Many people outside of US buy their phones off-contract, but this has happened very little in US, because the carriers have managed to “educate” consumers that they should pay relatively little upfront, while paying a lot more during the 2 year contract period. This may begin to change with phones like the Moto G, who are more than good enough for most people. But how was this made possible?
The biggest factor that will help in transitioning US customers to buying phones off-contract, too, is that technology is improving very fast in the mobile world, and component prices are dropping by about 30 percent per year (or 50 percent every 2 years). So a phone with certain specs today, will cost half as much 2 years from now. That means that a phone like Galaxy S4, which costs $600 today, will cost $300 2 years from now, while a phone like the Moto G will cost less than $100.
You can see where this is going. At some point, you get all the performance you need for apps, browsing, and even games, in a phone that costs only $180 like the Moto G, or even $100, even if you could do so much more with one that costs $600 unlocked, or is $200 on contract. Sure, those apps will keep requiring more performance, too, over time, but that requirement won’t increase as fast as the actual performance of the hardware.
We can already see this even in the PC market, where even Intel has has pretty much stopped focusing on CPU performance, and has focused more on power consumption, to compete with ARM. The point is we don’t always need ever faster hardware, and at some point we just think the hardware we have is good enough. That’s also one of the reasons why people have stopped buying PC’s and are buying tablets instead, too (not to replace an old PC, but a new one that they might’ve gotten otherwise), and most think the performance of their tablets is already more than good enough.
Another big role in this transition seems to be played by T-mobile, with its Uncarrier strategy, which lets people pay much less monthly, since they’re only paying for voice and data, and then allows them to buy whatever phone they want, whether it’s one like the Moto G that costs $180 off-contract, or even a $600 one.
I don’t expect AT&T or Verizon to adopt this strategy anytime soon, but if at least one of them does, then the other will have to do it, too, and they both might have to do it anyway if more people start buying off-contract phones and using their competitors’ networks.