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Rogers Considers Cutting Subsidies on Smartphones Such as the iPhone [Update]

Rogers CEO Nadir Mohamed believes it is time for Canadian carriers to look into reducing smartphone subsidies, he said at the company’s annual general meeting in Toronto, reports The Globe and Mail:

Mr. Mohamed said Rogers is the first in Canada to tackle the subsidy issue, because of its position as the industry’s market leader. He said when smartphones first came to market, it was essentially a choice between a BlackBerry and an iPhone, and customers expected subsidies in exchange for their heavy use.

But with a host of new competitors offering lower-cost products – such as Sony, HTC and Samsung – Mr. Mohamed said the companies will be able to better match phones with customers.

Just yesterday Rogers announced its 2012 Q1 earnings, where it was reported wireless voice revenue was on the decline but offset by higher data revenue. It was also revealed iPhone activations increased by 35% compared to the year ago quarter.

An anonymous shareholder at the AGM raised the same issue to Rogers as to why they continued to pay for iPhone subsidies–when customers are eagerly lining up for Apple’s smartphone. Apple announced $11.6 billion in profit yesterday for its 2012 second quarter, and derived more than half of revenue from its 35.1 million iPhone sales.

Mohamed mentioned as people start out with cheaper introductory smartphones and smaller bucket data plans, Rogers can even eventually steer them towards higher-end products and richer data plans.

“People want to start out with smaller buckets of data as a way to get into the category,” he said. “This business hasn’t used segmentation, which is a standard piece of business in other parts [of our business]. You will see that going forward as we start targeting different segments.”

Are consumers willing to pay full price for the iPhone? Of course. We’ve seen line ups for unlocked iPhones outside Apple Stores. But on the other hand there are those that always want to sign contracts to get a subsidized device.

What’s your take? Reduce subsidies along with contracts and go back to the good ol’ days?

Update 1: Rogers contacted us and forwarded the exact details of Nadir’s talk at the AGM. He did not refer to eliminating subsidies rather reducing them. Full text below:

HUGO MILLER, BLOOMBERG: Will subsidies keep rising (muffled)?

NADIR: I would differentiate between the amount of the subsidy in terms of the absolute dollar versus the rate per device.  We have not seen the rate per device going up. In fact, I would say the mix over time will lead to a lower blended cost for subsidy, quite apart from whether an individual supplier will lower the subsidy or not. It’s a mix issue. One thing we have learned that applies to every business is that the more choice there is, the more likely you’ll see that the prices come down. As a service provider, I just see a lot more choice going forward than we have had in the last ten years.

HUGO MILLER, BLOOMBERG: Apple’s numbers yesterday suggest that that kind of growth is not slowing anytime soon. Clearly the subsidies, as much as iPhones are a welcome opportunity, (muffled) is there anything that Rogers or the industry can do to  mitigate those subsidy costs, and how important is having other platforms?

NADIR: Great question in terms of subsidy and very timely. One of the things that impacted our quarter in terms of the earnings side of it, is the amount of smartphones we loaded -over 640 thousand activations. iPhones specifically were  up 35% and we all know the model in terms of subsidy. So to answer your question in terms of what we see going forward, a couple of things: One is clearly when we look out ahead at the number of suppliers we now deal with versus lets say even five years ago where essentially, if you go back to where we started were BlackBerry and then iPhone,  if you look out now, we have had the chance to sit with many suppliers, whether it’s Samsung, Sony, HTC,  there is whole group of new suppliers that have tremendous product selection.   For consumers it means much greater choice. For service providers it means having the option to bring way more to the market as opposed to relying on one or two suppliers.  I think part of the answer in terms of the subsidy model is the mix of smartphones that are in the market will change over time. Android clearly is the fastest growing part of that spectrum.  I suspect the others will continue to be strong including Apple.  The mix will factor in because there are different subsidies with different devices and service providers.  The second thing is very much a view that if you look at the history of wireless and where we are today, we have always talked about smartphones as a proxy for getting customers that deliver higher value in terms of using their services more and. In our language, higher ARPU or revenue per customer.  As I look forward it is clear to me.  Understand we are the leaders here, we are at 60% and this is going to be an industry issue.  We just get to these things faster – that’s the benefit of being the industry leader. What we see is that the next ten, 20 points of penetration, almost by definition, will be people who want to start out with buckets of data that will be smaller buckets as a way to get into the category and then grow with usage over time.   When you look at that versus the subsidy you have on the smartphone, what I look at from a service provider POV is to start segmenting the market.   This business of wireless data has not used segmentation. It is a very standard piece of our business in other parts of our business.  You will see that going forward where service providers including ourselves will start targeting different devices for different segments of the market to factor in what we would consider the usage pattern of that individual customer.   I think both will work hand in hand in terms of how the subsidy model evolves.

[via The Globe and Mail]

Founder and Editor-in-Chief of iPhoneinCanada.ca. Follow me on Twitter, and @iPhoneinCanada, and on Google+.

  • Craig Kelly

    If Telus, et al don’t follow suit it could end up been a disaster for Rogers, of course because Rogers, Telus, Bell, et al act as a cartel the other all waiting to do the same.

  • http://twitter.com/DevilRejected Cory D McDonald

    Its a good sign but unless they remove the 3yr contract stuff as well and follow the rest of the world it really doesn’t mean much.

  • John

    When I got my first iPhone I was still a student and there was no way my parents would have paid for a $600 phone outright. Now that im passed those days i can afford it but I can’t help but think of all the probelms this would cause for the younger generations going forward. Which is probably also probably the people Rogers wants the most.

  • http://pulse.yahoo.com/_UM3H6DSGRTCZZWYW73EUNDDFWY gokou3

    Consumers can just treat a 3-yr contract as being worth $400-500 and make their buying decision (full-price vs contract) accordingly.

  • pascyyy

    It only makes sense if there are no long term contracts and if monthly rates drop. Otherwise, there is little benefit to the consumer.

  • alamarco

    If they want to do that, get rid of the contract. The whole point of a contract is to have the subsidiary. Why else would I sign a contract? Of course Rogers probably wants us all to pay full price for the phone and pay the same price on a 3 year contract.

    Ridiculous.

  • Graham R

    They can ditch the subsidy if they want, but if theydo there is no way I’m buying a locked phone and signing a contract for 3 years!

  • http://twitter.com/RedBoulder RedBoulder

    This CEO can go fuck himself. Subsidization is what allows many people to get the phone. 

  • Grandy

    Users are replacing smartphones on average of every 16 months because they are tricked into believing the devices are “free”, or “$99″, etc.  A lot of these devices are still great phones (although not latest and greatest).

    Initial outlays for customers COULD be the same as they are now, except structured as payments (true cost) as opposed to subsidy.  ie. $99 down, then $20 per month for 24 months (or $14 per month x 36 months). 

    Ultimately, over the long term, eliminating subsidies would save customers money.  That happens every time there is more truth and transparency in what we are actually paying.

  • http://twitter.com/adamjefferson Adam Jefferson

    I say offer choice. No contract with regular price hardware, a 1 year contract offer in exchange for lower price on the hardware, a 2 year for deeper hardware “discount,” and 3 year for even deeper hardware “discount.” No matter what, we will continue to pay high prices on the monthly services anyway…do something to improve how much we pay monthly, and then I get excited.

  • http://www.iJailbreak.com Mike McKinnon

    No subsidy should equal no contract. 

  • clever27

    Rogers needs to wake up.  Do the math.  If you got the latest iPhone 4S 64 Gig, it cost $369 subsidized.  Retail, unlocked is $850. 850-369=481/36 months = Total of $13.36 a month it cost them.  And you probably have at least an $80 a month plan = $2,880 is Total of what you pay.  The subsidy only makes up 10% of your monthly cost.  They would be morons if they did this as nobody with a brain would sign up for a 3 year contract, locked phone at full price UNLESS they were charging $40 a month for service or something like that. 

  • http://www.iphoneincanada.ca/ Ex

    They may dump subsidies but the contracts will remain. Rogers will still require a 3-year contract for their “competitive” plans whether you buy a device directly from Rogers or not.

    Rogers is not in the business of giving favors to consumers!

  • Networx

    Haven’t you got enough of my money already Rogers?  Agreed, no subsidy, no contract.  You can also kiss the teen and other low income users goodbye.  My son is starting his new job next week after graduating college and his reward to himself is a new iPhone 4s 64GB.  I talked to him about buying an unlocked model from Apple but he says that there’s no way he’s paying $850 for a phone that still requires a contract.  If a 20 year old Woodworking graduate can figure out that then you’d think these “educated” business leaders would be able to.  Fucking Rogers makes me nuts.

  • Ryan

    It seems like a lot of people commenting missed the memo when Rogers implemented economic inducement and all plans available on all terms a few months back. Currently if you bring your own phone (ie iPhone you bought outright) and activate it on Rogers you can go on any plan month to month (even the MY10 plans) the only exception I can think of to this is the 6GB data plan when it is around. With that being said if you bring your own phone even if you sign a three year contract (ie to get the 6GB data plan) there was no economic inducement so if you cancel before the three years is up all you pay is the $12.50 service deactivation fee. I know it’s easier to just bitch but knowledge is power!

  • MleB1

    The CEO of Rogers is compensated to the tune of  $13.69 mil annually – ‘only’ $1.2 mil is actually salary, the rest is ‘other compensation’. Clearly he feels that he’s in danger of driving Rogers bankrupt offering its subscribers a ‘subsidized’ phone.

  • Richard D Walsh

    No Subsidy, then don’t dare lock my phone. Why would I buy full price from Rogers for a locked device, when I can pay full price from apple unlocked.

    Unless we’re all missing this bit of information, the proposed is stupid.

  • http://twitter.com/ktaifan R.M.

    Keep the subsidy. I paid less than $200 for my iPhone and have been happy with my plan for the past 2 years, with no intent to switch. Who would I even switch to? Plans between carriers don’t offer any substantial difference in price points ($50 base pretty much for voice and data). Some people may not like contracts as it ‘ties’ them down; but really, in this mobile landscape, there’s not much place to go (I wouldn’t be able to bring my iPhone to the new entrants anyway). 

  • DELK

    Canadians need to really start buying their devices outright and unlocked. We should all shop for the service, not the phone that a carrier offers. I always buy my own phone and never ever have one single locked phone in my phone. From the good old black and white only Nokia to Galaxy Note. 

    Of course, Rogers will still make you go on contracts even with no phone subsidy because they offer a some kind of rip off promotional plan. Canadians need to say no to contracts!

  • Kraken

    If they can drop their rates in half and eliminate contracts, then yeah I can do without the subsidy.  But if they are going to keep the same super-overpriced rates, than subsidy is a must!

  • Anon

    They also have to bring down the monthly rates.

  • Londonfish

    I think ppl who rather pay full price at Apple Store mostly want to have an unlock phone, not because they don’t mind paying more. I regret having a lengthy 3 yr contract with Telus plus at the end yes I can leave Telus but the phone I have now will be useless with other carrier, just an iPod by then. Not matter how the big 3 changes, I still think what they come up with will still be more expensive than other countries. Want us to pay call display as extra is already example.

  • LaPhroaig

    Keep the options open:
    No subsidies = no contract or Subsidies = contract
    Consumer can pick whatever they want.

  • Rob Raymond

    By half.

  • BrianE

    Yes, many people want to purchase an unlocked phone at full pice without contracts.  It just means thy won’t get any new customers on contract with a guaranteed revenue stream.  What genius at Rogers did the math on this?  Sell your stock now.

  • JMCD23

    No subsidy = no contract & cheaper monthly rates. If it isn’t going to be that, Rogers is insane.

  • Anon

    The “economic inducement” is a complete joke.  Robbers plans are still outrageously over-priced, contract or not.

  • Keynejad1

    They are going to lose customer big time. I see
    their revenue goes south even further.

    .

    .

  • Mac

    Who would sign a three year contract then? Buy outright from apple and go with one of the new competitors.

  • Dialogueouvert

    It’s this kind of thinking that makes people hate Rogers. Do they really think people would pay full price AND continue to receive their crappy service for any amount of time never mind 3 years?

  • Sndinicola

    If Rogers proceeds with this plan, they will loose a customer who has been with them for 20 years. . Rogers, you’re not the only game in town.

  • Guest

    But there are very little options with your unlocked phone. With the unlocked phone, you are still bound to pay for the 60-80 a month.

  • Adam

    Not really, as they’ve already locked their customers into 2, 3, 5 year plans. How does a customer switch to another provider(who’ll likely charge them the same unreasonable rate) when doing so means paying ~$800 to get out of their contract? Nothing Rogers does to gouge their customers will ever truly affect them, because they operate on a near monopoly, and Telus and Bell are perfectly content matching Rogers move for move rather than truly competing. 

  • http://pulse.yahoo.com/_53A6W6XV46ZPER6VK4LCQ2WGJA Kid87

    Funny, nobody is talking about Bell and Telus who do the exact same things.  Most people that complain on these boards are mindless drones who just like to bitch and probably don’t even pay their bill half the time. Stop trolling internet bitch fests and go get a job to pay your bills!!

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