T-mobile recently announced that they would drop the prevailing practice of signing up customers for two year contracts and instead let all customers go month-to-month. This, combined with a decision to stop subsidizing handsets is a first among the major US carriers.
Let us take a look at who stands to gain from a change like this.
First of all, an obvious winner is the consumer. While the change can seem minor when you look at the total cost spent per month, at least if you include a handset payment plan, the no-contract setup provides the consumer with unprecedented flexibility as well as a more precise break-down of actual costs. This makes it easier for the consumer to find the optimal level of spending on the device and the plan.
The second party that has a lot to gain from making this move is the carrier. Although carriers historically have made lots of money on the two year contract and subsidized handsets model there are a lot of upsides with going no-contract.
Obviously they no longer have to commit capital to the front loaded cost of subsidizing handsets, but more importantly they can now re-focus the conversation with the consumer back to the value-add they bring to the table, the plan. Instead of having the conversation, "I want an iPhone, which carrier should I chose?" They can now try and change the conversation to "This is our month-to-month plan, it includes x amount of minutes and data and here is our network coverage. If you don't like it you can leave any time. And, by the way, you can have any phone you want.". This is why even Verizon won't rule out going no-contract in the future.
While Apple and Samsung are doing great, they are somewhat vulnerable to a move like this. They can no longer take for granted that people will update their handset every two years. Maybe the consumer is happy to have his or her iPhone for another year or two instead of upgrading like clockwork. It can of course go the other way too, that the consumer decides that he or she wants to update his or her handset every six months but I think that might be the exception. In any case, the handset manufacturers will have to motivate the consumer to upgrade, it is no longer automatically done by the carrier when the contract is up.