How carriers and subsidies are more like sharks and loans

Last week AT&T's Randall Stephenson was once again repeating the familiar refrain: that Apple and the iPhone (and now other premium smartphones, like Samsung's) demand far too high an up-front price from carriers. If anyone should be charging anyone too much, dammit, it's the carriers! Jean-Louis Gassée, once of Apple, now of Allegis Capital, lays out the case for their shameless complaints in his Monday Note:

I don't know if Stephenson is speaking out of cultural deafness or cynicism, but he's obscuring the point: There is no subsidy. Carriers extend a loan that users pay back as part of the monthly service payment. Like any loan shark, the carrier likes its subscriber to stay indefinitely in debt, to always come back for more, for a new phone and its ever-revolving payments stream.

The reason for this is well stated by Horace Dediu of Asymco:

The iPhone is primarily hired as a premium network service salesman. It receives a "commission" for selling a premium service in the form of a premium price. Because it's so good at it, the premium is quite high.

It's not rocket science. It's a $650 phone we're getting for $199 and the $450 difference is largely being paid up-front to Apple by the carriers, who then make their money off the contracted plan for 24 months. If the plan is $60 a month, that's $1440 in their pockets. If it's $100 a month, that's $2400. Sure, networks are expensive to build out and maintain, but at the average revenue per user (ARPU) levels the iPhone pull down for them, it's tough to argue the carriers still don't end up well, well ahead of the game.

Of course they want to pay Apple less. I want to pay the carriers less. Gassé does as well, and tries just that. Read the rest of his note to find out the outcome...

Source: Monday Note