I think Apple iPhone is in serious trouble if US carriers end subsidies

[aneftp]

We all know most Americans buy their iPhones subsidized.

The original iPhone at $600/8GB was a very hard sell to the American public. That's why Apple had to lower the price by $200 in less than 3 months in Sept 2007.

Now with ATT moving aggressively towards the NEXT program (along with more attractive pricing just announced). Lets face it, T-mobile USA is a much smaller carrier than either ATT and Verizon.

If Verizon makes the same move as ATT's new mobile sharing plans, Apple will have to start re evaluating their prices.

The US is Apple's most important market right now. It's it's more profitable market as well.

 

[Gav2k]

There not ending subsidised phones tho!

Basically there doing the same as O2 have started doing over here and separating the phone cost from your monthly bill but your still paying for it on your bill so...

Old bill looks like
Call/text/data £100
Total to pay £100

New bill will be

Phone finance £45
Call/text/data £55
Total to pay £100

All there doing is not hiding the phones cost.

 

[mattopotamus]

There not ending subsidised phones tho!

Basically there doing the same as O2 have started doing over here and separating the phone cost from your monthly bill but your still paying for it on your bill so...

Old bill looks like
Call/text/data £100
Total to pay £100

New bill will be

Phone finance £45
Call/text/data £55
Total to pay £100

All there doing is not hiding the phones cost.

This. They just finance the phone now which is way better than a subsidy.

 

[CEmajr]

You're missing the fact that financing will replace the subsidy OP. With programs like NEXT and JUMP, carriers will offer iPhones at $0/$99 upfront. Americans aren't so much addicted to subsidies as they are to the idea of paying less upfront and more later in the bill. Financing keeps them in that condition. The carriers know that the majority of consumers can't/won't pay $649 out the door for iPhones so they will dangle the $0 iPhone 5S in front of them via financing. This is how T-Mobile has been selling iPhones and high end Androids for $649-$700 without subsidies. I can walk into a T-Mobile store right now with $50 and leave with an iPhone 5S. That's all people are concerned about is "what do I have to pay right now?".

If anything this might help Apple sell more iPhones because these programs feed people's chronic desire to upgrade every year by allowing them to trade in their old iPhone and start financing another one each year instead of being forced to wait the full 24 months between upgrades. It's a win/win for the carriers and Apple.

 

[EbookReader]

This will explain what will replace subsidy: $0 down + 24 monthly installments of ___.

From a Sprint store.

24 months x $20.84 = $500.16 for the LG G2



or on T-Mobile.com right now
http://www.t-mobile.com/cell-phones.html

Iphone 5S
$0 down + $25/month x 24 months

(that's $600)

All the phones on that page has a "$0 upfront" including Galaxy Note 3, Galaxy S4 etc...


IN CONCLUSION, Americans LOVE $0 down and monthly installments.

 

[yg17]

This will explain what will replace subsidy: $0 down + 24 monthly installments of ___.

From a Sprint store.

Image

24 months x $20.84 = $500.16 for the LG G2



or on T-Mobile.com right now
http://www.t-mobile.com/cell-phones.html

Iphone 5S
$0 down + $25/month x 24 months

(that's $600)

All the phones on that page has a "$0 upfront" including Galaxy Note 3, Galaxy S4 etc...


IN CONCLUSION, Americans LOVE $0 down and monthly installments.

What's going to happen is eventually people are going to do the math and realize they're paying $600 for a phone that used to cost $200 and they still have a 2 year commitment (and yes, the installment plan is basically a contract, with the remaining cost of the phone being an ETF if you cancel).

Unsubsidized phone prices have been artificially inflated because carriers were willing to cover the cost (no carrier is ever going to tell Apple that the cost is too high so they're not going to carry the iPhone, that would be suicide). Now that the true cost of the phone is out there front and center for consumers to see, they're hopefully going to come down.

iPad Air 16GB LTE: $629
iPhone 5S 16GB: $649

The guts are the same - CPU, storage, RAM, cellular radios, with the iPad having a significantly bigger screen and bigger battery, it makes no sense that the iPhone costs more. The 5S has Touch ID, but it can't be that expensive.

And, whether people here want to admit it or not, Google may help lower the cost of the iPhone - The Nexus 5 is $349 for similar specs. If people are now paying full cost of the phone, Apple's going to have to compete with that.

 

[Gav2k]

What's going to happen is eventually people are going to do the math and realize they're paying $600 for a phone that used to cost $200 and they still have a 2 year commitment (and yes, the installment plan is basically a contract, with the remaining cost of the phone being an ETF if you cancel).

Unsubsidized phone prices have been artificially inflated because carriers were willing to cover the cost (no carrier is ever going to tell Apple that the cost is too high so they're not going to carry the iPhone, that would be suicide). Now that the true cost of the phone is out there front and center for consumers to see, they're hopefully going to come down.

iPad Air 16GB LTE: $629
iPhone 5S 16GB: $649

The guts are the same - CPU, storage, RAM, cellular radios, with the iPad having a significantly bigger screen and bigger battery, it makes no sense that the iPhone costs more. The 5S has Touch ID, but it can't be that expensive.

And, whether people here want to admit it or not, Google may help lower the cost of the iPhone - The Nexus 5 is $349 for similar specs. If people are now paying full cost of the phone, Apple's going to have to compete with that.

Carriers have never 'covered the cost' it's always been built into the contact.

 

[Abazigal]

At worst, I can see Apple offering their own instalment plan for the iPhone, or working out a similar deal with the carriers. Assuming the carriers lower their monthly phone bills accordingly to account for the fact that they are now no longer subsiding phones, it should all work out to be the same.

 

[CTHarrryH]

And it is the same for other phones - they all have included the cost in the monthly fee and now are separating.
Might for all cause more phone to be sold since people can buy when they want and just pay their "24/month" multiple times for a while.

 

[yg17]

Carriers have never 'covered the cost' it's always been built into the contact.

Phone prices have gone up while plan prices have gone down or stayed the same. The BlackBerrys, Windows Mobiles and Palms in the days before iPhone and Android were not this expensive unsubsidized. Even the original iPhone was $499, followed by a price drop to $399 a few months later. Now the 5C is $549, and that's considered the budget model running on last year's hardware whereas the original was top of the line for its time.

 

[iDuel]

At worst, I can see Apple offering their own instalment plan for the iPhone, or working out a similar deal with the carriers. Assuming the carriers lower their monthly phone bills accordingly to account for the fact that they are now no longer subsiding phones, it should all work out to be the same.

They already offer installment plans for pretty much everything they sell, including the iPhone. It's the Barclays Visa card.

 

[alent1234]

Most people probably won't upgrade as often if they have to pay more

On my 4 line family plan I'm sure my in laws wont. My mother in law will probably keep her 4s till it dies

 

[rdowty]

I think it could actually help Apple. As we know used iPhones have some value whereas used Andriod phones don't do as well.

Also people might not be interested in cheap phones when cheap means $400 vs a $600 iPhone.

 

[ihonda]

ill still upgrade yearly, this actually helps the reselling idea if they end contracts because then people cant be like "well i can get it for 199" im just like go for it.

 

[barkomatic]

What's going to happen is eventually people are going to do the math and realize they're paying $600 for a phone that used to cost $200 and they still have a 2 year commitment (and yes, the installment plan is basically a contract, with the remaining cost of the phone being an ETF if you cancel).

Unsubsidized phone prices have been artificially inflated because carriers were willing to cover the cost (no carrier is ever going to tell Apple that the cost is too high so they're not going to carry the iPhone, that would be suicide). Now that the true cost of the phone is out there front and center for consumers to see, they're hopefully going to come down.

iPad Air 16GB LTE: $629
iPhone 5S 16GB: $649

The guts are the same - CPU, storage, RAM, cellular radios, with the iPad having a significantly bigger screen and bigger battery, it makes no sense that the iPhone costs more. The 5S has Touch ID, but it can't be that expensive.

And, whether people here want to admit it or not, Google may help lower the cost of the iPhone - The Nexus 5 is $349 for similar specs. If people are now paying full cost of the phone, Apple's going to have to compete with that.

I'm not sure your post proves that iPhone prices are artificially inflated. As you point out above, the iPhone price is just $20 more than a comparable iPad and has basically the same internals. (remember the ipad doesn't have touch ID)

Are you saying that an iPhone should be cheaper because it's smaller?

 

[chrisrosemusic1]

At worst, I can see Apple offering their own instalment plan for the iPhone, or working out a similar deal with the carriers. Assuming the carriers lower their monthly phone bills accordingly to account for the fact that they are now no longer subsiding phones, it should all work out to be the same.

They already do in the UK - you can buy any iPhone on a finance package at varying APR's.

That way you can just put in a pre pay or non contracted SIM card in the device and pay it off as you see fit. Way better (and less expensive) way to own a newer device without paying through the nose for a contract phone with same data/text/call allowances.

I'm paying £51 a month now for a 16GB 5S and unlimited calls/texts/data. If I ended up buying the iPhone from Apple financed and got a similar package for the SIM I could easily save £20 a month minimum - this is what I'll be doing from this year when the 6 launches.

 

[yg17]

I'm not sure your post proves that iPhone prices are artificially inflated. As you point out above, the iPhone price is just $20 more than a comparable iPad and has basically the same internals. (remember the ipad doesn't have touch ID)

Are you saying that an iPhone should be cheaper because it's smaller?

I would think the bigger screen and battery on the iPad would vastly outweigh the costs of Touch ID, but I could be wrong.

 

[Carlanga]

Phone prices have gone up while plan prices have gone down or stayed the same. The BlackBerrys, Windows Mobiles and Palms in the days before iPhone and Android were not this expensive unsubsidized. Even the original iPhone was $499, followed by a price drop to $399 a few months later. Now the 5C is $549, and that's considered the budget model running on last year's hardware whereas the original was top of the line for its time.

It costs around $50 more for materials on the iPad air vs the 5S.
Apple gross margins for them is around 45%. Apple always does big margins and is called the apple tax by apple haters. Also the 5c costs about $50 less to make than the 5S. Their real money making scheme is charging $100 per every doubling of memory. That there is the real greed.

While the margins are great, you can't compare it to google official phones since they are selling them at a cost. Similarly scheme is done w the kindle with very low margins. So their profits come from just digital consumption.

I like that people can start seeing real prices, apple margins might need to be lower to look more appealing to the consumers with full price being shown firsthand.

 

[mtneer]

There not ending subsidised phones tho!

Basically there doing the same as O2 have started doing over here and separating the phone cost from your monthly bill but your still paying for it on your bill so...

Old bill looks like
Call/text/data £100
Total to pay £100

New bill will be

Phone finance £45
Call/text/data £55
Total to pay £100

All there doing is not hiding the phones cost.

Using your scenario; in the existing system, once your 2 year contract was up; you would still go on paying $100 indefinitely. Now, once the phone is paid for, and you are happy with the phone in hand - you only pay the $55.

 

[barkomatic]

I would think the bigger screen and battery on the iPad would vastly outweigh the costs of Touch ID, but I could be wrong.

Well, I think the bigger screen may be the only component between the two that would be more expensive on the iPad. As for everything else, I think it's generally more expensive to miniaturize electronics.

 

[Retired Cat]

Iphone 5S
$0 down + $25/month x 24 months

(that's $600)

All the phones on that page has a "$0 upfront" including Galaxy Note 3, Galaxy S4 etc...


IN CONCLUSION, Americans LOVE $0 down and monthly installments.

I agree. It's a bit of a mind trick to push off the total cost into the future, but it's unfortunately the way things are done in America for large purchases. Automobile financing and home loans are similar: small amount upfront, XYZ payment per month, total cost is an afterthought.

However, I think the math is easy enough that more people will pay attention to the total cost of their phone. The question for me is whether they will care, because the iPhone's design and software may prove to be well worth the cost to consumers.

 

[Gav2k]

Using your scenario; in the existing system, once your 2 year contract was up; you would still go on paying $100 indefinitely. Now, once the phone is paid for, and you are happy with the phone in hand - you only pay the $55.

Oh yes I'm well aware but you'll find very few out of a hundred people will stick with that phone as it'll slow down so there left with two choices. 1, buy a sim free phone or take out a new plan. Without reading the terms I bet AT&T requires a new plan to allow you a new finance phone.

 

[bushman4]

Subsidies are something that the American people are used to when purchasing a cellphone. And even with smartphones being subsidized I still see people with IPhone 4 & 4S which they purchase from years ago or got because the IPhone was free or almost free with a 2 year contract.
Point is many people even with the subsidies don't run to purchase an IPhone each year. So if the carriers drop the subsidies people will keep their IPhone longer
Not only will Apple get hurt but the carriers will get hurt to. Makes no sense. If it did we would see this already

 

[ugcop]

This will be a reality check for people. Before, your phone bill was your phone bill. You were stuck at the same rate whether you upgraded your phone or continued to use your three year old phone.

Now people will see it as taking on additional debt to finance the new phone. Will it make a difference to some people? I think those on a tight budget and who are spending responsibly may put off the two year cycle upgrade.

 

[mattopotamus]

What's going to happen is eventually people are going to do the math and realize they're paying $600 for a phone that used to cost $200 and they still have a 2 year commitment (and yes, the installment plan is basically a contract, with the remaining cost of the phone being an ETF if you cancel).

Unsubsidized phone prices have been artificially inflated because carriers were willing to cover the cost (no carrier is ever going to tell Apple that the cost is too high so they're not going to carry the iPhone, that would be suicide). Now that the true cost of the phone is out there front and center for consumers to see, they're hopefully going to come down.

iPad Air 16GB LTE: $629
iPhone 5S 16GB: $649

The guts are the same - CPU, storage, RAM, cellular radios, with the iPad having a significantly bigger screen and bigger battery, it makes no sense that the iPhone costs more. The 5S has Touch ID, but it can't be that expensive.

And, whether people here want to admit it or not, Google may help lower the cost of the iPhone - The Nexus 5 is $349 for similar specs. If people are now paying full cost of the phone, Apple's going to have to compete with that.

Actually they are going to realize they were paying way more under a subsidized phone. A typical phone plan on AT&T was $90+ a moth and you paid $200 upfront. Now you divide the phone over 24 months and pay $60 for a plan so actually save at least $200 over 2 years.

For example on subsidized plan you paid $200 + $90x24 for a 2gb plan = $2360

Now you can pay $0 upfront and $25x24 + $60x24 = $2040

Not to mentioned once the phone is paid you still pay $90 a month under the old subsidized plans.

If you go with tmobile it is even cheaper b.c they sell the 5s for $50 cheaper than apple.