When you buy your iPhone from a carrier, or even directly from Apple, you are getting a huge break on the cost. The full price of an iPhone is more like $600 – $900. That means a 16GB iPhone 5s would cost you at least $400 more than the subsidized price through a carrier. Carriers pay the additional costs of phones in order to entice consumers into signing a two-year contract. AT&T doesn’t want to do that anymore.
According to CNet, AT&T’s CEO Randall Stephenson told investors at a recent conference that wireless operators “can’t afford to subsidize devices” the way they have in the past. Stephenson said that, in the early stages of cell phone development, wireless carriers were pushing to just get consumers on board. Now that smartphone penetration is more than 75 percent, carriers need to get customers to use more of the network rather than just getting on it.
Wireless carriers already use an unsubsidized plan for the iPad. Users purchase the tablet at full price and pay for their data plans off-contract. Some carriers offer incentives, like a discount on the price of the iPad, in exchange for signing up for a 2-year contract (AT&T offers $100 off with a contract), but it is far from being a subsidized device.
If carriers do move to this new, unsubsidized model, Apple’s iPhone is likely to suffer significantly. Unlike the iPad, Apple’s smartphone currently struggles to compete in a market where low-cost phones are prevalent. If consumers were asked to pay $500 for an iPhone, there is a good chance that they would switch to a cheaper Android-based smartphone.
The cellular model of the iPad came into the market ahead of most other tablets and set the standard for how the device would be sold through carriers. So, a premium price for a tablet is expected. That is not the case with smartphones.
Apple would likely be forced into offering a low-cost model of iPhone (not an iPhone 5 with a plastic shell) in order to stay viable in the market. Consumers are not likely to spend so much money on Apple products. At least, not at the level they are now.
If wireless carriers begin selling smartphones the way they sell iPads, Apple will not survive the transition without making major changes, the biggest one being cheap phones.