AT&T CEO Says the Company 'Can't Afford' Device Subsidies

“Afford” — a funny word, that one. When most people say they “can’t afford” something, it’s usually because they lack the funds to pay for a particular product or activity. AT&T CEO Randall Stephenson, however, is not most people. He presides over a major wireless carrier that raked in $3.8 billion in profits last quarter. But, according to Stephenson, his company “can’t afford” to continue subsidizing new smartphones for consumers.

“When you’re growing the business initially, you have to do aggressive device subsidies to get people on the network,” Stephenson said at an investor conference on Tuesday. He then went on to state that the wireless industry is approaching 90 percent penetration, and that instead of actively pursuing new signups, AT&T instead needed to go into what he called “maintenance mode” — cutting out high-cost subsidies while upping profits through increased network use.

That attitude is visible in AT&T’s most recent decision: a plan with a $15 a month discount for customers who don’t upgrade their phones. And its mobile share plans, with some of the most expensive data packages out there, certainly reflect a shift in the company’s focus.

The company may be looking to T-Mobile’s “un-carrier” ideas for inspiration, but the truth is, T-Mobile needed to do something drastic to improve its fortunes. Turning wireless industry norms on their ears worked for the much smaller carrier, but for AT&T, the number two carrier in the United States, such bold moves could upset the applecart. AT&T’s offerings are already a sort of jumbled mess — more options, or moving to different options too quickly could wind up confusing consumers even more.

I personally find the idea that AT&T can’t afford subsidies laughable. The carrier builds the cost of the subsidy into monthly payments for both customers who are under contract and customers who have fulfilled their two-year agreements. This means that AT&T is not only getting its money back from those who purchased a subsidized smartphone, it’s also profiting on top of that from users who have “paid off” their phones and users who brought their own device to begin with.

The real issue here is profit — the expectation that a company will always be looking for ways to make more money, whether it’s through cutting costs, charging more, or both. AT&T is making a lot of dough, but that doesn’t mean the company isn’t under pressure to post better numbers for its investors. Will that focus on the bottom line be AT&T’s undoing, or will the company be able to please both its customers and its investors? That’s something we’ll have to keep an eye on.