Your point about the phone slowing down has been true so far. But going forward I believe that gap between older phones and newer ones in terms of performance will reduce. Much like what happened in the PC market.
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I think Apple iPhone is in serious trouble if US carriers end subsidies
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Your point about the phone slowing down has been true so far. But going forward I believe that gap between older phones and newer ones in terms of performance will reduce. Much like what happened in the PC market.
It's not just America. Same in Canada and even in India, where phones are increasingly being offered with 50$ downpayment and then monthly installments. Same with cars or homes.
I really don't understand why AT&T and Verizon would move towards ending subsidies. I can see why T-Mobile would do it, since they are the upstart looking to get subscribers.
Here's why it doesn't make sense for the Big2 to end subsidies. Under the current system, AT&T will sell you a $650 phone for $200. That's a $450 subsidy. The subscriber then pays for his plan, let's say $60/mo. After 2 years, the contract is over and the subscriber is eligible for a new phone at the subsidized price. If he chooses not to get a new phone, he's still paying $60/mo.
If subsidies go away, if the subscriber chooses to keep using the 2 year old phone, his plan goes down by $15-$20 or so. This is the first step in becoming dumb pipes.
As for Apple's prospects if all the US carriers drop subsidies, I think Apple will be fine. Apple's phone would sell in the $450-$650+ range. That's where the Samsung/HTC flagship phones would sell at as well. So what would the "free" phones sell at? Probably $350 to $400. So let's look at it from the point of view of a consumer. Under the subsidy model, you have a choice of a basic/cheap smartphone at $0. The midrange phone costs $50-100. The high-end phone is $200. Under a non-subsidy model, the low-end phone is $350-$450, the mid-range would be about $500, and the high-end goes for $650.
I'm thinking that from a shopper's mentality perspective, going from $400 to $650 is a easier hurdle than going from $0 to $200. In fact, I would think that the $100 jump from the low-end to the midrange would be the sweet spot. After all, it's only a little bit more in terms of percentages.
In the end, I would think that dropping subsidies at the Big2 would drive sales from the low-end to the midrange. Which could be a good thing for the 5c, ironically.
Here's why it doesn't make sense for the Big2 to end subsidies. Under the current system, AT&T will sell you a $650 phone for $200. That's a $450 subsidy. The subscriber then pays for his plan, let's say $60/mo. After 2 years, the contract is over and the subscriber is eligible for a new phone at the subsidized price. If he chooses not to get a new phone, he's still paying $60/mo.
If subsidies go away, if the subscriber chooses to keep using the 2 year old phone, his plan goes down by $15-$20 or so. This is the first step in becoming dumb pipes.
As for Apple's prospects if all the US carriers drop subsidies, I think Apple will be fine. Apple's phone would sell in the $450-$650+ range. That's where the Samsung/HTC flagship phones would sell at as well. So what would the "free" phones sell at? Probably $350 to $400. So let's look at it from the point of view of a consumer. Under the subsidy model, you have a choice of a basic/cheap smartphone at $0. The midrange phone costs $50-100. The high-end phone is $200. Under a non-subsidy model, the low-end phone is $350-$450, the mid-range would be about $500, and the high-end goes for $650.
I'm thinking that from a shopper's mentality perspective, going from $400 to $650 is a easier hurdle than going from $0 to $200. In fact, I would think that the $100 jump from the low-end to the midrange would be the sweet spot. After all, it's only a little bit more in terms of percentages.
In the end, I would think that dropping subsidies at the Big2 would drive sales from the low-end to the midrange. Which could be a good thing for the 5c, ironically.
I don't see Verizon dropping contracts anytime soon. Their new payments plans are noting like T-Mobile. Sure they're based on the same idea, but look at the differences. Here I will be using the 32GB iPhone 5s for the test:
T-Mobile:
Unlimited Talk/Text 500MB of Data $50
$99.99 Up front
$25 a month for 24 months
Monthly Cost: $75 plus taxes
Verizon:
Unlimited Talk/Text 1GB of Data $60
$0 up front
$31.47 a month for 24 months
Monthly Cost: $91.47 plus taxes
See, T-Mobile lowered their plans pricing where as Verizon didn't. AT&T did this too. So basically your paying for the payment of your phone through Next or Edge, but your also paying the subsidy that has been rolled into the cost of the service over time. Your paying twice!
Not only that, but why can't I hold on to my phone when I go to upgrade if I agree to continue paying for both phones?
T-Mobile:
Unlimited Talk/Text 500MB of Data $50
$99.99 Up front
$25 a month for 24 months
Monthly Cost: $75 plus taxes
Verizon:
Unlimited Talk/Text 1GB of Data $60
$0 up front
$31.47 a month for 24 months
Monthly Cost: $91.47 plus taxes
See, T-Mobile lowered their plans pricing where as Verizon didn't. AT&T did this too. So basically your paying for the payment of your phone through Next or Edge, but your also paying the subsidy that has been rolled into the cost of the service over time. Your paying twice!
Not only that, but why can't I hold on to my phone when I go to upgrade if I agree to continue paying for both phones?
True. Americans are dumb when it comes to total cost of plans.
But I have done my math. Even though ATT new mobile share appear attractive. For those on the old plans with subsidies. Our plans are way better. ATT knows this. It's a back door way around of increasing profit margins since the iPhone has been killing their profit margin.
I posted this same situation in another post:
"Easiest way to calculate whether to switch is this
New plans - ($18.75 (using iPhone $650 price ($199 contract price) subsidy per line per month).
So my plan is $70 (700 min) with any mobile rollover plus 10 landlines (essentially unlimited minutes) $20 unlimited family texts plus $30 data x 4 So $210 a month (before taxes, discounts etc).
So if u factor the subsidy in
It works like this
$210 - ($18.75 x 4 lines) That's $210-75.
My "true monthly cost" when factoring subsidies is $135 a month
Compare this with the new mobile share plans which is $160/month.
So the new plans are not good for those who have older plans. It literally will cost me $25 more per month. $300 more each year. $600 more over 24 months.
That's why ATT is trying to be creative. It's a good deal for some. Not a good deal for others like me. "
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Carriers are their own worst enemies. They have gotten crushed on lines 2-5 the past 5 years with subsidies. Because they were marketing who the largest subscriber.
But subsiding lines 2-5 at $450 a pop when that line can generate between $10-40 a line wasn't good for their business.
The move away from subsides was a direct affect of having to subsidize high end phones like the iPhone at $450 a pop.
Unlike the early 2000s when most people purchased cheaper phones on lines 2-5 which carriers probably only subsidized less than $200 each.
Too many folks are trying to put logic and smarter than average thinking into this.
The average consumer thinks somebody else is paying for the phone. Even some of us smarter ones may know they are paying, but indirectly. It does not matter what is actually happening behind the curtain.
The day is coming SOME consumers will be making a better choice, such as:
If I want that shiny new phone, I will have to pay $xx more per month to get it. If I keep my current phone, I can continue on my lower cost phone.
They do not make that decision in MOST cases today. They do not do the math. It is all smoke and mirrors. I just went with the new ATT Data plan and paying $15 per phone. If I get a new phone, it will go up and it will be readily apparent. I really think I will delay getting the newest slick and shiny new phone next year. The next generation of phones will have a bigger hurdle to entry, and therefore sales.
The days of everyone running to get that new iphone are in the past. Yea, there will still be millions that jump. But will it be the tens of millions in the past?
The average consumer thinks somebody else is paying for the phone. Even some of us smarter ones may know they are paying, but indirectly. It does not matter what is actually happening behind the curtain.
The day is coming SOME consumers will be making a better choice, such as:
If I want that shiny new phone, I will have to pay $xx more per month to get it. If I keep my current phone, I can continue on my lower cost phone.
They do not make that decision in MOST cases today. They do not do the math. It is all smoke and mirrors. I just went with the new ATT Data plan and paying $15 per phone. If I get a new phone, it will go up and it will be readily apparent. I really think I will delay getting the newest slick and shiny new phone next year. The next generation of phones will have a bigger hurdle to entry, and therefore sales.
The days of everyone running to get that new iphone are in the past. Yea, there will still be millions that jump. But will it be the tens of millions in the past?
I agree with some of the points here. Let's be honest, the economy is still awful (thanks obama lol). Because of that, I think people don't have the extra spending cash they used to and when most people see the sticker shock of paying $600 + taxes + activation fees for a new phone, people will rethink keeping their old one longer. Or they will go for a cheaper alternative.
I wouldn't say the iphone would be in serious trouble, but it's logical that they will sell less of them. Some Americans are really good at spending more money than they have just to look cool - and of course, they still will!
The smartphone subsidy was introduced as a ploy to make people adopt the technology from its infancy - it was never intended to be a sustainable "discount" for everyone into the future.
I wouldn't say the iphone would be in serious trouble, but it's logical that they will sell less of them. Some Americans are really good at spending more money than they have just to look cool - and of course, they still will!
The smartphone subsidy was introduced as a ploy to make people adopt the technology from its infancy - it was never intended to be a sustainable "discount" for everyone into the future.
The worlds second largest cell phone market is the USA.
Even during apple's latest earnings conference. Apple admired some sells were affected by US carrier subsidy changes.
To the OP: who gives a you know what if Apple is in serious trouble? They are a multi billion dollar company. I think they can manage.
I do not believe there is any trickery or cover up. The RRP is well known, and the Telco subsidy is up to the smart user to calculate its value
EG, I got my 4S on subsidy. It was not worth it as the plan I was on was higher than I needed. However, if that plan was just right for me, there is a saving as I would have paid for that plan anyway.
So,
Outright cost + the plan YOU want = X
Plan cost for 24 months + Any Up front = Y
Do the math.
The disadvantage over 24 month contract is you are exlcuded from the new device in one year
In NZ, we have subsidies, many also buy outright as selling a pre owned iPhone gets a good price. Also, my telco has an interest free 12 or 24 month option, no contract.
Tony NZ
EG, I got my 4S on subsidy. It was not worth it as the plan I was on was higher than I needed. However, if that plan was just right for me, there is a saving as I would have paid for that plan anyway.
So,
Outright cost + the plan YOU want = X
Plan cost for 24 months + Any Up front = Y
Do the math.
The disadvantage over 24 month contract is you are exlcuded from the new device in one year
In NZ, we have subsidies, many also buy outright as selling a pre owned iPhone gets a good price. Also, my telco has an interest free 12 or 24 month option, no contract.
Tony NZ
Of course you can hold onto your old phone if you continue paying for both phones.
There is absolutely no requirement to turn in your old phone if you don't want to go down that route. It's merely an option that AT&T offers. When you trade in your old phone, AT&T is basically buying it from you at a price equal to your remaining NEXT payments. If you don't want to trade in, just keep paying the installments until you've paid it off.
Or even simpler, just pay full price for iPhones and buy them straight from apple whenever you feel like buying one. You're paying full price regardless, I plan to cut AT&T out and just buy unlocked from Apple. $949 every two years isn't a big deal for top tier capacity plus AC+, especially with the much lower service fees. I could also buy my phones more frequently or whatever. I'm buying phones now on my schedule.
You do realize that AT&T has drastically lowered it's plans' cost, and upped the amount of data per $?
Couldn't agree more.
It isn't beneficial to migrate to the new plan for those whose usage fit within the parameters of the older ones. The $450 per iPhone subsidy, especially on multiple lines, will quickly strip away any savings from the new plans.
Where the new plans are better are for those who truly require unlimited calling, text, larger amounts of data, and may hold off on upgrading to iPhone 6.
Just my opinion:
But I believe one of the "fallouts" from ending subsidies is the used iphone market prices will skyrocket in the USA.
People won't be willing to dump their one year old iphones for $300. You see many people psychologically will resell based on their purchase price and not the real price.
So someone paying $199/299 subsidized for iphone is willing it let it go for $300 since it seems like a good resell.
But it that same person purchased it for $650/750, they will think twice about selling it for that low.
One only has to look at the Nexus phones resell value. Most nexus phones are purchased "full price". yeah I know Tmobile and Sprint sell them on contract. But most are still purchased full price.
Look at the resell values of the Nexus one, nexus s, galaxy nexus, nexus 4, nexus 5. They hold their values very well (or until google drops the price a couple of months before the new nexus comes out).
For example I purchased nexus 4 for $350 plus taxes and shipping. Still resold it in August for $300 easy. No Android phone holds its resell value (based MSRP) like a Nexus. It's because most are sold at full price.
But I believe one of the "fallouts" from ending subsidies is the used iphone market prices will skyrocket in the USA.
People won't be willing to dump their one year old iphones for $300. You see many people psychologically will resell based on their purchase price and not the real price.
So someone paying $199/299 subsidized for iphone is willing it let it go for $300 since it seems like a good resell.
But it that same person purchased it for $650/750, they will think twice about selling it for that low.
One only has to look at the Nexus phones resell value. Most nexus phones are purchased "full price". yeah I know Tmobile and Sprint sell them on contract. But most are still purchased full price.
Look at the resell values of the Nexus one, nexus s, galaxy nexus, nexus 4, nexus 5. They hold their values very well (or until google drops the price a couple of months before the new nexus comes out).
For example I purchased nexus 4 for $350 plus taxes and shipping. Still resold it in August for $300 easy. No Android phone holds its resell value (based MSRP) like a Nexus. It's because most are sold at full price.
I'm definitely partial to the iPhones and IOS, but you bring up a very good point. If the subsidies were eliminated, I may not be willing to pay double the price for the iPhone, though I prefer it over an Android. In my view, the iPhone certainly isn't 2 times better than the Nexus, and I likely won't be willing to pay the price.
On a subsidized plan, it made no sense to me to choose anything but the highest retail value phone with the highest resale value, which has always been the iPhone.
I think Apple and the Carriers will adapt and all do quite well.
Carriers make money by keeping people under contract and Apple makes money selling hardware and Apps. I have no doubt they will "take care of business"!
Carriers make money by keeping people under contract and Apple makes money selling hardware and Apps. I have no doubt they will "take care of business"!
It isn't a matter of "can," but rather choice. I "can" afford a Ferrari, but I'm certainly not going to "choose" to buy one, 0% financing or otherwise. I'm only interested in the final price, which in the case of subsidies were $199 + tax. For me to pay full retail price, the savings per month of the new plans must exceed the value of my subsidy ($450 in the case of iPhones) over a 2 year span, otherwise why would I do it? 0% financing is meaningless if used to overpay for a given product.
As much as I like the iOS and Apple products, I don't think it's worth $700. In other words, I'd feel much better paying the price a fair (non subsidized market) will bear.
Gotta love America. Everything is financed. This is how this country got into trouble. Fortunately for you and probably a lot more, people don't see the total costs when the payments are spread out.
Financing a car or house. I understand that. But when interest rates raise (and it will). Don't be so sure carriers will continue with the 0% financing with cell phones. They will probably start adding interest based on the whatever the fed central bank rate at the very least.
Sure, it isn't going to stop selling in the US, but it would stand to reason they would sell less.
Price goes up, demand goes down. Apple may sell plenty of iPhone 6s, but not as much as they would when subsidized. I mean, given the old subsidized plans, it didn't make sense to choose any phone other then the iPhones.
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aneftp said:
Good point.
Historically rates are approximately 5%, and when the regression to the mean occurs, you can bet carriers will find ways to make up for the 0%. Anyone can offer 0% financing when the discount rate is basically 0, but let's see them do it when it's closer to 3 or 4.