Apple iPhone’s reliance on carrier subsidies lets Android spread in countries where cheap pre-paid phones rule

“For Google Inc., Europe’s economic turmoil has had a silver lining: Smartphones that use the Internet giant’s software are crushing the iPhone in countries hard hit by the continent’s debt crisis,” Anton Troianovski reports for The Wall Street Journal. “Last year, despite Apple Inc.’s high-profile launch of the new iPhone 4S, only 5% of the smartphones sold in Greece and 9% of those sold in Portugal were iPhones, according to research firm IDC. Most of the rest were phones running Google’s Android operating system, which the company is promoting heavily as it seeks a firmer foothold in the wireless industry.”

Troianovski reports, “The results point to a rare weak spot for Apple—its heavy reliance on subsidies from wireless carriers to make its iPhones affordable to a wider range of consumers. The practice has proved to be a big advantage for Apple, which posted a 73% jump in revenue in its latest quarter, at the expense of carriers such as Sprint Nextel Corp., which started carrying the iPhone last fall but doesn’t expect to make a profit on the device until 2015. In countries like the U.S. and the U.K., carrier subsidies helped the iPhone win more than 20% of the smartphone market last year. But its performance in parts of southern Europe where most consumers don’t sign contracts and have to pay full freight for phones suggests Apple’s position could suffer if carriers tire of underwriting most of the cost of the devices, as some are in countries such as Denmark and Spain.”

“Android phones that cost less than $200 without a contract are widely available in Europe, helping Google undercut the much more expensive iPhone. In Portugal, at wireless carrier Vodafone Group PLC, the cheapest Apple phone—an eight-gigabyte version of the older-model iPhone 4—sells for $680, according to the carrier’s website. Phones running Android can be had for as little as $106, and even Samsung Electronics Co.’s high-end Galaxy S II is cheaper than the cheapest iPhone,” Troianovski reports. “In markets like the U.S., where consumers generally pay $200 or $300 for smartphones regardless of the brand, price isn’t as much of a factor. The reverse is true in Greece, Portugal, and elsewhere, where carriers don’t subsidize most smartphones.”

Read more in the full article here.

MacDailyNews Take: Each of the models, the 3GS, the iPhone 4 and the iPhone 4S, were important in achieving the 37 million total units [we sold in fiscal Q112]. And so we’re glad to cover the broad range with great products. But the iPhone 4S was clearly the most popular among those. In the postpaid markets, as you know, there’s a much smaller difference between what the customer pays in each of these. It’s larger in the prepaid markets, and so it’s too early to tell given we just started this October as to how this will play out over time. But we’re thrilled with the total result, and you can bet that we’re into details in every single country in the world trying to learn what we can learn to adjust and even do better in the future. – Apple CEO Tim Cook, January 24, 2012

[Thanks to MacDailyNews Readers “Brawndo Drinker” and “Lynn Weiler” for the heads up.]

24 Comments

  1. I can’t possibly see Apple chasing that bottom of the market. For many consumers who live in these countries that were severely hit by the recession/depression, there isn’t much Apple can do. Even the (almost) three-year old iPhone 3GS is still way too expensive, when up to four Android phones can be had for the $450 price of one 3GS.

    When your monthly salary barely exceeds $2,000, and it is supposed to feed (and put a roof over) a family of four, a $650 iPhone is obviously out of the question, no matter how great it may be and how much you may want it.

      1. If Apple can’t manage sell iPhones in Greece, they’re going out of business.

        /s

        You’d think people living in Greece should be using the equivalent of low-end Tracfones instead of even Android smartphones.

        1. Trying to fix the Italic font glitch.

          As to cheap Android phones, the article is on the point. Even cheapest unsubsidised iPhone 3Gs costs $375 plus VAT, what is few time higher than cheap Android phone.

          This is why Apple only has 5-6% in Sourth Europe and many other regions. And in economically better regions Apple’s sales are sabotaged by distribution policy, which makes iPhones cost 30% more than reasonable price. As result, in Russia iPhones only had 6% share in smartphones market.

          Apple needs to keep iPhone 3Gs even after release of iPhone 4G/6 this year, but the price should be down from $375 to $199. This might help with the marketshare.

            1. Actually, if you look closely, the italics were started by the MDN Take, and continue onward from there, as can be seen in all the ad links in between. Not Predrag’s fault.

  2. With the subsidy in place I don’t feel that the initial purchase cost of the iPhone is a major barrier to entry. Rather, the value I get out of using the iPhone has displaced any cost considerations. But then my use is skewed towards business applications. A gamer or casual phone user might have other considerations. The introduction of iCloud has increased the perceived value of the iPhone and unless competitors have a similar system in place, the iPhone will always be seen as a value buy. Not the cheapest in the market by any means but the one perceived as delivering the greatest value over the life of the phone with Apple constantly updating the OS.

  3. If T-Mobile only had the same frequency spectrum as AT&T (or if iPhone only had support for T-Mobile’s “4G” spectrum), $650 for the new unlocked 4S with a pre-paid plan on T-Mobile would be significantly better deal than any of current 2-year contracted iPhone carriers. T-Mobile’s unlimited pre-paid plans are all significantly (up to $40) cheaper than comparable plans on AT&T, Verizon or Sprint. The $450 up-front price difference would essentially pay for itself in less than one year, after which you’d be saving money on T-Mobile vs. the others.

    Who knows, perhaps now that AT&T acquisition deal is off, T-Mobile can again try and negotiate an Apple distribution deal after all…

  4. There’s that old mantra that Apple “should be chasing market share” again. No detail specifics on those Andriod phones which are probably really feature phones and not true smart phones any way.

  5. The fact that phones running stolen software sell for less than one developed by a commercial model should not surprise anyone. The fact that people financially pinched might opt for a cheaper phone should not surprise anyone, either.

    Apple can run a season longer on it’s current leash, but will eventually burn up all it’s target demos and face slowing growth or commodity pricing

  6. I doubt Apple cares. The manufacturers of those devices won’t be making much money on those phones, and the phone companies won’t be making any more or less on them because they run android of some sort (probably an old and/or hobbled version), software developers won’t be selling anything of value to the owners, and those customers aren’t going to be spending any money on an upgrade. Other than being numbers who benefits from having customers at the low end?

    You only need your market share to be big enough to keep you relevant. Before Apple’s really big surge with Mac Sales, when they were at single digit percentages of market share, the worry was that software developers would give up on Mac and that they would be incompatible with the world at large. That didn’t happen, and Apple made money on their machines, more money than anyone else, and that has continued as they have become more popular.

    A cheap android phone is in many ways a smart phone in name only, I would guess that the vast majority of those customer are basically just using them as phones and not a lot else.

  7. So let me get this straight. If you make make crummy phones using cheap materials, and are willing to sell them for little or no profit to people whose only loyalty is to the lowest price, then the WSJ will declare you a success.

  8. In other words, people choose Android when cost is the primary factor in the decision, not usability, not value, not quality, not any of the factors that Apple’s products embody.

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