[ NNSquad ] Re: Cancelling Nexus One triggers TWO "early termination fees"?

[Barry Gold <BarryDGold@ca.rr.com>]

Wes Felter wrote:
> IMO it's time to treat subsidized phone agreements as what they really 
> are -- loans. Sure, this gets into banking regulation, but shenanigans 
> such as the Google/T-Mobile issue are exactly why those regulations were 
> invented. At least with a loan (1) you know exactly how much you have 
> left to repay and (2) you can get out of the loan by repaying the 
> remaining principal (not more).

This sort of regulation is tempting, but it could make future 
development in the industry economically unfeasable.

History is full of examples where you cannot sell something for enough 
to cover development and production costs, if the price is paid in a 
lump sum.  So part of the price is folded into the future, either by a 
contract (as with ETF fees) or by technological means.

Case in point: the safety razor.  Getting these right required 
considerable development expense, and they were also complex enough to 
be expensive to produce.  The breakthrough that made Gillette successful 
was to sell the razor at a loss -- but the blades to fit the razor were 
covered by King Gilette's patents, so you had to buy them from Gillette. 
 And the blades were sold way above the cost of manufacturing them 
(although still fairly cheaply).

Thus, by the time the main body of the razor wore out and needed 
replacement, the user had "paid for" the razor by buying blades.  Of 
course, once the patent expired he had to introduce a new, "improved" 
razor with a different blade design.
http://en.wikipedia.org/wiki/King_Gillette
http://en.wikipedia.org/wiki/Razor_and_blades_business_model

The same thing goes on in the cellphone market.  End-users will not pay 
the "true" price of developing and producing a cell phone, so the phone 
is sold at a discount, with the rest of the cost recouped through profit 
on the usage plan.

If we insist that the phones be sold with an explicit loan, the 
paperwork (already excessive for a consumer product IMHO) will multiply. 
 And you may get "sticker shock", where the user sees the price and 
refuses to buy, even though the total amount to be paid (including 
interest) is less than the total to be paid under the phone+plan+ETF 
arrangement.

There _are_ some good things about the Nexus phone.  At least you _can_ 
buy the unlocked phone and use it on any available system, without an 
Early Termination Fee.  When I first started shopping for cell phones, 
it seemed that the _only_ ones available were tied to plans with ETFs, 
so it wasn't even possible to just pay the "full price" and be able to 
terminate or change your plan without a fee.

I don't know.  It's possible that good marketing can overcome this 
problem.  After all, most people "can't" buy a new car for all cash.  So 
advertisements talk about "so much down and so much per month" , either 
financing or a "lease" deal.  (An "auto lease" is really a purchase, 
plus a repurchase--assuming the car is still in good shape--and a loan 
to cover the difference between the purchase price and the buy-back 
price, as well as the time value of the money between the two events.)