Quote Originally Posted by scaredpoet
Okay guys, time for a crash course in phone subsidizing. And this applies to nearly all phones and PDAs sold in conjunction with a cell phone plan in the US.

First off, let's be clear: PalmOne is not the company offering the new customer discount. No matter what, they're getting at least $600 for EVERY Treo 650 they sell right now, even if you're a new customer on a new plan. (This by the way, is a big part of why Palm Inc bought Handspring. Cell phones are *really profitable* for the people who make them. Plain PDAs? Not so profitable.)

So where is P1 getting the missing $150 for new customers? For now, Sprint. Sprint baiscally reimburses cell phone manufacturers a certain amount of cash for every phone sold with a new plan. This is done (obviously) to entice new customers to join up. For those in the know, it's called a phone subsidy. And in fact, there are some phones where even if you buy at the "full" price, Sprint or whatever cell phone company you're with is still paying for part of the phone out of it's pocket and selling the phone at a loss. The only difference is that the amount they're paying is smaller, by about $150.

So why can't existing customers keep taking advantage of the lower price? Because the cell provider needs time to recoup the cost of the phone it *already* sold you at a significant loss. And they do this through the revenue they get from the monthly rate plan you're on. Depending on how expensive your plan is, it can take anywhere from 4 months (for the all-bells-and-whistles, data and mega-minutes bucket plan) to 18 months (for the bottom rung, bare-bones plans) for them to be able to *start* making any profit off the bills you're paying every month. Think of it as a no-interest loan more than a discount.

So the economics get pretty apparent here now. If Sprint were to keep offering new phones to existing customers at the lower price before their 18 months is up, they would never turn a profit. In fact, the PCS division of Sprint pretty much never HAS turned an after-tax, real profit for as long as it's been in business. They expect to start making positive cash flow for Sprint in early to mid-2005. Cingular is actually in a similar situation, and their losses are largely absorbed by Cingular's owners: SBC and BellSouth, because like Sprint they know as landline and long distance services continue to decline, Cingular and Sprint PCS will begin to profit.

Now, I'm not defending this practice, but those are the facts. The alternative is to not sell any phones at any discount. But then, if people actually saw the *real* price of the "free" camera phones that cell companies give away, cell phones probably wouldn't be as common as they are today, and we'd probably have a lot fewer carriers than we do now because of the low demand.



Yeah, there's no defending that at all. The free headset thing was definitely P1's decision, and they botched it up.

However, I ended up not cancelling and re-doing my order anyway. From what I saw, it was the Jabra headset, and my personal preference is that I wouldn't use a Jabra even if it was free. Used them in the past, and they don't work well for me at all.
So you are saying that none of the resellers (Best Buy, Amazon, TreoCentral, etc) of the Treo 650 will make a profit on it? Or better yet, because of costs of advertising, support, shipping, etc. will loose money?