On the eve of iPhone 6 carriers once again using the media to push back on 'subsidies'

On the eve of iPhone 6 carriers once again using the media to push back on 'subsidies'

Imagine a boss at a company with a really great salesperson who lands all the best, highest valued customers for the company. Now imagine that boss hates having to pay that salesperson their really high commission, even though it's the salesperson who's closing all those deals and ensuring all that money comes to the company. The boss can't afford to lose that salesperson but they're desperate to find anyway they can to cut that salesperson's commissions. Likewise, the salesperson knows their value and insists on being richly compensated for the deals they close. That's the relationship between the carriers and the iPhone, and between the price carriers pay Apple for the revenue the iPhone generates. It's also why the carriers hate Apple and the iPhone, and why when a new iPhone — like the iPhone 6 — is on the horizon, we get articles like this: "As Phone Subsidies Fade, Apple Could Be Hurt". The Wall Street Journal:

U.S. wireless carriers are making unexpectedly fast progress moving their customers away from subsidized phones, a shift that could put further pressure on sales of expensive devices like the iPhone.

Apple Inc. charges more for its phones than many companies charge for low-end laptops. Until recently, American subscribers have been insulated from the sticker shock by carriers that subsidized hundreds of dollars of the cost with hopes of recovering it via two-year service contracts.

What's meant by "subsidies" in North America is "loan". The carriers front you the phone and then add an extra ~$20 a month to your plan to pay it back. That does hide the true cost of the iPhone — which historically starts at $650 for the base flagship model — but the carriers certainly aren't giving anyone anything for nothing. Some carriers have even double-dipped under more recent plans, keeping the ~$20 "loan repayment" in plans and adding an extra "installment charge" on top of it. Lovely people, they.

As to Apple charging more for their phones than low-end laptops, iPhones are computers, and better ones than low-end laptops. That's how premium products — from Apple, Samsung, or any vendor — are priced. It's how typically un-"subsidized" products like iPads and MacBooks are priced.

And the carriers, spin aside, have zero interest in lowering prices for us. They have complete interest in keeping more of our money for themselves. Witness everything from AT&T, Verizon, and Sprint over the last decade, and the more recent antics of T-Mobile.

All things considered, I find paying Apple more in line with my interests than carriers. They're the ones who manufacture phones to exceedingly hight quality levels, who refrain from festooning them with logos and clogging them up with crapware, who provide services like iMessage and FaceTime that work around often exorbitantly priced carrier cash-grabs. It's a glimpse at what a carrier-as-dumb-pipe world could truly be like.

Which, of course, the carriers know and why, of course, they hate Apple even more. Hence why these types of articles — and articles about Apple raising prices — pop up every time new phones, like the upcoming iPhone 6 start working their way towards distribution.

It's negotiation by media. It's theater. And it's absurd.

Or does anyone here really feel sorry for the carriers, and their having to pay Apple a premium for the premium profits the iPhone delivers them every month?

Note: There's an absolutely valid argument to be made that, in an "unsubsidized" market Apple won't sell as many $450-$850 phones as other vendors will sell budget under-$400 phones. Apple will either have to move into lower segments, as they did with iPod, or content themselves with less market share but more profit share, as they did with the Mac. But that's an argument for a different piece and a different day.

Note 2: It occurs to me I pay $750 on average for a new iPhone every year. (Contracts, until recently, were 3-years in Canada.) That sounds like a lot, but it works out to roughly $60 a month, or $2 a day, for a computer I use every day, all day, more than any other object. Yes, I could get a cheaper one, but cheapness isn't always the most important feature.

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Rene Ritchie

EiC of iMore, EP of Mobile Nations, Apple analyst, co-host of Debug, Iterate, Vector, Review, and MacBreak Weekly podcasts. Cook, grappler, photon wrangler. Follow him on Twitter and Google+.

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Reader comments

On the eve of iPhone 6 carriers once again using the media to push back on 'subsidies'


"Carriers don't traditionally "subsidize" phones in North America. They front the phone and then add an extra ~$20 a month to your plan for it."

And this is exactly the definition of phone susidies

They add "interest" as well, they just don't call it that. You pay back *more* than the cost of the phone in the end.

I couldn't be happier to have switched away from the subsidized model. And my new plan is less limited than my "unlimited" plan was.

AIO "Smart" Plan: $649 + (24x$45) = $1729
AT&T "Unlimited" Plan: $199 + (24x$84) = $2215

At the end of the day, carriers will need to break out the monthly cost of their service from the monthly cost of their phones. Because at least one carrier will do this, if the others don't, they will lose customers.

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T-Mobile does this. Note that they've added a net 4.4m customers in the last year too.

The nice thing is that their customer portal shows you clear breakouts for the plan vs the equipment contract including the number of months until you pay off the phone. I went back to them from Straight Talk a year ago and at that time the iPhone 5 was $99 upfront and the rest of the cost spread out over 24 months, no interest. The nice thing is that unless the 6 is really compelling I can wait until the 6S or even 7 and have a bill that's just the plan cost after I pay off the 5.

When I bought the first iPhone, it sure was more than 200 on contract. It was the best phone at the time and I paid the price to get it.

I hope they still keep the old plans in place. I am grandfathered in with unlimited data and I don't want to loose the same. Worse case (as I have done every other year) I will buy the phone at the full retail price and stick with my current plan. It will still be cheaper than the new plans :)

The day I lose unlimited data on Verizon, is the day that I change providers. I use far too much data to do otherwise.

A quick look at the profits reported by US wireless carriers is all one needs to see to know we're getting screwed. Change can't come soon enough but I'm not holding my breath.

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Great work Rene.

The way the carriers have treated their customers is shameful and to hear them whine about subsidies is absurd. Case in point are the "Unlimted" plans from Verizon and AT&T. To get a upgraded phone you are basically forced off your old unlimited plan. Yes you could pay full price for the iPhone and keep the unlimited data plan, but I don't see where companies like Verizon give me a break in my data plan price if I buy the phone at full price. To get my iPhone 5s I had to pay $124 at Walmart and then $30 a month for two years. That $30 a month remains regardless if I bought the phone at full price from the carrier or somewhere else or whether I bought it subsidized from the carrier.

I wish the media would stop using the term subsidy. It's not a subsidy. A subsidy would be giving me a $450 credit to buy a phone and me not having to pay it back. As Rene rightly points out these "subsidies" are really just loans that you pay back over the lifetime of your contract. Is an iPhone really that much more expensive than a flagship device from Samsung, LG or HTC?

Yes, iPhones are more expensive. BUT the thing that I hear the most about Apple and the iPhone from a few friends that work at various levels in cell carriers is the fact the Apple takes over the customer after the sale. Service and support is made by Apple, not the carriers. So the carriers basically lose sight of the customers... And they have a hard time about it.

Plus, iPhones need to be bought in multi year deals (unheard-of from other mfg I think).

Your friends are confused. A carrier is an authorized Apple reseller. They are responsible for technical support at the hardware level. Maybe not every place one could purchase an iPhone from but the carriers corporate stores definitely would be.

Definitely confused with how subsidies work in Canada. So if I were to bring my own phone in to Rogers, for example, I could pay a cheaper monthly fee? I'm on a plan that I've been renewing for ages but always taking a new phone on contract since I'm pleased with my plan.

Do they just mask the subsidized cost in with the monthly service charges? I've noticed that American carriers tell you how much you're going to pay monthly for the hardware but is that how it's done up north?

Posted from my TARDIS!

1x is old-timer CDMA technology lingo. It stands for 1xRTT or "one times radio transmission technology", and is the CDMA world's version of 2.5G, prior to 3xRTT (which some called 3G). The CDMA path had a lot of evolution from 1x to 3x to EVDO rev0 to EVDO revA, and there was a revB and revC (OFDM) planned, but it died when LTE won out.

Thank you for that explanation. I've always been on gsm networks so I've never seen that symbol.

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Somehow, my wife negotiated with Verizon a few years ago and our unlimited data plan costs us $9.99 per line (we have 4). It is funny when Verizon calls her to try to explain the advantages of their Share Everything plans and why we should leave our grandfathered unlimited plan. They never have an answer for her when she asks them why we should pay more money for less service and how it will benefit us.

This is why Apple should buy or start it's own cell service network and let people dump their current carrier. Then we will see what the carriers have to say... besides "would you like fries with that.". Don't even get me going on Cable/sat. companies. I even have stronger feelings. :)

Apple can't start their own network even if they want to. Those cellular spectrum is already bought up by all four big carriers in US alone. Forget about the rest of the world, it took years for Apple to get the proper license to sell the iOS devices on one of the China's carrier. They won't have an easy time buying one of them nor leasing their network.

Buying T-Mobile in US outright would easily cost $40 billion dollars if not more, that's what ATT tried to purchase it for. That's not even including the whole country coverage, since T-Mobile has the smallest coverage at the moment. They'd easily spend another 10-20 billion dollars investing to expand the coverage.

For Verizon to buy out the rest of Verizon Wireless, it'd cost them $100 billion or more. To see the real numbers and past purchases, read this: http://theweek.com/article/index/243337/wireless-merger-madness-verizon-...

Those carriers have huge **stable** annual revenues to keep them in business for a long time.

Apple don't have any stable revenue beside iTunes and iCloud storage plans, they barely make any money for Apple. Apple depends on their hardware sales, which will start to decline soon as the market saturates with other devices.

Purchasing T-Mobile would be a good start and 40 billion isn't really that much for Apple at this point. To be honest, I'm surprised Google hasn't purchased T-Mobile already and rolled out their coverage, just so that they could data-mine.

Why iPhone, I work for a wireless carrier in Puerto Rico with 1m customers and the 5s sells for $100 where you can get the note 3 s5 free.

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So my carrier (AT$T) subsidized my iPhone 4 for ~$20 dollars per month (not sure of the exact amount) for two years. After two years, my bill is still exactly the same -- it has not gone down $20 as one would expect it to after the "loan" has been paid off. Essentially, AT$T is still charging me. Can they do this? How is this not illegal? Why aren't there any class-action lawsuits?

I have no interest in paying the phone co. an extra $30 a month. I'm not a person who needs a new phone every year. I want to pay $200 up front and have a 2year contract. I don't like these new phone plans.

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