Why carriers and customers are willing to pay for the iPhone 5

During Apple's Q1 2013 conference call, when asked about the mix of iPhone 5 compared to the lower priced iPhone 4S and iPhone 4 still on the market, Apple CEO Tim Cook responded that not much had changed from last year's iPhone 4S mix relative to the iPhone 4 and iPhone 3G, then the discount options.

When all was said, done, and factored, the average selling price (ASP) was essentially the same. Why would carriers keep paying Apple their premium rates to stock the iPhone 5, and why would people keep paying more to buy it, when the iPhone 4 is now a cheaper, free-on-contract option? Horace Dediu of Asymco did the math:

The clue comes from the fact that the consumer is not the only buyer. It’s operators who buy and re-price the product. They are hiring the product to sell broadband and the newest variant is still the best hire to do that job. This observation is crucial to understanding the growth dynamics of the iPhone and consequently, of Apple itself.

Carriers want to sell data services, we want to use data services, and the iPhone is still the best way to do that for everyone. This year, add LTE to the mix, and the iPhone 5 is the best iPhone.

Apple might one day find compelling business reason to explore less expensive iPhones for emerging, non-contract markets, but it looks like the top line is doing just fine.

Check out Dediu's full post for all the charts, and his exploration of how the iPhone business looks now that Apple is reporting is separately from accessory and services revenue.

Source: Asymco

Rene Ritchie

Editor-in-Chief of iMore, co-host of Iterate, Debug, Review, The TV Show, Vector, ZEN & TECH, and MacBreak Weekly podcasts. Cook, grappler, photon wrangler. Follow him on Twitter and Google+.

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Why carriers and customers are willing to pay for the iPhone 5

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a lot of experts are saying Apple it is not a growth company anymore, year over year the fourth quarter earnings report gains are a facade based on the fact that Apple you regular amount of product launches in the last quarter

To bad you pay subsidized prices even after they phone is paid off. This new Straight Talk plan really has me thinking. ATT is ripping us off big time. Total cost over two years on ATT is $750 more then StraitTalk.

It's not $750 more. At best it's $300 more because you have to pay full price for an iphone. ($649 vs $199) Love how Straight talk leaves that part out. It's definitely a good option for some but when family plans are figured in these prepaid plans lose their value when you consider paying full price for equipment for 3 or 4 phones, and the carriers plans become cheaper with more people on them.

ATT:
98*24+200=2552.00

ST:
47*24+650=1778.00

2552.00-1778.00=774.00

Not sure how you are coming up with something different.

He wasn't disagreeing with the price for an individual person, he was just explaining that it is more beneficial for people who are in a plan as a family or as a group to go with ATT and Verizon because they only added a certain amount more to add that person to the plan. I definitely agree that if I was in a plan by myself I would just by the phone and go prepaid but since I am in a family plan it is cheaper that way.

I like Apple but we definitely are in need of a new iOS with widgets. Will this ever see the light of day? The iPhone 4S is my first iPhone and it's gotten so damn tired.

Not all want widgets. To me they are very gimmicky and come at a cost of battery life and screen real estate. If apple can find a new way to do this (much like the weather widget in the notifications) then I'm all for it, but personally apple is smart for leaving them out.

Rene, as a long time iMore reader I love your blog, but I have to disagree with the conclusions made in this particular article. Carriers do not love to sell iPhone - they dislike iOS and iPhone and if they thought for a second that they can get away with not selling iPhone - they would. Apple is a pain in carriers a$$ - it gives Verizon’s of the world no control over its OS and it never discounts hardware. On the other hand the question of why consumers pay more for iPhone baffles me. I was iPhone user with original iPhone, iPhone 3G model and recently iPhone 4S. In between I owned Nexus One, Nexus S, and now Galaxy Nexus. I have to say that in my opinion the reason why Americans buy iPhone is because they either locked into ecosystem (i have my iMac and I want iCloud on my phone) or because of the inertia. In my mind it goes something like this: 2 years ago i bought blackberry when I should’ve gotten the iPhone. So, this time I’ll upgrade to iPhone.

It is my firm believe that given 2 devices to use side by side for 2-3 weeks 90% of people would’ve chosen Android. So would carriers, by the way - they already do. I know that when I went back to iPhone because my company handed me one - I was able to stay with it for 3 months and returned it back to the IT. I had to purchase my own device and hook it up to my work number.

Now, before I get a ton of comments that I’m an Apple basher, let me tell you - I’m not android fanboy or apple fanboy, I am a fan of technology. I read iMore and I read Android Central. I use MacBook Air at work, Chromebook and Windows at home, and I owned iPad, Nexus 7 and many more Kindles, Nooks, iPods, and other gadgets. The fact of the matter is - iPhone is a wonderful device, but iOS is simply not evolving anymore. I only hope that Apple can turn it around, and start innovating on the OS again. And Tim - bigger screen, please! As far as carriers - I do not think they will ever like iPhone & iOS - and that is one good thing that we love about Apple.

Greg,

I think you might be at least partially right. I've never owned an Android. My first smartphone was a Treo and I stuck with Treo until the Palm Pre. I loved that phone but Palm died. I finally bought an iPhone 4S and then an iPhone 5 because of LTE. And I love the cloud. I love how I don't have to worry about my documents. I edit them on my iphone and they appear on my iPad and Mac or any other combination. I love how I download an app and it automatically appears on my iPad and my wife's iPhone. I love how facetime is integrated in the phone and I don't have to mess with Skype. I love how I can just say, "Remember to print out the files for XXX client". And that action appears in my inbox for my GTD Omnifocus system. I love how lightweight it is, and that I have a waterproof case that even with my case on, my phone is so lightweight and thin. So yes, I think it's the Ecosystem. It works well.

I'm a fan of technology too and in the 90s, when I was fed up with Windows and having to reboot my high-end new laptop 3 to 4 times a day, I got fed up. I build a linux box and I loved it. It was great. I could make it do whatever I needed. But it had one drawback—I spend too much time configuring it. When I found that Apple had done an Unix based OS, I waited until it seemed stable enough and in 2007 I bought a macbook pro. I use parallels to be able to access my one software program that I use that isn't available in OSX and I love it. I don't need to reboot as often and everything just works. And because it's unix based, I can usually configure it when I need to, but I usually don't need to. I love technology, but I've already gone through the phase of configuring the heck out of my tools. Now I just want something that works and that I don't have to spend time fixing.

One more thing. Customer service is great. About 5 times since 1997 I've had problems with my macbook pros: needed new motherboard twice, fell and needed new bottom, memory went bad and HD died. All of these were fixed within one day. I took them to an Apple store in the morning and by the afternoon the computer was fixed. The last HD repair was done in less than half an hour. I was never able to get that kind of service anywhere before. I work on my computer and I lose money from being away from it. So that is a big plus.

No, I'm not a fanboy and when I find an ecosystem that works better and cheaper and faster customer service, I'll drop Apple very fast. But that's why I buy Apple. I love using their products but I'm definitely not married to them.

I used android side by side as you say, heck i even used it for 6 months... Big mistake, yes it is fun to customize, move things around, install widgets but at the end of the day i missed the little things that worked just better on an iphone, you can only have fun organizing stuff for a period of time then it gets old and what you need is a better device, and to my needs that was the iphone.

Well written, but I disagree. Apple doesn't need larger displays for one and if there was an easy way to do it without fragmenting its number one asset (the eco system) . Not to mention, but why would apple mess with something that is selling well? For example, I always see people posting how apple is doomed if they don't listen to the market and make a larger iPhone yet we see things like the last couple days. 9/10 phones sold on AT&T are iPhones 3/5 phones sold on Verizon are iPhones and these are at the size of the iPhone 4, 4s, and 5. To me the market isn't demanding a larger phone it seems to me they are demanding iPhones. I don't need to go into the technical aspects that apple would need to do (and are in the middle of now with the iPhone 5) to make a larger iPhone. It comes at a huge cost to the Eco system and def isn't as easy as just making a larger phone apple has stuck to a strict code (if you will) for a reason as it has made for a thriving App Store that attracts the best devs in the market. Android is struggling big time in this and as you can see these giant phones all run phone apps. This is another speed bump apple must figure out to get a larger phone as simply blowing up apps that are created for 3.5 inch and now 4 inch display (which we still don't have a lot of apps optimized for and all that was changed was the vertical size of the phone). It just doesn't make sense for apple to do this right now. If the market does indeed demand this and apple sstarts to lose market share and revenue I'm sure they will make a larger iPhone, but unlike android they will surely do it right and it won't come at the cost of their eco system. It will come when they can x3 or x4 the resolutions they already run on the iPad and iPhone as a giant iPhone will affect both.

I know you only mentioned a larger iPhone as an afterthought to the rest of your post so I didn't mean to jump on a soap box only give my opinion. Anyways the reason I replied is you brought up a lot of great points and your post was very well thought out. I too have been on the android platform since the nexus one and love tech in all shapes, sizes, and brands. I own numerous devices from android including the galaxy nexus, gs3, and nexus 7 and have owned over a dozen phones and tablets on the android platform. I left apple with the iPhone 3GS And besides my MacBook Pro I didn't look back. Now I'm back and I couldn't be happier. I don't agree that iOS is stale. I think apple has done a lot to make sure that their phones and tablets run as best as they can. Widgets and live wallpapers (among many other things) are great but come at a cost. Apple has done the opposite and made sure to build the entire OS around fluidity and overall performance. It is very rare if iOS ever drops frames or "lags" but I experience this all the time on all my android devices. When it comes down to it an OS is only really a launcher and first party apps with the option to download great 3rd party apps (among other things like music, tv shows, movies, etc) though their app stores. I didn't think I would ever say it, but customization is something I don't need if the OS is going to run like android currently does. To be fair it has gotten better with project butter, but it is still a long ways from iOS. I do think apple will need to put some time and effort into iOS and come up with a design that works without leaving its non geeky users in the cold not knowing how to use their OS, but I gladly will take less choice for better performance any day.

Like I said above I also have been given a phone through work, but mine is a galaxy note 2 and I can't stand using it. It is far too big, very clunky interface (I just don't like skinned android and prefer vanilla nexus devices as skins seem to magnify the problems I meantioned above), and the app eco system is a barren wasteland. The latter is what bothers me the most. Maybe I'm spoiled by apples 3rd party App Store, but there is a giant difference between androids offerings and apples. This is why I feel the way I do about a larger iPhone if they launch one all those apps have to be recoded and it is frustrating now not seeing great apps like infinity blade 2 not even coded for the iPhone 5. Some apps will just be left behind and I don't think apple is ready to do this and nor should they when none of these bigger android phones are coming any where near selling as much as apples iPhones. Anyways, I went back to my iPhone 4S for work and my note 2 is sitting on my desk at home. Thanks for the post and please don't take my post as anything more than an opinion to what you posted.

So, Apple finally figured out that consumers will actually choose a phone based on a feature like 4G LTE. Good for them. Thank goodness for us consumers, HTC, Samsung, and Motorola all figured that out at least a year and a half before Apple did!

The only reason apple didn't do it earlier is they refused to make a crappy phone and let's face it the early lte offerings from Samsung, HTC, and Motorola have been horrible (I should know I owned about half of them). All needed to be charged multiple times a day, where much too big (seems to be a trend. Android oems didn't find magic in a larger display they just couldn't make smaller ones with the high end specs we see today), all could barely keep lte connection (some would drop lte all together), and the market wasn't large enough to even support it. Hell, the iPhone 5 wasn't 4" because the market wants a bigger phone it was because they needed more room for a battery and the parts in it). Apple waited for the right time and the iPhone 5 has a lot of innovation in it.

Crappy is subjective and your opinion. The 2 VZW 4G LTE phones I have had have been extremely satisfactory to me. I could/can do things with them that the current iPhone (at the time - includnig the 5 vs my current phone) simply cannot do, technically.

Screens being too big is also subjective and your opinion. I value the bigger screen highly. Apparently, a lot of other folks do, too. My g/f has an iPhone 4S, a Macbook Pro, an iPad and and iPad 3. She now wants to change to a Samsung Galaxy Note 2 just to have the bigger screen.

So, what innovation does the iPhone 5 have? Meaning, what does it bring to the table that no other phone already had?

Besides the obvious one where it "innovated" the concept of not being able to use 4G LTE data and talk on the phone at the same time, on Verizon? Being the ONLY LTE phone on Verizon that CAN'T do that.

You make some good points here.

The larger 4" screen and LTE on the iPhone 5, came a year (or two in the case of larger screen) after Android had them. Excuses can be made for Apple being late to the party with year old hardware innovations, but the bottom line is that, Wallstreet isn't buying it. Cook's sidestep response to questions from analysts did not answer questions about growth beyond the Apple fanbois/fangirls. It's a given that Apple faithful will buy Apple's new products annually, but how many new customers are joining those waiting lines every year to get the new incrementally upgraded products? For the record, I came to an iPhone 4S from an HTC EVO 4G (thanks to iMore) and the only things I wish I could change are the screen size and lack of LTE (which the iPhone 5 has) but at upgrade time this October, what I'd like to see Apple do is improve the battery life of the iPhone along the lines of the Razr Maxx HD. If Moto can do it and maintain the thin size of that phone, Apple can do it too, and they should. The point is that, other than a couple of things that Android Phones already had a year or two earlier (a 4" screen and LTE) Apple didn't really bring anything new with the iPhone 5 that didn't already exist on Android. Siri isn't fascinating enough to warrant a switch from another platform. Like it or not, Samsung, Motorola, and others are innovating and if Apple doesn't bring something this year that has any measure of WOW factor beyond an incrementally upgraded iPhone 5S, Wallstreet won't be the only ones questioning Cook's mojo. I will continue using my 4S until it either no longer works properly, the battery no longer holds a charge, or I find a phone that meets all of my needs without me having to squint at the screen. I hope it's an iPhone but if it's not, I will not apologize for that.

To tell the truth I had an iPhone 5 for 13 days and returned it. The hardware is great and so is the ecosystem but I found iOS 6 to be lacking their is nothing new or big in it. Apple isn't innovating at all when it comes to iOS. I will agree that apple has built a very polished os I would rather deal with some bugs but get a platform that is moving things forward not one that is riding on the bandwagon