In effect, cell phone carriers bankroll their customers by paying cell phone makers for a smartphone, and collecting payments from those same customers each month. That method is changing and it could spell gloom and doom for Apple’s long-awaited iPhone 6. Or, maybe not so much.
Highrollers And Bankrollers
The notion that cell phone carriers want to get out of the so-called subsidy business (it’s not really a subsidy as much as it is a payment plan) is nonsense.
Look at the monthly fee for a particular plan without a contract and look at what you pay the cell phone company for a similar two-year plan that covers the price of a phone.
Cell phone companies may be bankrolling customers but it’s a profitable venture.
So, what’s going on? Why is that part of the industry changing? How could that affect Apple and the iPhone 6?
As to the latter, I don’t think there’ll be much change. The iPhone 6 will be Apple’s greatest iPhone sales leader ever. Just as each previous model has been.
The changes came about when T-Mobile, desperate to survive in the U.S., and the last major carrier to get the iPhone, had to change the rules of the game to attract customers, reduce customer churn, and get back in the game at least enough to get bought by somebody with deeper pockets (which has almost but not quite happened).
T-Mobile became the un-carrier, and made it easy to get a new iPhone or Galaxy or whatever, and not tie it to a two-year contract. But it’s a sleight of hand trick. T-Mobile was willing to sell you a phone on a monthly payment plan, and give you a monthly contract for cell phone service that you could leave any time.
Except the smartphone you bought was still stuck to T-Mobile and you still needed to make the monthly payments for the smartphone you bought.
Now Everyone Is Doing It
Interestingly, T-Mobile’s un-carrier strategy, combined with the opportunity to sell new iPhones, worked, and the company began taking on new customers. And in that industry, whatever works gets copied by competitors.
Everyone wants in on T-Mobile’s act of aggression, so look for payment plans to show up soon at Verizon, AT&T, Sprint, and your friendly neighborhood Apple Store. Say goodbye to the $99 iPhone 6. It’ll be priced at retail, but available on a payment plan, but not necessarily tied to a multi-year contract.
The key here is how Apple and the cell phone carriers handle the upfront plans. A $650 iPhone appears far more costly than a $399 Android-based smartphone, and monthly payments will be reflected accordingly. Apple’s iPhones will be priced higher and cost more over time than lesser smartphones.
But is the price differential enough? Samsung and HTC’s comparable premium smartphones are priced from $50 to $100 less than an iPhone. Is that enough of a difference to hurt sales of Apple’s iPhone 6 line?
Apple’s Macs are priced higher than traditional Windows-based PCs, the Mac’s marketshare is low, but profit share is high. That’s the same scenario with the iPhone. The fact that a customer shopping for a new smartphone can get something cheaper than an iPhone won’t change, even when cell phone carries bankroll the purchase, just as they always have.