complain that those up-front hardware subsidies are hurting their bottom lines.

Maybe it's time for another attempted revolution. Cole Brodman, Chief Marketing Officer at T-Mobile USA, says he'd love to take a shot.

Try, try again
At a recent industry conference, Brodman took the stand to say that smartphone subsidies are bad business. "It actually distorts what devices actually cost and it causes OEMs, carriers -- everybody -- to compete on different playing fields," he said. "It causes consumers to devalue completely the hardware they are using … It is amazing hardware, but it has become kind of throwaway. So it is unfortunate -- you've got dual-core, multiprocessor devices with amazing HD screens that get thrown away at 18 months."

As the fourth-largest network in the nation, T-Mobile might have the power to change this broken model. But when the three big boys don't play along, Brodman thinks, it's hard to make anything happen. If T-Mobile started selling smartphones under a simple, fair, and balanced pricing model but the competition continued to keep the sticker shock out of sight, where do you think Joe and Jane Consumer would buy their phones?

According to Brodman, his company has experimented more with device and plan pricing than anyone else, but customers almost always head straight for the low-cost phone, regardless of the monthly charges.

Anecdotal evidence
Being a T-Mobile user myself, I can second that observation. Recently in the market for an upgrade, I waited through one smartphone sale after another until the Samsung Galaxy S2 become available … for free. Yeah, I'm tied to a $30-a-month data plan, but I'm already used to that from my two years with a clunky old myTouch 3G. Yes, the lack of upfront costs (pending mail-in rebates) made a big difference.

It's easy to write Brodman's subsidy-free dreams off as sour grapes. T-Mobile is the only major carrier stateside that doesn't sell iPhones, a product line that does plenty to cement the status quo. I'd imagine that Apple demands low consumer prices as a condition of doing business with carriers. Tellingly, in Europe, where large subsidies are rare, the iPhone is hardly making a dent.

Brodman does nothing to dispel that criticism when he touts his "alternative choices" as equal or even superior to the iPhone. What else is he supposed to say -- "Without the iPhone, T-Mobile should just roll over and die"? I don't think that would go over well at company headquarters.

Wouldn't it be cool to really have a choice?
Unpalatable fruit aside, I think Brodman is onto something. If American consumers could get used to paying a little more for their phones, we could get lower monthly fees and a less-jaded attitude toward smartphones in general. But until the next Android can actually do your dishes, this will probably remain an impossible dream.

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Fool contributor Anders Bylund owns shares of Google but holds no other position in any of the companies mentioned. Check out Anders' holdings and bio, or follow him on Twitter and Google+.

The Motley Fool owns shares of Google and Apple. Motley Fool newsletter services have recommended buying shares of Google and Apple; and creating a bull call spread position in Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinion, but we all believe that considering a diverse range of insights makes us better investors. We have a disclosure policy.

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Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On March 15, 2012, at 9:35 PM, Frisia wrote:

    People seem to be unable to do the math; choosing for a "free" handset and paying deerly every month for it, is more expensive than buying an unlocked handset and take your SIM card from the supplier you like.

  • Report this Comment On March 18, 2012, at 3:04 PM, crca99 wrote:

    I feel dumb. I had trouble following the logic in article and had to keep rereading. Something about stop phone subsidies, pay more for phone, pay less for service contract, and t-mobile is going to lead the way in revolution?

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