Remember when iPhones cost $199.00?

[boltjames]

So the carrier just ate the $450 subsidy from a $649.99 phone with no way to recoup that cost? Or are you under the impression that the carriers get some huge warehouse price for buying the phones from the manufacturers?

Again with the naivety.

"No way to recoup that cost". That's an interesting premise. Here's what you don't know:

1. How much did (does) it really cost to offer telephony and data to a consumer?
2. How much incremental revenue did (does) Carrier X make because of network size?
3. What is the cost of acquiring a customer, how long do they stay, and what is their long-term value?

This isn't your lemonade stand on the corner where it costs you $0.50 cents to make a cup and therefore you need to collect at least $0.51 cents to make a profit. Because if you had 10 lemonade stands, it would only cost $0.40 cents a cup. And if you had 1 million lemonade stands it would cost you $0.10 cents.

It's called "scale" and it's the single most important metric in the early days of a startup or technological revolution like smartphones were 7 or 8 years ago. The name of the game back then was acquisition. Get millions of new customers at the expense of your competitors. Negotiate better prices on servers and infrastructure. Years later, when you're the winner, raise prices and screw over the consumers that you bought on the cheap years earlier.

So carriers lost money on the hardware because their priority wasn't turning a monthly profit; they wanted a loyal consumer who would stay with them for a decade and they'd figure out how to make money off them later in the process. That's why iPhone's could be had for $99 in 2009 and why they cost $1000 now. The carriers have their market share. They don't have to worry about it anymore.

Clear?

 

[Rafterman]

My first hand held cell phone was a Radio Shack walkie talkie type in the 1980s - cost $2000. It kept steadily going down over the years and now - we're getting back up, close to the $2000 again.

 

[Oridus]

Again with the naivety.

"No way to recoup that cost". That's an interesting premise. Here's what you don't know:

1. How much did (does) it really cost to offer telephony and data to a consumer?
2. How much incremental revenue did (does) Carrier X make because of network size?
3. What is the cost of acquiring a customer, how long do they stay, and what is their long-term value?

This isn't your lemonade stand on the corner where it costs you $0.50 cents to make a cup and therefore you need to collect at least $0.51 cents to make a profit. Because if you had 10 lemonade stands, it would only cost $0.40 cents a cup. And if you had 1 million lemonade stands it would cost you $0.10 cents.

It's called "scale" and it's the single most important metric in the early days of a startup or technological revolution like smartphones were 7 or 8 years ago. The name of the game back then was acquisition. Get millions of new customers at the expense of your competitors. Negotiate better prices on servers and infrastructure. Years later, when you're the winner, raise prices and screw over the consumers that you bought on the cheap years earlier.

So carriers lost money on the hardware because their priority wasn't turning a monthly profit; they wanted a loyal consumer who would stay with them for a decade and they'd figure out how to make money off them later in the process. That's why iPhone's could be had for $99 in 2009 and why they cost $1000 now. The carriers have their market share. They don't have to worry about it anymore.

Clear?

. That's the problem with chatting with people on the internet. We'll agree to disagree.

 

[boltjames]

My bill never changed after a 2year contract with ATT. I joined their original iPhone unlimited data plan. It was like $30 per iphone on top of your minutes and texting plan.

I remember paying around $200-300 for an iPhone. I never upgraded yearly and I always would skip the S line.

My bill never changed after I kept the iphone 4 for more than 2 years. It was the same (during and out of contract), $160 for a 2 iphone att plan.

Same here. My monthly AT&T bill has been the same since getting my iPhone 3 in 2008. Unlimited data, a ton of minutes, a ton of texts. Over the years it's come down a bit or they've increased the amount of talk time or texts. Today I'm on a completely unlimited everything plan and the AT&T plan prices have come down, not gone up.

From 2008 to 2016 the carriers were all in a bloody war with each other to see who would come out on top. Subsidizing the hardware to lock in a consumer for a two year cycle was a good investment on their part. That's why they did it. My 3G, my 4, my 5, and my 6 were all $99 for a 2 year contract renewal. At the end of the term, I had an unlocked phone that I could sell through Craigslist for $299 or more.

Not the case anymore. Now the consumer pays full price for the hardware. The carriers got their scale, they got their investors paid, innovation in hardware has slowed, now it's time to make money on the network and change the model for how consumers acquire their phones.

 

[Aibocyrus]

Because 7 years ago the carriers were in a major war to acquire new consumers.

In the early days of smart phones, AT&T, Sprint, Verizon, T-Mobile and dozens of no-name start-ups were all trying to grab as many of the hundreds of millions of consumers waiting to pay big money for telephony and data as possible. Their investors were interested in early growth and a long-term play, not short term gains and losses.

Do a little homework. Go learn about the history of Amazon who lost money hand over fist for almost 20 years before finally turning a profit. Take a look at what happened to their stock last week and how much Jeff Bezos is now worth. Then come back here and have a rational conversation with people who know what they're talking about.

We are talking about iPhone days here. No carrier ever lost $450 a pop. They made the money back over the course of the two year contract. Why else do you think contracts existed for in the first place!? Cause the way you’re explaining it sounds like they just made up 24 month contracts for the heck of it.
Doesn’t work that way. Good try though.
[doublepost=1509235623][/doublepost][

Uh. Yes. Yes they are.

Example of two 4 line family plans:

Family Talk 700 Min Plan (Old school AT&T plan, very popular) - 3gb data per line (Lets think to the truth that most people didn't have family plans with unlimited, and we used far less data back in 2010-2011 before these plans finally went the way of the dodo)

$60 Host line
$30 $10x3 for 3 partner lines
$30 Unlimited Text
$120 $30x4 for 3gb data plans each. 12 gigs not shared.
----
$240




Mobile Share Advantage 16gb (unlim talk/text)

$80 Rate Plan Charge
$80 $20x4 for 4 line fees
---
$160

$160 is effectively LESS than $240... unless I live in a weird alternate universe.

More data, less money, no contract in either situation.


Even if we want to go unlimited data, an AT&T unlimited plus (no restricted speed) data plan for 4 lines is $195, or down to $185 if you do auto pay and paperless. You can even get another $25 off TV service if you're a DTV customer... but let's just go high amount. $195 is effectively LESS than $240.
[doublepost=1509234302][/doublepost]


A 2 year contract was in place because that was the average time it took to recoup the "savings" they gave to you off the equipment. Hence how they plan to MAKE money. If they price their service to never recoup that cost... they would perpetually be in the red for money, never turning a profit.

youre exactly right. Why are these hard headed people arguing? This is the fact of the matter.

 

[boltjames]

We are talking about iPhone days here. No carrier ever lost $450 a pop. They made the money back over the course of the two year contract. Why else do you think contracts existed for in the first place!? Cause the way you’re explaining it sounds like they just made up 24 month contracts for the heck of it.
Doesn’t work that way. Good try though.

Here we go again. "No carrier ever lost $450 a pop..."

Tell me then, how much did they make? What was the cost to AT&T to deliver me my service which cost me $80 a month? Was it $70? Was it $40? Was it $20?

You don't have a clue. For all you know, it cost AT&T $10 a month for the few phone calls and texts I sent in a given month and that $70 in profit x 24 months was $1,680 and that $450 loss for the hardware still allowed them to make a ridiculous profit margin and keep their competitors at bay and make their investors happy and pay them handsome bonuses.

You took Business 100 in school. You should have taken Business 200. Because business doesn't work the way you naively think it does. What motivates corporations and their investors in 2008 and 2017 are vastly different things at vastly different times. Eating $450 in hardware costs back then was a shrewd investment. Just look at AT&T and Verizon since making those decisions. Look at the small carriers they destroyed, look at the cable companies they bought, look at their places in the Fortune 500.

Today, they're the giants, they call the shots, if they tell me I can't have a new iPhone for $99 for the next 2 years, what am I going to do? All the other carriers are doing the same thing. We won years ago, they win now. What was a technical curiosity is now our primary means of communication. It's actually worth $1000 for a new iPhone, it does what a laptop does and more. So we pay it. And we move on.

Savvy?

 

[Aibocyrus]

Here we go again. "No carrier ever lost $450 a pop..."

Tell me then, how much did they make? What was the cost to AT&T to deliver me my service which cost me $80 a month? Was it $70? Was it $40? Was it $20?

You don't have a clue. For all you know, it cost AT&T $10 a month for the few phone calls and texts I sent in a given month and that $70 in profit x 24 months was $1,680 and that $450 loss for the hardware still allowed them to make a ridiculous profit margin and keep their competitors at bay and make their investors happy and pay them handsome bonuses.

You took Business 100 in school. You should have taken Business 200. Because business doesn't work the way you naively think it does. What motivates corporations and their investors in 2008 and 2017 are vastly different things at vastly different times. Eating $450 in hardware costs back then was a shrewd investment. Just look at AT&T and Verizon since making those decisions. Look at the small carriers they destroyed, look at the cable companies they bought, look at their places in the Fortune 500.

Today, they're the giants, they call the shots, if they tell me I can't have a new iPhone for $99 for the next 2 years, what am I going to do? All the other carriers are doing the same thing. We won years ago, they win now. What was a technical curiosity is now our primary means of communication. It's actually worth $1000 for a new iPhone, it does what a laptop does and more. So we pay it. And we move on.

Savvy?

You just did the math how they made a good profit. That’s where they made back the $450.
I’m now done with you officially.
*ignore*

 

[surferfb]

Here’s an article from Lifehacker that is relevant:

https://lifehacker.com/no-your-iphone-was-never-only-200-1729849011

 

[boltjames]

You just did the math how they made a good profit. That’s where they made back the $450.
I’m now done with you officially.
*ignore*

"That's where they made back the $450..." LOL. That's entirely my point. The carriers didn't "lose" $450. They just worked on a tighter profit margin for awhile knowing that the first few years would be less profitable but the following decades they'd be rolling in money. You think they would be "stupid to eat $450" but you fail to account for the $1,200 they still made after the $450 was spent.

Fact: My AT&T monthly plan price did not change for 9 years. Yet AT&T's costs for delivering that service went down significantly. Those early years they were putting up towers, buying regionals, spending huge money to acquire new customers from their competitors.

Fact: My iPhone price just went from $99 to $1000. And I'm going to pay it. Because it's worth it.

Fact: The carriers did consumers a huge favor by subsidizing iPhone's for the better part of 7 years but now those days are over and we're being asked to pay a price we never paid before.

Fact: Run away if you can't stand the truth, that's fine. But take a business course. Being naive is no way to get through life.

 

[Aibocyrus]

Here’s an article from Lifehacker that is relevant:

https://lifehacker.com/no-your-iphone-was-never-only-200-1729849011

You’re awesome for sharing this.

 

[spencers]

I can still get contract pricing on phones with my Verizon business account.

The iPhone 7 was $199, the iPhone 8 was $249, and the iPhone X was $549.

 

[boltjames]

Here’s an article from Lifehacker that is relevant:

https://lifehacker.com/no-your-iphone-was-never-only-200-1729849011

It's actually quite irrelevant. Suggest you read this one written by an adult, not an uninformed blogger:

https://betanews.com/2012/06/07/iphone-kills-carrier-profits/

"The primary reason for iPhone's dependence on carrier subsidies is that all models are high-priced, high-margin products for Apple. So even though a subscriber may get an iPhone 3GS for free or an iPhone 4 for $99 on a two year contract, carriers still have to pay Apple an average subsidy of roughly $400 - $450 per device. Meanwhile, Apple's competition is diversified across price points, receiving an average of $200-$300 in subsidies per device. On average, it is safe to assume that iPhone receives an incremental subsidy of $150 per device, when compared to the competition."

"There are numerous estimates of the cost of acquiring a wireless subscriber. According to one estimate, the cost of acquiring a wireless subscriber ranges from $300 to $400. Another estimate measures this cost at $250 to $300 per customer. A research report from 1998 also estimates this cost as $400. Since estimates seem to be fluctuating even over such a long time frame, we can make a safe assumption of the cost of acquiring a customer as the high end of the ranges mentioned here, i.e. $400. Most reports also mention that acquiring a new customer costs five times as much as retaining a current customer, i.e. $80. So, the incremental cost to replace a subscriber would be the difference of these two, i.e. $320."

"AT&T is actually losing a net figure of more than $2 billion, while Verizon is losing nearly $1 billion, due to high iPhone subsidies. Verizon's gap is lower because it sold fewer iPhones than AT&T. This gap is so large that any realistic change in inputs would not affect the outcome by much. And the really scary part for carriers is that incremental subsidy costs would continue to outgrow cost savings as iPhone sales increase."

"it is clear iPhone subsidies are not beneficial to carriers and seem to be unsustainable. Since the massive margins and volumes on iPhone are the biggest reason driving Apple's high gross margins on a consolidated basis, any reduction could negatively affect Apple's stock price."

The takeaway? The carriers were getting crushed by absorbing the subsidy, Apple was dictating said subsidy, we consumers weren't "paying for it all along". What we pay the carriers has remained almost unchanged since the days of $99 iPhones every 2 years. What's different is that the subsidies are gone and now we pay full price for the hardware. This wasn't some shell game. The increases are real. We are paying for phones we used to get for practically nothing because the carriers couldn't afford it anymore and they'd achieved their goal of making their investors rich.

 

[HEK]

Not just on my bill, but comparing my bill to advertised prices. This was back when AT&T charged $40 for voice, $30 for unlimited data, and $20 for unlimited texting. I had that price both when I was on a contract, when my contract ended, as well as being the advertised price for both plans under contract and those without a contract. It's foolish to ignore empirical evidence.

That was the super agregis part. The carriers kept the high prices even after phone was paid off. They did not break out the phone cost like they do today. The stupid people were the ones that didn’t get new phone every year yet still paid the high subsidized price for service. That was pure profit for the carriers. Yeah good old days all right.

 

[LarrySmith]

I can still get contract pricing on phones with my Verizon business account.

The iPhone 7 was $199, the iPhone 8 was $249, and the iPhone X was $549.

Seems steep for the X. I figured it would be 300-400 on that.

 

[Diorama]

No, your post introduced nothing relevant to the argument.

Try again.

So, you didn’t understand it.
Do you want me to explain it to you?

 

[lordofthereef]

Folks are saying "it never cost only $200" aren't wrong. At the same time, you'd have to compare plan cost breakdowns to now versus then to get a real comparison if which was cheaper.

I looked up plan costs and found a gizmodo article here, for those interested in where the data is coming from.

Back with the introduction of the $199 iPhone 3G, the cheapest plan was $39 for 450 minutes with rollover, $30 for unlimited data, and $5 for 200 sms (I think $20 got you unlimited, almost certain, but couldn't find that info). Additional lines were $39 and they'd share texts and minutes.

Compare that to ATT today; that was kind of dofficult because they won't let me just grab an estimate on their website, but for a single line I think it's $100? Now, thats unlimieted everything as opposed to limited minutes and sms with the old plan, but just look at the cost comparison.

Even if you split that $200 up over 24 months you are paying more today for service alone than you were paying for service AND a phone back in 2008. Now add a phone payment of around $20 a month to that.

As was (and still is) the case, the more lines you add to the family plan, the cheaper your per line cost. Back then you shared minutes (so sometimes you;d have to pay into a higher minutes pool) as well as SMS (which is where the $20 unlimited SMS value came in). If a family of course could live with 450 minutes and 200 sms a month they would essentially be paying $129 a month for service and get a subsidy every 24 months. If you want to add that $200 per line over 24 months you now have a $162 bill. So once again, you have financed four phones all with unlimited data (but limited talk and texts) for $162. That is only two dolalrs more than what TMO currectly offers for just the lines of service; you get NOTHING towards a phone. Four lines of service with ATT currecntly are $160 plus $20 access fee per line totaling $240 without devices. Choose the base $650 iphone that year times four and finance it over two years and your monthly rate goes to $348!!!

TLDR: With iPhone 3G a family of four could have a new iPhone every two years on ATT for an adjusted (because I have added the down payment in which couldnt then be financed) $192 a month. This is with base minutes and SMS texts, but increase the minutes/texts to unlimited (as found here) and you are sitting on $272 with four lines of unlimited everything.

Today, that same sort of situation costs $348. Today you get unlimited minutes as the default option, so it makes an exact comparison more difficult (most folks were getting by with minutes packages and not the $129.99 unlimited minutes they were selling). But with all else equal, consumers were spending a LOT less under phone subsidies than they are today without them. Of course, in the "old days" you had to be getting a phone at least every two years for these numbers to make sense, because your bill didn't go down for any reason.

Oh, and we haven't even discussed the cost of Apple Care. Back then there wasn't any; you brought in your busted phone and $200 got you a replacement no matter what happened to it. Talk about a better deal, huh?!

 

[swinery]

honestly despite people complaining about iphone x price I wouldn't be surprised if its more expensive again next year and they still pay

a lot of people use phones as their primary device and its something you use all the time everyday

 

[appygirl82]

The claim that the remainder is factored into your bill is BS, at least when I was on AT&T. There was no difference between my monthly charges with or without a contract. What you're giving up by paying only $199 for a new phone is being locked to their network for two years.

Agreed! My bill never changed from then to now. Then...I paid $199 for the phone and would sell each year. Now, my bill is still the same and I do the IUP and pay a monthly "rental" of my phone 🙂

 

[Steve686]

The claim that the remainder is factored into your bill is BS, at least when I was on AT&T. There was no difference between my monthly charges with or without a contract. What you're giving up by paying only $199 for a new phone is being locked to their network for two years.

Why do you think cancellation fees were so high on those contracts? I seem to remember $450 was what it would have cost me to break a 2 year contract.

They were recouping the money they paid to Apple for each phone with 2 year contracts.

 

[T-Bob]

Agreed! My bill never changed from then to now. Then...I paid $199 for the phone and would sell each year. Now, my bill is still the same and I do the IUP and pay a monthly "rental" of my phone 🙂

Unless your bill is incredibly good value, like $10 a month, this doesn't really demonstrate anything other than you have not negotiated a new deal.

 

[appygirl82]

Unless your bill is incredibly good value, like $10 a month, this doesn't really demonstrate anything other than you have not negotiated a new deal.

Plans are the same, at least for me?! I have been on the AT&T grandfathered unlimited plan for years. This past year I changed to the new unlimited combined with the DirecTV deal. It made my bill go down a little. So no, what I pay AT&T never really changed. Now I pay Citizens bank to "rent" my phone....

 

[boltjames]

Good posts this morning, folks.

Makes the point very clearly: We got a great deal on the hardware from 2007-2015 and are getting screwed on it now. We did not "pay for it" back then, it was not "hidden in the bill". That's what carriers today want you to think. That's what carriers today train their salespeople to say. "Pay no attention to that man behind the curtain, you paid $1000 for your iPhone back in 2010, it was bundled in your bill...." Complete lie.

The truth is, service costs the same as it always did, the change going on here is the high price of the hardware. And it's easy to see why. You don't need to upgrade your iPhone every 2 years anymore. I was a Day 1 owner of every iPhone, I was one of those people waiting on line at a retail store at 3AM, and I haven't upgraded since my iPhone 6 circa 2014. I just preordered an iPhone X so I can try it out for a week and decide if it's worth keeping or just return it.

Both Apple and the carriers are now managing a mature business. The days of free phones and discounts on data to acquire new users are over. Those who think they were "always paying for it" just don't want to face the facts that we all need to pay full price for hardware now.

 

[Oridus]

Good posts this morning, folks.

Makes the point very clearly: We got a great deal on the hardware from 2007-2015 and are getting screwed on it now. We did not "pay for it" back then, it was not "hidden in the bill". That's what carriers today want you to think. That's what carriers today train their salespeople to say. "Pay no attention to that man behind the curtain, you paid $1000 for your iPhone back in 2010, it was bundled in your bill...." Complete lie.

The truth is, service costs the same as it always did, the change going on here is the high price of the hardware. And it's easy to see why. You don't need to upgrade your iPhone every 2 years anymore. I was a Day 1 owner of every iPhone, I was one of those people waiting on line at a retail store at 3AM, and I haven't upgraded since my iPhone 6 circa 2014. I just preordered an iPhone X so I can try it out for a week and decide if it's worth keeping or just return it.

Both Apple and the carriers are now managing a mature business. The days of free phones and discounts on data to acquire new users are over. Those who think they were "always paying for it" just don't want to face the facts that we all need to pay full price for hardware now.

No, but really. Service prices ARE cheaper these days in the majority of cases... ESPECIALLY in the case of family plans.

 

[bambooshots]

Nope. Cause they were never $199.

The carries sold the subsidized handset for $199 in exchange for two years of contractual service.

 

[T-Bob]

I don't remember thinking or feeling that the phones were ever free. Any contract with a nice phone always had 18-24 month lock in *and* was more expensive than a 1 year contract you could get with a similar monthly allotment without a handset or a basic handset. Not been a customer of those US telcos mentioned though so just the perspective from those carriers I had experience of.