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

[tjl3]

1) the biggest difference is with a subsidy your monthly payment stayed the same after 2 years. The carriers made out better. They have to change their model b.c people are jumping ship to tmobile/prepaid.


2) they still do shared plans it is just more data at a lower price. I don't think they have stopped subsidized yet. They have the next program, which is similar to financing but still more expensive.

Going to retract some of my statements about AT&T b/c I honestly did not notice their GoPhone plans.

for a subsidy at&t sends a check to apple or samsung for each phone sold. with the new plans its done by a financing company

it frees up a lot of cash for the carriers to upgrade their network instead of sending it to the phone manufacturer

I guess a better question would have been (since I am not currently financing my phone), how does T-Mobile provide you with your iPhone if you choose to finance it. Do they 1) give it to you from their inventory or 2) finance it when you purchase it from Apple (similarly do they just buy it from Apple when you apply for financing?).

I assumed they carry some iPhone stock, and in order to do that, they must pay Apple something, i.e. the same price as a subsidy. But if they don't carry their own stock, then my question about subsidies vs financing is moot.

 

[CEmajr]

Going to retract some of my statements about AT&T b/c I honestly did not notice their GoPhone plans.



I guess a better question would have been (since I am not currently financing my phone), how does T-Mobile provide you with your iPhone if you choose to finance it. Do they 1) give it to you from their inventory or 2) finance it when you purchase it from Apple (similarly do they just buy it from Apple when you apply for financing?).

I assumed they carry some iPhone stock, and in order to do that, they must pay Apple something, i.e. the same price as a subsidy. But if they don't carry their own stock, then my question about subsidies vs financing is moot.

They have them in store. The only major difference between financing and subsidy is that when the phone is paid off with financing your bill is reduced but with subsidies your bill remained the same. They've already paid Apple for the iPhones just like the other carriers have.

That's why the OP's topic doesn't make sense. Financing handsets will just replace the subsidy like it did at T-Mobile and people will still be walking out of carrier stores paying $99/$199 for their iPhones. Also Apple stands to sell even more iPhones because financing allows people to upgrade more often if they want by paying off or trading in their old phones.

 

[kamalds]

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.

The sad part - People love paying Apple Tax.

 

[Prise]

The sad part - People love paying Apple Tax.

Don't think it's a matter of "love," but rather some just eschew Android period.

 

[I7guy]

The sad part - People love paying Apple Tax.

IMO, a ridiculous comment gets a ridiculous answer. Not only did I pay full retail for my 64gb/5S, I'm going to sell it and pay full price for my 128gb/iphone 6.

Yes, I'll pay the apple tax....have to keep the stock price up.

 

[osofast240sx]

The sad part - People love paying Apple Tax.

What's apple Tax?

 

[Nukemkb]

IMO, a ridiculous comment gets a ridiculous answer. Not only did I pay full retail for my 64gb/5S, I'm going to sell it and pay full price for my 128gb/iphone 6.

Yes, I'll pay the apple tax....have to keep the stock price up.

Sigh ! 128gb iPhone 6. It just feels right!

 

[sixrom]

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

This line of thinking while very popular is completely wrong. Vast numbers of users who don't understand large scale business, believe that statement. One must separate the cost of the phone from the cost of the service plan.

None of the money one pays for service goes towards the subsidized price of the phone. That amount is paid for and absorbed by the carrier, that's why AT&T made a very public comment, that the subsidy model can not go on for much longer.

Once and if a major carrier like AT&T quits subsidizing iPhone's Apple will be hit with the slap of reality. A stinging blow to their fat profits.

 

[osofast240sx]

Once and if a major carrier like AT&T quits subsidizing iPhone's Apple will be hit with the slap of reality. A stinging blow to their fat profits.

It's funny how u can understand one part and not the other. Subsidies will be moved over to financing, just a very simple concept that T-Mobile is already doing and having a huge success.

 

[T5BRICK]

None of the money one pays for service goes towards the subsidized price of the phone. That amount is paid for and absorbed by the carrier, that's why AT&T made a very public comment, that the subsidy model can not go on for much longer.

How do you explain the lower off contract pricing on the current AT&T Value share plans?

 

[I7guy]

This line of thinking while very popular is completely wrong. Vast numbers of users who don't understand large scale business, believe that statement. One must separate the cost of the phone from the cost of the service plan.

None of the money one pays for service goes towards the subsidized price of the phone. That amount is paid for and absorbed by the carrier, that's why AT&T made a very public comment, that the subsidy model can not go on for much longer.

Once and if a major carrier like AT&T quits subsidizing iPhone's Apple will be hit with the slap of reality. A stinging blow to their fat profits.

To your way of thinking if apple gets a slap of reality so will every other premium smartphone maker.

 

[sixrom]

To your way of thinking if apple gets a slap of reality so will every other premium smartphone maker.

That's correct. However unlike Apple, they are quick to respond to customer feedback and market conditions.

Conversely Apple is a dictatorial company that's bent on keeping us paying the high prices for their unsubsidized products. Those who became Apple customers via the iPhone, have been mislead by the rather standardized price of $199 charged by carriers for most top line smartphones. They assume Apple is competitive on price.

Samsung and others will easily adjust, Apple not so much. The big battleship from Cupertino has become set in their ways. The days of being responsive and nimble are in the past.

 

[I7guy]

That's correct. However unlike Apple, they are quick to respond to customer feedback and market conditions.

Conversely Apple is a dictatorial company that's bent on keeping us paying the high prices for their unsubsidized products. Those who became Apple customers via the iPhone, have been mislead by the rather standardized price of $199 charged by carriers for most top line smartphones. They assume Apple is competitive on price.

Samsung and others will easily adjust, Apple not so much. The big battleship from Cupertino has become set in their ways. The days of being responsive and nimble are in the past.

In some ways I don't see apple any different than Lexus. Both companies that provide premium products are doing well despite being in a world of change. And since my crystal ball is out of order (if it were working, I'd be the richest man in the world), I really can't say anything about your opinion.

I believe, apple knows exactly what it is doing and the move by AT&T/T-Mobile is not a surprise to apple by any stretch of the imagination.

 

[osofast240sx]

That's correct. However unlike Apple, they are quick to respond to customer feedback and market conditions.

Conversely Apple is a dictatorial company that's bent on keeping us paying the high prices for their unsubsidized products. Those who became Apple customers via the iPhone, have been mislead by the rather standardized price of $199 charged by carriers for most top line smartphones. They assume Apple is competitive on price.

Samsung and others will easily adjust, Apple not so much. The big battleship from Cupertino has become set in their ways. The days of being responsive and nimble are in the past.

So Samsung is going to sell their flagship phone for $350. I don't think so!

 

[ApfelKuchen]

2 questions:

1) What is the difference between carrier subsidy and carrier financing? I assume that in both cases ATT carries the inventory. So how are they losing on a subsidy but financing benefits them? According to your math, they're losing money on the financing, and they only make it back up if they get x more customers than they would have w/ contract plans. :::snip:::

From a purely technical accounting standpoint, in either case AT&T is not carrying "inventory." Inventory is unsold goods. Whether subsidized, financed, or sold outright, the goods are removed from Inventory once they're in the customers' hands. However, the form of the transaction (subsidized vs. financed vs. cash sale) does change how the event is treated on the company's books. Each has a different impact on the company's financial statement, tax return, and liquidity. Which approach will be more beneficial varies with business conditions.

Now that the finance option is available, it's little different than buying a car from a dealership. You can lease-to-own (conventional contract), you can finance a purchase via the company's finance subsidiary, or you can pay the full price up front (most likely credit card).

Like buying from a car dealership, I expect the psychology in the telephone showroom is (or will become) similar; sometimes the company will push leases, other times they'll push conventional loans, and if you want to pay cash, that's cool with them, too. It depends in part on what they need to do to make the quarterly earnings report look best, and in part on what the salesperson earns in commissions and incentives (ask an electronics/appliance salesperson what "SPIFF" is).

When financing is available, the sales force emphasizes the monthly payment, not the total cost of the lease/loan. It's easier to up-sell when the size of the monthly payment, rather than the final sticker price, is the topic of discussion. If a "better" phone costs "only" $5 a month more, many will commit to that extra $5 on impulse. Based on a 2-year, 18% APR installment loan, $5/month is a $100 in item price. 32gb vs. 64gb? $5. 5c vs. 5s? $5. Apple vs. the competition? "Hey man, for just $5 more, you're getting a way better phone!"

You think Free vs. $199, or $199 vs. $649 are no-brainers? Consider $20 vs. $25.

I doubt Apple is at all worried about this.

 

[aneftp]

ATT full subsidy upgrades used to be 12 months for some primary lines plus 18-21 months for lines 2-5.

So do the math. As little as 12-18 months ago. ATT was subsidizing each secondary line $21-25/month. Plus primary lines much more.

The ending of subsidies does not match those previously subsidies when you re-add the subsidies into the plans available now.

It's a price increase and many consumers don't even realize it.

 

[Primejimbo]

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.

My in laws just got 2 new iPhones doing this today. They walked out the door with everything (Apple care also) for $300. They are charged $25 each per month extra in their cell phone. If you think about it, it didn't change. Just now when the phone is paid off your monthly bill lowers and that is great for people who don't upgrade right away.
I think this is a great idea. Think about it, before if your phone is subsidized and you keep your phone longer than the contract, the phone company is making money off of you because you phone is more than paid off because your phone bill stays the same price. Now the phone is paid off and the cell phone is lower. You don't have to buy the phone full price up front.

 

[aneftp]

My in laws just got 2 new iPhones doing this today. They walked out the door with everything (Apple care also) for $300. They are charged $25 each per month extra in their cell phone. If you think about it, it didn't change. Just now when the phone is paid off your monthly bill lowers and that is great for people who don't upgrade right away.
I think this is a great idea. Think about it, before if your phone is subsidized and you keep your phone longer than the contract, the phone company is making money off of you because you phone is more than paid off because your phone bill stays the same price. Now the phone is paid off and the cell phone is lower. You don't have to buy the phone full price up front.

That's the thing. Carriers are indirectly raising prices. Most people would upgrade at 12 months (if eligible on certain primary lines) and the secondary lines were eligible for upgrades at 18-21 months.

Now they extended the upgrade to 24 months (that's an indirect price increase). Right?

Also why 10gb mobile share for $100/month plus $15/month per smartphone.

This may be fair for family lines.

Single line customers are still getting ripped off. It's better they continue using the 39.99 450 min option with any mobile and unlimited text ($20) and 3gb data ($30). $90/month. Singles would still get a subsidy under the 39.99 voice plan. And if subsidy is $18.75/month.

That means single line is approx $71/month if subsidy is included.

Now with the new mobile share. Single line would cost 4gb ($70) plus $40. That's $110/month with subsidy. Or around $92/month if subsidies are added back in.

So mobile shares plans are a complete rip off unless you start added more lines.

 

[tjl3]

... That's why the OP's topic doesn't make sense. Financing handsets will just replace the subsidy like it did at T-Mobile and people will still be walking out of carrier stores paying $99/$199 for their iPhones. Also Apple stands to sell even more iPhones because financing allows people to upgrade more often if they want by paying off or trading in their old phones.

From a purely technical accounting standpoint, in either case AT&T is not carrying "inventory." Inventory is unsold goods. Whether subsidized, financed, or sold outright, the goods are removed from Inventory once they're in the customers' hands. However, the form of the transaction (subsidized vs. financed vs. cash sale) does change how the event is treated on the company's books. Each has a different impact on the company's financial statement, tax return, and liquidity. Which approach will be more beneficial varies with business conditions...

Awesome insights! I always considered the higher price/mo as a convenience fee or interest for carrier subsidy (also there wasn't a suitable alternative plan). So I had also assumed they would be losing money bc now they only make money on the plan and no longer the "interest." But now I see it's not that cut and dry.

 

[617aircav]

This line of thinking while very popular is completely wrong. Vast numbers of users who don't understand large scale business, believe that statement. One must separate the cost of the phone from the cost of the service plan.



None of the money one pays for service goes towards the subsidized price of the phone. That amount is paid for and absorbed by the carrier, that's why AT&T made a very public comment, that the subsidy model can not go on for much longer.



Once and if a major carrier like AT&T quits subsidizing iPhone's Apple will be hit with the slap of reality. A stinging blow to their fat profits.

You are wrong sir. Every tech blog have mentioned how you pay back the subsidy in your monthly charges.

 

[normanfox]

The new family mobile share value plan from AT&T (off-contract 2 lines for $130 with unlimited voice/text and 10GB) is the beginning of major market disruption for the coming years (thanks to Tmobile of course)

This will force all carriers to scrap subsidized plans and compete with each other more frequently, as opposed to 2-year-locked-in plans. Price will fluctuate much more often than the old plans. This also allows/force customers to shop consciously on prices and be able to switch carrier more freely.

A second impact of this change is the phone cost. so long phone price remains high because it hides under the subsidized price, which ultimately consumers end up paying without realizing it. Consumers are forced to upgrade. it is like you are forced to eat alot more than your body needs in a buffet restaurant to make it worthwhile. so long consumers shop for phone without price being the factor. This allows apple to sell millions iphone every year. iphone is apple biggest revenue maker.

now phone makers will have to compete directly, not only with spec, but with prices. Apple will take the most impact here since not everyone will pay $650 for an iphone just to use for two years. For so long, consumers compare iphone and Galaxy phones by spec, not price. Price will now be the major factor in making a purchase.

In a few years, plan and phone cost will be much more competitive. The consumer will benefit the most in this race. This is nothing new but capitalism runs its course. Subsidizing phone/plan is like socialism that causes waste and inefficiency.

 

[I7guy]

The new family mobile share value plan from AT&T (off-contract 2 lines for $130 with unlimited voice/text and 10GB) is the beginning of major market disruption for the coming years (thanks to Tmobile of course)

This will force all carriers to scrap subsidized plans and compete with each other more frequently, as opposed to 2-year-locked-in plans. Price will fluctuate much more often than the old plans. This also allows/force customers to shop consciously on prices and be able to switch carrier more freely.

A second impact of this change is the phone cost. so long phone price remains high because it hides under the subsidized price, which ultimately consumers end up paying without realizing it. Consumers are forced to upgrade. it is like you are forced to eat alot more than your body needs in a buffet restaurant to make it worthwhile. so long consumers shop for phone without price being the factor. This allows apple to sell millions iphone every year. iphone is apple biggest revenue maker.

now phone makers will have to compete directly, not only with spec, but with prices. Apple will take the most impact here since not everyone will pay $650 for an iphone just to use for two years. For so long, consumers compare iphone and Galaxy phones by spec, not price. Price will now be the major factor in making a purchase.

In a few years, plan and phone cost will be much more competitive. The consumer will benefit the most in this race. This is nothing new but capitalism runs its course. Subsidizing phone/plan is like socialism that causes waste and inefficiency.

No sir, you pay for the phone either way. Those who update their phones every two years doesn't matter what plan they are on they will not be saving any money. Those who will reap the benefit it seems, are those tech junkies, who can now update their phones anytime.

I am now purchasing my phones at full retail, so I don't compare on price. I paid full retail for my 5s 64gb. And when and if I want to upgrade to an iphone 6, will sell the 5 and get the 6 at full retail. I never have compared phones on spec anyway.

As long as there is an option to finance a phone, most people will do that anyway. I expect Verizon to follow and to remove the cost of the phones from their plans however: cost of phone + cost of plan = what you were used to paying. The corporate bean counters are ensuring that the profits are still flowing. So there is no difference, unless you can bring your own device.

 

[normanfox]

No sir, you pay for the phone either way. Those who update their phones every two years doesn't matter what plan they are on they will not be saving any money. Those who will reap the benefit it seems, are those tech junkies, who can now update their phones anytime.

I am now purchasing my phones at full retail, so I don't compare on price. I paid full retail for my 5s 64gb. And when and if I want to upgrade to an iphone 6, will sell the 5 and get the 6 at full retail. I never have compared phones on spec anyway.

As long as there is an option to finance a phone, most people will do that anyway. I expect Verizon to follow and to remove the cost of the phones from their plans however: cost of phone + cost of plan = what you were used to paying. The corporate bean counters are ensuring that the profits are still flowing. So there is no difference, unless you can bring your own device.

you pay either way but the difference is average Joe would
1)shell out $650 or
2) $40 per line (instead of $15) which he will see that his bill increases.

previous subsidized plans hide all of these cost. everyone, include average Joe, do not see or care since everyone got the same. upgrade or not, you have to pay the same like everyone and it is built into the plan. and we are talking about million average Joe here, not techie or you specifically as you indicate in bold above.

With this cost shows obviously based on your upgrade decision, average Joe would hesitate to upgrade every 2 years or even buy a cheap android phones.

 

[I7guy]

you pay either way but the difference is average Joe would
1)shell out $650 or
2) $40 per line (instead of $15) which he will see that his bill increases.

previous subsidized plans hide all of these cost. everyone, include average Joe, do not see or care since everyone got the same. and we are talking about million average Joe here, not techie or you specifically.

So people will now get used to seeing the phone payment on their bill broken out instead of being hidden. So what.

Do you honestly think anything is going to change?

We're talking about the million average Joe here, not techie or you specifically.

 

[617aircav]

Won't make a difference.