On Call: The downside of service rebates

Service rebates may get you a cheaper phone, but they're not all good. CNET tells how they dumb down the cell phone selection in the United States.

Kent German Former senior managing editor / features
Kent was a senior managing editor at CNET News. A veteran of CNET since 2003, he reviewed the first iPhone and worked in both the London and San Francisco offices. When not working, he's planning his next vacation, walking his dog or watching planes land at the airport (yes, really).
Kent German
4 min read

Q: I was wondering why U.S. carriers have not picked up Nokia's N-series phones. Why wouldn't a carrier like AT&T or T-Mobile want such high-end handsets to attract customers?
- Zoheb

A: There are a few answers, Zoheb, but they all boil down to money. More so than in other countries the cell phone market in the United States has long centered on the service rebate. Carriers discount phones to attract customers and their contracts, while customers are trained to expect free or discounted handsets. While this dynamic is beginning to change due to the growing popularity of unlocked phones, service rebates largely rule the day here.

Nokia N96 Corinne Schulze/CBS Interactive

Though the rebates have their upside--customers can get $200 knocked off the price of a nice smartphone--they have their downsides as well. And I'm not talking about service contracts. Rather, the widespread use of service rebates has helped to "dumb down" the cell phone selection in the United States. With notable exceptions, carriers tend to keep their phones below $300 to make them as affordable as possible.

The problem with the N-series phones is that they cost well over $500 (the fancy Nokia N96 is $776 unlocked). So even with a service rebate they're going to remain pretty expensive. Sure, there will be customers like yourself who will be willing to buy one, but that's not enough incentive for a carrier to buy a several thousand of them. Instead, they're going to pick handsets that will sell in the biggest numbers.

T-Mobile G1 Corinne Schulze/CBS Interactive

We also have to remember that the N-series phones are complicated with a lot of different features. U.S. carriers tend to be in the driver's seat when it comes to choosing phones for their lineups. They have a lot of say in how the phone looks and what features it has. Thanks to the iPhone and the T-Mobile G1 this is also beginning to change, but they still like to exert their control. I'd wager than the N-series phones are simply too complicated for U.S. carriers. There are too many parts and features that the carriers can't control. Also, I'm sure that carriers haven't figured out how to monetize all the services on a handset like the N96. That's yet a another deterrent against picking it up.

Finally, it's only in the last three years that U.S. customers have begun to demand more features from their phones besides making calls. Think about how long it took for us to get hooked on texting. As that demand grows, we should see U.S. carriers offer more high-end models. Or at least I hope so.

Q: I'm a long time Verizon Wireless customer with a great service plan. I seldom go over the monthly allotment so I'm not likely to switch. I'd like to exchange my Motorola Krzr K1m for something more ambitious in the smartphone set, but Verizon doesn't offer anything too sexy. I'm dreaming of the iPhone 3G and the new Palm Pre, is there any chance that Verizon could get its mitts on anything as good?
- Geoffrey

Palm Pre Palm

A: Of the two handsets that you mention, I think that there's a better chance that Verizon would pick up the Pre. Sprint will have the device as an exclusive for period (we don't know how long), but eventually the Pre should land at other carriers. Verizon is a likely candidate, particularly since Palm wouldn't have to develop an alternate version (Sprint and Verizon use CDMA technology).

Unfortunately, I'm not optimistic in the least that Verizon will get the iPhone. To make that possible, Apple would have to develop a CDMA version, which I think is unlikely.

Q: Will Verizon continue to offer all Alltel phones when the merger is completed?
- Gabriel

A: There will be some consolidation when the merger finishes. We don't know how the phones will fall just yet, but since Verizon is the buyer here, I'd bet that more Alltel models will be retired. The good news is that since the two carriers share the same CDMA technology, they already share models that either are identical or very similar. Also, if you already have an Alltel phone you'll be able to use it with Verizon for as long as it lasts.

Q: I am a Sprint customer but been very dissatisfied with my coverage lately. I'd like to switch so I was ecstatic when Sprint announced late last year that they would start prorating early termination fees (ETFs). Yet, they told me I was not eligible for the program because they did not start prorating until November 2008 and my contract started in February 2008. Is that true?
- Kyle

A: Sorry to be the bearer of bad tidings, but I checked with Sprint and it turns out that you are ineligible for the prorated ETF. Here's what I got from Sprint. "The prorated ETF policy applied to all new service agreements beginning on or after November 2, 2008, regardless of whether it's a new customer with a new service agreement or an existing customer who has renewed his/her service agreement. The prorated ETF policy does not apply to service agreements beginning before November 2, 2008."