China Telecom reportedly cutting back on iPhone subsidies; Apple shares drop 3%

“A technology sector rally fizzled Monday as shares of Apple Inc. sank on news that China Telecom was cutting back subsidies for the iPhone,” Benjamin Pimentel reports for MarketWatch.

“Tech stocks began the day by joining a market rally on news that former Treasury Secretary Lawrence Summers had withdrawn his name from consideration for the top post at the Federal Reserve,” Pimentel reports. “But the sector was later weighed down by Apple Inc., which shed 3.2% to close at $450.12. The Wall Street Journal reported that China Telecom Corp. was cutting back on subsidies of the iPhone that suggests users will have to pay more upfront for the iPhone 5S than those who bought the iPhone 5 last year.”

Read more in the full article here.

28 Comments

  1. How low can so called “anal-st” go? Wall street supposes to be good and trusted on the number. But looks at this:

    “China Telecom requires a downpayment of 4,488 [$730] yuan for any plan with a 16-gigabyte iPhone 5C, and 5,288 yuan [$860] for the 5S, the carrier said on its website. The handset is free for buyers on a two-year contract with a minimum monthly plan of 329 yuan [$54] for the 5C or 389 yuan [$63] for the 5S as the price is refunded against monthly usage, according to the website.”

    So, China Telecom provides subsidies (1) for the 5c of $730 on a 2 year plan of $54/mo and (2) for the 5s of $860 for a 2 year plan of $63/mo. That compares to a subsidy provided by ATT and Verizon of $450 for both 5c and 5s on a 2 year plan of ~$90/mo (for one smartphone mobile connection plus 1gig data). Look at that carefully. China Telecom is providing a BIGGER subsidy than in the US for a cheaper plan!

    1. Advertising dollars are like extortion money. If Apple doesn’t start running ads than this “professional” good old beat down will not stop.

      Maybe Apple should buy a few of these services, strip them of their assets, expose what they are doing them sell the pieces off if there is any value left in them. Maybe grab their media content at the same time.

    2. The news is Apple did not make or offer a low cost phone.

      And China is not going to buy into this much. And smart buyers will see the iPhone 5s being the better and obvious iPhone to have.

      Apple please drop the 4s. And offer iPhone 5c, 16Gb as the free phone. Stop confusing the people.

      Are you sure you can get an Apple iPhone 5c/5s for 450.00 from Verizon? Seems unlikely. The Phones here unlocked are 649.00 and 749.00 for a 32 Gb model. The unlocked 450.00 iPhone 4s with 8 Gb seems unavailable.

      China Telecom is comparable to Rogers and Bell here in Canada. Two year subsidized iPhone 5c/5s for about 50-60 dollars a month data is limited.

      Apple offers unlocked iPhones 5c/5s – at prices about the same global wide.

      1. We are talking about subsidy paid by operators to Apple here. AT&T and Verizon pay $450, and their customers pay $200 for 5S. China Telecom pays $860, and it customers pay $0. Therefore China Telecom provides BIGGGER subsidy.

        Use your brain, Doug. You aren’t in the same league of “anal-st”, are you?

  2. “Tech stocks began the day by joining a market rally on news that former Treasury Secretary Lawrence Summers had withdrawn his name from consideration for the top post at the Federal Reserve”

    At least those are good news. This man is a total banks-sell out, which denies whatever responsibility for consequences that his advocacy for deregulation brought.

    Remember that banks were free to gamble on derivatives without any limit on their actual capital and reserves. This made they taking insurance obligations on astronomical volume with no real financial back-up whatsoever. Once mortgage bubble popped, banks went bankrupt and via control of government robbed tax payers of hundreds of billions of dollars, and the executives, despite huge losses, took giant bonuses, robbing shareholders of their companies.

    Obama promised “financial reform”, but it was fake propaganda, because he loves guys like Summers, who brought in the collapse of the economy in the first place. There is still no actual reform, because what they call “reform” is like five percent cosmetic “change” that still does not enforce any responsibility on banks whatsoever.

    They can still gamble on derivatives however much they want, no real limitations planned. And with “too big to fail” excuse, they are sure they government will give then another hundreds of billions of taxpayer dollars, when there will be another crisis because their “self regulation” never actually works.

    1. What does it say about Obama that he would even entertain the prospect of making that crook Larry Summers the Fed chair? Instead of measuring the drapes in a new office, he should be measuring the days left on his prison sentence.

  3. This is just FUD. If a carrier does not have to subsidize, they wont. How can they tell if they don’t have to subsidize? When the demand is so great.

    Our schools have done our analyst (or society – take your pick) a big disservice.

    1. Agreed. You don’t subsidize a phone if demand is so great that people are willing to pay for it anyway. You only dramatically increase your subsidy on phones that are obsolete, nearing the end of their product cycle, or you’re struggling to sell, because the only way to move them out the door is to make them virtually free. See: iPhone models that have been on the market for three years, and Android phones that have been on the market for over one month.

      1. The cheap android phones are still around.
        You can buy them out right and pay as you wish.
        Consider them disposable phones… Apple could have done a less expensive phone but it didn’t.

        The 5c replaces the 5. With minor improvements and a cheaper backing yet free apps.

        I would not wish to have a 5c unless it was 350.00 to buy it.

        Bad move Apple and Wall Street is wise to down grade.

      2. That’s not completly accurate. Phone companies need to subsidize because they need subscribers. If they don’t subsidize they won’t be able to sell premium plans which is there profit generator.

        My back of the envelope math results in equal profit for 100 subsidized subscribers and 65 non subsidized subscribers. Put another way, to make the same profit off 100 subsidized subscribers you need at least 65 non subsidized subscribers. I highly doubt 65% of smartphone users would have the phone they have if not for the phone subsidy.

        1. I’ll repeat my original post: If a carrier does not have to subsidize because they have enough subscribers signing up then they wont.

          Get it?

          It’s called Supply and Demand and/or Whatever the Market will Bear. Something that always works.

          Get it?

    2. This was my take too. Just maybe they don’t think the iPhone requires the same level of discount for them to sell. If that’s the case then the reality is that Apple has a winner, not a loser. The “China” topic has just become a new method for beating down AAPL prices with FUD. I guess the old FUD was getting stale.

    1. The “market” represented by MDN readers is quite different than the market represented elsewhere. Gold may be more popular in Asia than the US. Colors more popular with the younger crowd or feminine people, maybe.

      I’d characterize the readership of MDN to be state-of-the-art, forward looking, want the latest and greatest gadget, etc and have nothing better to do than read MDN, like me, and it’s the 5S we pick.

  4. Wall Street, analysts too wrapped up with China Mobil which purposely overlooked at Japan market. No wonder Mom and Pop don’t trust Wall Street which runs by the MOBs.
    Although DoCoMo is Japan’s largest carrier with over 60 million subscribers, it has recently been adding users at a lower rate than the other two major Japanese carriers. Rivals SoftBank and KDDI added 225,000 and 254,500 subscribers in July, respectively. DoCoMo only added 172,500 subscribers during the same time period.

  5. U.S. carriers should be prevented from “subsidizing” phones in term contracts. Force the carriers to charge a reasonable price for services, without hiding the cost of the phone in a contract.

    When the phone is fully paid for, does the carrier drop the monthly bill? Hell no!

    If they want to finance the phone at a reasonable interest rate over a fixed term, that would be acceptable.

    1. Agreed. Separate the cost of the phone from the service. As it is it becomes actually stupid not to upgrade every two years. My 4S running iOS 7 is still running strong after two years now. Would I forego an upgrade if I could see my monthly bill reduced? I’d certainly think about it. Although I do have 5S lust.

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