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The End of Smartphone Contracts

Stocks in this article: VZ T MSFT S WMT GOOG AAPL DT

What are the two conclusions from this trend -- if U.S. consumers wake up and realize they are getting raped by signing up for these "contracts"? There are two:

1. The U.S. consumer will save close to $1,080, or over time even more, for each two-year period by just paying an extra $200 to $450 up front. This should be a boost to the U.S. consumer's ability to buy more advanced smartphones earlier and upgrade more often.

2. The major cellphone carriers will see profit pressure. If they can only collect $30 to $45 per month instead of closer to $90, this will hurt.

Actually, it will hurt a lot more than those numbers imply. Why? If people are already not using their minutes of circuit-switched calling and aren't using their SMS allocation and that's what they would be giving up in the future, what the carriers lose is just pure profit. They will still have to supply the same data as they do today -- except their revenue would be cut in half.

With these developments, who would be the winners and losers? First, the winners:

1. Google

2. Apple

3. Microsoft

4. Research In Motion (RIMM) (if still alive by then)

The losers:

1. Verizon

2. AT&T

3. Sprint

4. Deutsche Telekom (DT) (T-Mobile's parent)

The smartphone operating system (and ecosystem) players would be the biggest winners because consumers would have more money to spend on more frequent device upgrades. The consumer allegiance to the OS/eco systems is also growing, in comparison to carrier/network allegiance. People think of themselves as an Apple/Google/etc. customer first, and as a Verizon/AT&T customer second, if at all.

The carriers would be the big losers because they stand to lose (1) all SMS revenue, (2) all circuit-switched voice revenue and (3) the payday-loan-shark-type interest rates that are currently baked into the usury-style contract subsidies.

Americans should rejoice in these developments. They will be as positive as natural gas and oil finds in North Dakota and elsewhere will be for our energy needs in the future years.

Just like those will be at the expense of OPEC, carriers such as Verizon and AT&T will bear the burden of this shift in terms of getting people to a much cheaper smartphone world, without contracts and with no reason to pay for SMS or circuit-switched calls.

At the time of publication the author had positions in AAPL, GOOG and MSFT.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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