Why do Non-Contract phones cost so much (And can Apple change that?)

[urkel]

When Apple lowered the price of the original iPhone to $399 they completely disrupted the industry and it was awesome. (My Sanyo M1 cost $449 under contract in 07). But now that I'm looking at non-contract iPhone pricing it does make me wonder why these phones cost so much and if something can be done about it.

iPod Touch (16GB): $199
iPhone 4 (8GB): $549
iPhone 4S (16GB): $649
iPhone 4S (32GB): $849
iPhone 4S (64GB): $849

Are the phone components really that expensive that there's a $350 price difference between a Touch and iPhone 4? Or is it a fake price differential made purely to encourage carrier contracts? Maybe it's time to change that.

Think about it. Many users would like to upgrade every year but can't because of carrier contracts. But now that Apple offers a "world phone" that has the capabilities of riding any network then wouldn't pricing it more aggressively benefit Apple (and their customers) in the long run? For example, pricing a non-contract 32GB iPhone 4S at $400 then they're reducing the power of carriers and encouraging users to do ANNUAL upgrades rather than getting caught in 2yr contract controlled upgrade cycles.

Apple has a way of changing our perception of how things "should" work so I'd love to see them do something about cellphone pricing and carrier reliance because they're now in a position where they can really make contracts a thing of the past and that benefits both Apple as a company and us as consumers.

 

[tivoboy]

typo

I think you have a type for the 32gb model.

Apple charges this because they can. I know for a fact it doesn't cost 88,000$ to make a mercedes E55, but that is their retail pricing - and people pay it.

 

[aneftp]

Supply and demand economics.

Nokia routinely charges $600-700 for their high end N series models back in the days. People brought them.

Apple has the highest profit margin in the industry. It used to be Nokia's high end devices (not their cheap models).

True that it costs apple about $200 to build their iPhones and sell it to the manufactures for around $600-650. But that's what the market dictates.

If Android makers tried to charge the same for their handsets, you bet you won't get those buy one get one free handsets.

 

[profets]

I agree with this. Cell phones have had inflated pricing for a long time. Remember a few years ago when new unlocked gsm phones contract free would cost upwards of $1000?

It has gotten better, though slowly. Many high end Android phones and other phones have been around $500 contract free over the past year, where as they used to be more in the $600-700 range.

I thought Apple was going to push a bit harder on this.. if any manufacturer had the pull to do this it would be apple. But it feels almost like they've gone the other way with this, a 64GB 4S at $400 subsidized or $850 non-subsidized is just insane.

Just like you mentioned, the iPod Touch to the iPhone 4, before the 4S was announced it was an even larger price difference ($220? vs $650). There are differences in hardware, but in no way to make it triple the price.

After this last announcement we know have the 3GS down to $375 non-subsidized and the 4 at $550. Good direction, but would have been more impressive maybe if they dropped the 3GS altogether and brought the 4 down to $400ish maybe non-subsidized and $500 and up for the 4S.

At the end of the day, its the same cycle, inflated pricing to make it look like a large discount when you get a subsidized phone. And of course I'm sure when a carrier works with Apple (like AT&T) they're not paying $650/unit.. but they will make it look like they're giving you a $450 discount for signing a term contract.

 

[Number 41]

The bigger issue is carriers not offering deals on service for people who don't elect to get new equipment. My bill doesn't go down if I elect not to get a new phone or if I buy a new phone with cash and don't sign a service agreement.

 

[profets]

The bigger issue is carriers not offering deals on service for people who don't elect to get new equipment. My bill doesn't go down if I elect not to get a new phone or if I buy a new phone with cash and don't sign a service agreement.

Except for T-Mobile lol.. I think when not taking a subsidy you get a discount on your monthly plan.

You're right though, in north american at least. I'm sure it's much different in Europe and Asia.

 

[David R]

But you are not only paying for the parts in the iPhone.

You are paying for R&D, assembling, the packaging, advertising, iOS development, support you may request, warranty claims you may make, etc, etc. None of that is free. And on top of that, they have to make a profit.

 

[aneftp]

And of course I'm sure when a carrier works with Apple (like AT&T) they're not paying $650/unit.. but they will make it look like they're giving you a $450 discount for signing a term contract.

I am sure Apple charges even the carriers close to $600 for a phone that retails for $650.

Apple is notorious for barely giving retailers more than 3% discount for floor space. Other manufactures give up 10-15% percent to sell in bulk.

That's why carriers will give you a good subsidized deal on an Android phone and even an early upgrade deal if you call their retentions dept. But they make zero exceptions for the iPhone because it costs them so much.

I doubt Samsung is charging ATT anywhere close to $600 for their S2. Eventually you will get the S2 on contract for less than $150 and than $99. But Apple never discounts so that's why the iPhone says the same price even almost one year later

Apple has the highest profit margin because of this.