Best Of Comments: iPhone Upgrades And Clinging To Control

In today’s Best of Comments, someone claiming to be an AT&T employee explains why their iPhone upgrade pricing is really supposed to be pro-consumer, and another commenter tries some armchair psychology on the management of large corporations.

Nathan:Others have chimed in on this, but as an AT&T employee, I feel compelled to add some context. This is the result of two attempts by AT&T to be more consumer friendly.

Previously, AT&T used flat ETFs that did not change at all during the course of the contract. They changed them to decline over the course of the contract in 2008, and changed to a two-tiered ETF system based on device type in 2010 as a result of higher subsidization costs. Smartphone ETFs begin at $325 and decline by $10/month over the course of a contract (as someone pointed out, the ETF is less than the discount to start with).

After the launch of the iPhone 3GS (I think; I’m less sure of the exact timing of this), some customers were upset that they were unable to get a discount on the price of the new phone because of the length of time remaining on their contract, so AT&T introduced “Early iPhone Upgrade Pricing.” This was a partially subsidized price: instead of $450 off the MSRP, it was only $200. This isn’t hidden – upgrade check results online and via *NEW# will let you know if this is available.

When you put these two things together, you get incidents like these, where AT&T attempts to be consumer-friendly instead earn the ire of customers and get it branded as “not making sense.” Were they to not offer the Early Pricing, those other two iPhones would be not $500 more total, but $900 more total. Would AT&T then be paying you $580 to leave? If the ETFs did not decline, would they be draconian?

I should also point out that I am not aware of any such pricing level at Verizon, though I could be wrong.

Pete the Geek: On Saturday I was looking to buy a 2 kg box of generic baking soda. It was $4.95. Then I noticed that the 500 g boxes were $0.98 so bought four of them. Businesses set dumb pricing all the time and I think it sometimes only makes sense from the “big picture” view. You would think that customer-service employees would be empowered to fix issues like the phone upgrade pricing, but I think that business leaders are reluctant to give up control, even when it costs them customers.

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  1. tasselhoff76 says:

    To AT&T – I don’t think it should be an either or proposition. I think companies should look at ways to retain customers. More often than not, I am able to get a better deal by switching companies. In other words, the company that I have been with and paid on time, etc. cares more about attracting other customers that may not be so good than keeping me around. (Obviously, there are some bad customers out there and you would rather get rid of them.) In the iPhone pricing/renewal structure. My recollection is that pro-rated ETFs came into being because of class action lawsuits like the one AT&T was involved with back in 2010 (that they settled for $18 million). I don’t think AT&T did it out of the kindness of their hearts.

    ETFs are awful. If they did not get slowly phased out over the contract term, they would be even more awful. Perhaps there should be a structure where as the ETF goes down, the potential upgrade credit goes up. I don’t know. I do know that companies should try harder to keep their good customers happy rather than always just trying to find new ones. Customer retention can be fantastic.

    • Silverhawk says:

      More carrots, fewer sticks.

    • TrustAvidity says:

      Agreed. You saw it a lot with video stores. They’d give extreme rental discounts for all new members but squat to existing loyal members.

    • FashionablyDoomed says:

      In Canada, Rogers Wireless charges a declining early upgrade fee, however, we’re still stuck with 3 year contracts. I bought the Iphone 4 in July 2010. As per the agreement, I don’t qualify for new customer pricing until July 2013. If I want to upgrade now, I pay 13$/month for every month remaining in my contract. So, If I want the iphone 5, I have to pay 200$ for the phone, plus 143$ early upgrade fee. That amount will be 130 next month, and will continue dropping.
      If I was with AT&T, I’d be out of contract now and would qualify for the full discounted pricing. Life is just not fair sometimes.

  2. mikedt says:

    ETF shouldn’t exist unless “bringing your own phone” gave you a cheaper contract. They try to excuse the ETF as necessary since they sold you a cell phone far below the actual cost. Fine, that makes sense to me. The corollary to that is that I should get a discount the month following my 2 year contract since I should no longer be penalized for that phone subsidy.

  3. ninjatoddler says:

    I beg to differ. ETFs are absolutely fine and a good insurance for telcos. You signed a contract to say you would pay X dollars for X years. You have various options and out of the 6-10 providers in this nation, you have the 4 big players – 2 on the CDMA (Verizon and Sprint) network and 2 on the GSM (T-Mobile and AT&T) network.

    What I believe should be changed is the unlocking of handsets policy where currently, carriers get away with making up their own rules for different devices.

    • luxosaucer13 says:

      Contracts exist for one reason: An excuse to keep from having to provide a good customer experience. If you doubt my statement, try calling to cancel your cell service while under contract if you have a genuine problem with your carrier, and then try the exact same thing once you’re out of contract. It’s a totally different world. If you’re under contract, they have no hesititation in “reminding” you that you will have to pay a fee to terminate your service, using it as a crutch to continue your service with them, and gladly not provide any reasonable solution to your problem. If you’re out of contract, the telco will practically bend over backwards to retain you as a customer. They know that an out-of-contract customer is a risk and that’s why they’ll dangle all sorts of “carrots” in front of them to get them to sign that new 2-year contract.

      That’s one of the reasons why my boss switched our business account away from Sprint to US Cellular. Coverage was the biggest one, but lack of customer service was a close second. US Cellular doesn’t require contract renewal on their belief plans once a customer has fulfilled their initial 2-year contract term. As a consequence, we’re noticed their customer service and network quality beats everyone else out there. They know anyone can leave at any time, so they’re motivated to make customer experience a priority.

  4. NorthAlabama says:

    yes, while we’re at it, let’s go ahead and throw out the contracts, since no one wants to pay any attention to them anyway…

    …wait…you don’t want to pay $600 for the phone? why???

    • TheCorporateGeek Says Common Sense Is The Key says:

      Well it’s not like Apple isn’t making any money off it now is it? Apple could sell the devices for the subsidized price and still make money. Oh but wait, then they wouldn’t be the most valuable company in the world…they’d just be successful.

      • manos.sem says:

        I’m sorry, but this doesn’t make any sense. Apple makes a product, and sells it for a certain price. Telecoms then buy this product, and use it to make money off of us, the consumers of their service. Apple can NOT subsidize the cost of the iPhone because they have no way of making money off of the phone post-sale. Anyone (i think) can buy a fully priced iPhone, but why? We’ve been taught that phones should be subsidized. The telecoms are stuck between a rock and a hard place if you ask me. They dont’ want to subsidize, but they have to.