Mobile service providers aren’t happy about the cost of device subsidies that cause a drag on earnings. For AT&T (News - Alert), the financial impact of iPhone subsidies is clear. AT&T profit margins had grown for five straight years beginning in 2005, but reversed in 2010, apparently related directly to iPhone (News - Alert) 4 demand and subsidies, according to BTIG.

BTIG argues iPhone subsidies, in particular, have reduced AT&T margins by at least 10 percent in 2011.

But the trick is how to wean customers off the subsidies without seriously slowing the smartphone adoption rate, since most smartphone customers, given a choice, buy subsidized devices with a contract, rather than paying full retail price and buying service without a contract.

Up to this point, the decision hasn’t been terribly difficult. A Motorola (News - Alert) Mobility Holdings Droid 4 costs $549.99 without a contract and a 16-gigabyte Apple iPhone 4S, which runs only on 3G networks, is $649.99. Verizon Wireless (News - Alert) offers both devices for $199.99 with a two-year data plan commitment.

It therefore comes as no surprise that nearly all customers choose to buy a subsidized device.

Up to this point, for example, Verizon has not charged a fee to its subscribers when customers decide to upgrade to a new device. But last month Verizon announced it would charge a $30 fee when that occurs.

For Verizon Wireless, that could add up to $1 billion to Verizon’s annual earnings and boost profit margins.

But that’s not all. Verizon Wireless will now provide incentives for users to pay full retail for their devices, using the bait of “unlimited” mobile data plans. That is likely to cause buyer sticker shock, though.

The new Verizon Wireless plan to end "unlimited" service and move users to capped plans is aimed at matching end user data consumption to usage. But the company also appears to be using the opportunity to wean customers off device subsidies.

"When we introduce our new shared data plans, unlimited data will no longer be available to customers when purchasing handsets at discounted pricing,” unless of course the customer wants to pay full price for a device, according to Verizon officials.

One may doubt the “full retail phone price, unlimited usage” plan will be chosen by many customers, though.

On the other hand, it is an interesting way of enticing some users to pay full retail for their devices. What will Verizon think of next, aside from simply raising the prices of devices sold with contracts?