[sankara]

May be someone could answer a question I have for a long time.

There are two different modes of operations wrt the mobile phone industry. US and most other European countries package phone and services together. Whereas in a lesser sophisticated market like here in India phone and services are independent of each other.

Both have their own pros and cons - Here I would never choose a crappy network because they have a better phone (I buy the phone of my choice) but at the cost of paying an extra premium (and that's quite a bit) for the phone (and the freedom to switch network anyday). The advantage wanes away as more operators provide better choice (but there is always the possibility that a phone maker could enter into an exclusive agreement).

Which of these models would result in a better service for the customer? Which is likely to succeed (or rather, be more successful)?

[slykat]

I worked with carriers on handset pricing strategy so I'm familiar with this issue. There is a reason many country telecom regulators ban subsidization of handsets - in most cases bundling is anti-consumer.

Bundling uses a common pricing psychological trick - by reducing the fixed price (i.e. the phone price) but increasing the variable charge (i.e. the monthly bill) the consumer has a perception that the deal is "cheaper". I'd venture to say that the wealth level of consumers who buy high end smartphones in the US is lower than those who do in other markets - essentially the lower one time charge encourages consumers to buy phones they really can't afford (it's like layaway for mobile phones). Furthermore, the consumer is locked into a long term contract (usually 2+ years) so they can't churn.

Finally, carriers can exploit uninformed consumers. For example, you can offer two free phones with a plan, one of which has a cost of $300 and the other $200 to the carrier. You can list both phones at a fake MSRP $350 making both phones seem like equivalent deals when in fact consumers who buy the $200 phone are essentially writing a $100 check to the carriers. Since carriers bundle phones with the service and most models are carrier specific, there is no perception of the actual value of a phone and thus, it's really easy to do this.

In general, the US market is pretty anti-competitive because of i) bundling ii) carrier locked phones iii) lack of pre-paid options (esp on the high end) iv) long term contracts v) CDMA networks which prevent re-using phones with another carriers

So in general US customers get a raw deal when compared to other markets (don't get me started on how we get charged for incoming calls and SMS). On the plus side, we do tend to get coolest phones first.

[Tuna-Fish]

> US and most other European countries package phone and services together. Whereas in a lesser sophisticated market like here in India phone and services are independent of each other.

A lot of Europe also purchases the phone and the services separately.

[chimeracoder]

Actually, the way it works in the US ends up being a lose-lose situation for consumers. Phone prices tend to be lower, but at a cost of an increased contract price. Over the course of a two-year contract, people will pay more than the cost of the subsidy of the phone.

The only way to beat this is to buy phones out of pocket and get a plan that doesn't require a contract. However, you'll still lose out on flexibility, because the companies in the US use incompatible technologies.

Fun fact: the incompatible technologies were originally conceived of as a way to increase competition between phone companies. Guess what effect they actually had!