How will loss of carrier subsidies affect Apple’s iPhone 6 sales?

“Wireless carriers are working hard to wean their customers off voice and data plans that subsidize the cost of new handsets,” Dwight Silverman writes for The Houston Chronicle. “Following T-Mobile’s lead, they’ve introduced plans that unbundle hardware so customers have to buy phones outright, or sign up for a payment plan separate from monthly service costs.”

“t the moment, Apple doesn’t sell via the carrier’s hardware payment plans. Instead, you must either buy the phone outright, use a subsidized plan or sign up for Apple’s own financing,” Silverman writes. “But that may be about to change. 9to5Mac reports that Apple is on the verge of offering financing from three carriers – AT&T, T-Mobile and Verizon. This will begin as a pilot program starting on Aug. 20.”

“The loss of carrier subsidies is going to have iPhone buyers thinking differently about how they pay for their new devices because the hardware costs are more visible,” Silverman writes. “While the iPhone 6 is expected to sell in huge numbers as pent-up demand for a larger handset is fulfilled, it’s possible that changes in carrier plans may impact sales somewhat, at least in the United States.”

Read more in the full article here.

39 Comments

  1. The loss of subsidies is one of the biggest threats to Apple in some time. Its not the phones but the costs that now become fore front. For many people getting an iPhone came with a premium price but it was no different than the price for a crappy Motorola phone as they were billed the same. Result was Apple looked to be priced identical. If identical of course people buy the better product. Now its separated so you see a 30.00 per month charge for your iPhone bu 18 per month on your MotoX for instance. That won’t affect dedicated iPhone users but it will impact users on the fence.

    1. While I agree that the lower price conscious buyer will look at phone pricing as critical, this effort will kill the carriers. If they cannot provide a phone, then they become the DUMB PIPE that they always feared. Their only selling point will be cost of service. How many Gig data, etc.. Its a race to the bottom with price and coverage the only factor.

      WOW I am aware of several local plans that are much cheaper than ATT but they do not cover cost of phone. Also, loyalty will go out the window, Jump carrier every month for the best deal of the month. WOW

      This could get interesting and given the long lasting ability of iPhones, weird. I still have a backup cell phone (iPhone 3gs) thru H20 for 10$ a month. voice, text, data… Pay as you go plan.

      1. They’re ALL dumb pipes (the telco’s and cable co.’s) ripe for disruptive technology change. Smart phone’s and the Internet pre-empt any direct telco meaning anymore and soon cable boxes will be supplanted the same way.

        We’ve suffered long enough using craptastic interfaces from clueless companies who have little incentive to move the needle much further ahead and paradigm change. Companies most afraid to change are the companies that are most doomed, like Microsoft. Companies who redefine themselves (at risk of killing prior technology) with the changing times succeed, like Apple.

    2. The market for iPhone is really split up to those who can afford the phone up front and often upgrade every month; we also have those who want/have an iPhone but either cannot afford the upfront cost or do not understand how much the subsidies is costing them.

      The first group have already started the move away from the likes of AT&T (like yours truly – switched to straighttalk and saving $720 a year). This group move away is why the AT&T and alike are not offering lower rates.

      The 2nd group does care and I believe the market forces will ensure the carriers will not want to loose the groups that is making them the most profit. Just look at how t-mobile is forcing the other carriers to reduce their rates.

      Final thoughts on today versus when iPhone appeared on the scene:
      – $499 is not worth as much as it once did
      – Apple’s ecosystem is so much more advance and sticky
      – Users are getting more – free upgrades, free productivity
      – The total cost of Ownership is better understood (i.e. the cost of say iPhone6 less the price one will get by selling iPhone5s on say eBay) is far far less than the saving by switching to no subsidy models
      – More users are starting to understand the risks of FREE virus infected droid phones

    3. I am glad to see the decline of the carrier subsidy model in the U.S. It was a ripoff intended to lock customers into a particular company and extract additional profits from people who do not regularly upgrade their handsets.

      The demise of the carrier subsidy model will impact Apple, but it does not represent a huge threat to Apple. First, the U.S. and its carrier subsidy approach for cell phones is not typical for the rest of the world. Second, Apple products are typically purchased by people with at least a modest amount of money. Many of these people understand economics well enough to know that the carrier subsidy model only masks the upfront purchase price and that the built-in fee actually costs you more if you do not upgrade every two years. If you understand the concept of total cost of ownership, then the demise of the carrier subsidy model is a non-issue.

      The primary effect will be the reduction in handset churn, and that will affect all handset makers. When consumers in the U.S. had little choice, the carrier subsidy model drove most of us to upgrade our handsets every couple of years. After all, we were paying for a new handset in embedded monthly installments, even if we kept our old phones. Under the consumer-driven system, people will keep their phones until they feel the need to upgrade or the cost/benefit is sufficient to justify the purchase. All that does is put cell phones in the same basket with virtually every other consumer product. Rejoice!

    4. This “What if the Carriers drop their subsidies?” hype comes up every time a new iPhone is due out. The same subsidies apply to ALL cellular phones except the pay-as-you-go low-end models. Each mid-range to high-end smartphone would suffer the same fate. The carriers would find a way to sell phones. They want the customers. They are not going to send them elsewhere. The very question and its underlying assumption the carriers want to drop subsidies are both absurd.

    1. Just the US. I’ve understood that “we” were the only ones who ever had the subsidies in the first place.

      And I don’t think it will have much impact at all – even without the subsidies, carriers have come up with other ways to sell it to you for little to nothing up front.

      1. Actually two other countries (that I have personal experience with) do the same subsidised phones schtick: Singapore and Australia. There may be more, but I don’t have any personal knowledge of such. Most other countries come unbundled.

      2. Quite wrong. The UK networks have subsidised the cost of phones pretty much since the beginning, and my network, O2, is now unbundling, which will actually save me significant amounts over what I pay now.
        I will be upgrading my current contract in a week or so, which will drop my monthly cost by around £15, and will give me unlimited text and minutes, and up my data from 1Gb/month to 5Gb, which will make a huge difference.
        I will then upgrade my iP5 later on when the larger iP6 becomes available, which I’ve been unable to do until now.

        1. Same thing in Serbia, France, Belgium and the Netherlands (what I had seen so far). On some mobile plans, you could get an iPhone for $0 upfront and a three-year contract.

      3. Actually, I live in Japan, and have gotten my iPhone 3G, 4, and 5 “free” with a 2-year data plan at Softbank. Japan has long subsidized mobile phone sales, well before the first iPhone came out. I remember seeing the “¥0” labels on higher-end phones quite a few years ago…

  2. I don’t think this is going to happen as fast as the author implies.

    With the advent of the law allowing unlocking, phone subsidies within the plan is the best way for carriers to lock in their customers. If the carriers provide plans independent of the phone, there’s not much reason to sign a two year contract. Therefore I find it difficult to believe that the major carriers will all drop subsidizing phones all together any time soon.

    It is more likely that carriers will offer three options: highly subsidized phones under an extended contract; a financing plan for the phone independent of the service contract (which might be monthly or long term), and a buy the phone outright (or finance somewhere else) and a contract or monthly plan. The monthly price of the service contracts will also vary with the subsidized case being the most expensive, the middle plan having an intermediate price and the third having the lowest monthly fee.

    1. I agree that the subsidized model is going to continue to exist even if other plans are introduced.

      For me, and others in a BYOD set up, we love the subsidized plan because we get a new phone, and don’t care (much) what the monthly usage rates are. This is why I’ve been fortunate enough to get a new iPhone every year (with early upgrade eligibility due to the maxed out unlimited everything AT&T plan).

  3. Apple’s recent financial report mentioned that a surprisingly low 25% of iPhones were subsidised ( quoted from memory – I may be a little out ). I would have expected a much higher proportion to be subsidised.

    I wouldn’t expect that removal of subsidies would have a negative impact, and if customers are smart enough to work out the cost of running and buying an iPhone over a 24 moth period, buying unsubsidised could work out cheaper, so sales might actually improve.

  4. If everything is separate and à la carte, this will break the 2 year cycle letting people upgrade when they want to or need to, reduce the carrier fee, and make it easier to swap to the best carrier as the plans change. The carrier fees will be exposed for what they really are. Old iPhones will be sold to buy new iPhones. Androids will suffer more having almost no resale value.

    It is like a car being separated from a gas company. Why are they tied together? People buy a new car trading in their old car when they see a new car they want with the new features they now want or need. Like finger ID purchases replacing your credit cards soon.

    What if you amortized out a 3 or 5 year plan. Would it not be cheaper than a 2 year that you keep paying for even if you never upgrade your iPhone after 2 years?

  5. I don’t see this as an issue if the price of the plans are reduced by an amount equivalent to the subsidy. Me thinks that the will stop subsiding the phones but keep plan pricing the same.

    1. The growth in the Android space will be mid-range phones from $150 (or less!) to $300. The companies with those are experiencing sales growth at the expense of Samsung. Their alternative is often to get a “free” 2 year old iPhone via a subsidized contract. If those subsidies go away those folks will get mid range unlocked Android phones from Motorola or similar. Many of the mid range phones also offer stock Android with no carrier or OEM bloatware making them even more attractive. So ending subsidies would be bad for Samsung but good for LG, HTC and other OEMs who make better Android phones cheaper.

    2. Maybe someone who want a proper sized phone, that Apple are late to the party supplying. Or they want a decent battery life on a phone that can do everything and more the iPhone can do. Some people like to have their phone setup the way they like it or be more productive. There are many reasons, you do not have to be a Fanboy and are not a knucklehead to buy any non-apple phone.

  6. Baloney.

    That is all shyster-speak spawned off WS – devoid of anything truthful.

    In fact the opposite has happened. Here is a scenario. Previously with subsidies, a family would have had to shell out at least $200 a piece. That would be for a 16GB. For a family of four, that is a huge outlay. Now with the installment plan, the family would shell out nothing and instead have monthly payments of $100 per phone for the phone and a reduced cost in monthly plan by about 15-20 USD.

    Which is why the iPhones are selling well. Why would you choose and inferior virus laden device, when you can have the iPhone for an addional ten dollars a month. Less than three coffees at Starbucks.

    Again, this is just to justify the stock manipulation the shysters have planned for the next four weeks.

    1. Wishful thinking. Again how many Android users actually get viruses? Answer: no one who gets their apps from Google Play or Amazon or who is tech savvy enough to root their phones and side load apps. (Which really means no one in the real world. Non techie types only get their apps from safe sources and everyone else knows how to avoid viruses and trojans.) If the android experience was half as bad as Apple fans insist no one would buy them.

      1. atlman (anonymous coward), in previous threads I’ve run rings around you logically and thrown all the MASSIVE ANDROID MALWARE DATA in your face, repeatedly.

        So you can STFU now with your LIE that ‘Android users don’t actually get viruses’. You’re outright attempting to HURT PEOPLE. Aren’t you.

          1. Sometimes I wonder if we have one sole HATER/TROLL around here who stalks the place with (anonymous troll) posts simply for his masturbatory stimulation. Then again, I recall that we’ve caught trolls here that have been paid by certain Apple hating companies. In any case, welcome to the self-destructive sewer of humanity. They’re present throughout history. My personal approach is to pick on them, as they pick on us, ripping off their masks to reveal the foolish, insecure little self-loathers beneath. Humor helps a great deal as well. Fools hate laughter. I doubt it’s the best approach. But it’s one I can easily contribute to the show.

      2. “Again how many Android users actually get viruses? Answer: no one who gets their apps from Google Play or Amazon or who is tech savvy enough to root their phones and side load apps. ”

        don’t know about viruses (exact technical definition of them) but ‘malware’ in general, millions of (copies) of apps have been downloaded from Android Marketplace and later Google Play.

        InfoWorld feb 2014
        The number of mobile apps infected with malware or that are conduits for spyware in Google’s Play Store nearly quadrupled between 2011 and 2013, a security vendor has reported.

        In 2011, there were about 11,000 apps in Google’s mobile marketplace that contained malicious software capable of stealing people’s data and committing fraud …. By 2013, more than 42,000 apps in Google’s store contained spyware and information-stealing Trojan programs,”

        Techrepublic May 2013:
        “Last month a form of malware called BadNews was downloaded several million times from the Google Play store. This malware impersonated an ad network and leaked personal information from affected phones to a designated offshore server. ”

        International Business times:
        “Malware posing as Google’s own Play Store has been found in the offiical Google Play store and is avoiding detection while stealing your messages and banking details… The app uses the same icon as the official Google Play store and once downloaded it installs the icon on the homepage of your Android device.”

        ETC.

  7. ACTUAL effect:
    Oh look, now I can get my new iPhone CHEAPER than when the carrier companies were charging me INTEREST on their loan of the iPhone to me until the end of my contract! It’s great to get a price break.

    But will people get the clue that this is the result? Guess.

    Me: I’ll be buying my iPhone outright, no price gouging rental fee game playing. The best and cheapest phone service carrier wins. I dump them if they don’t treat me right. That’s the way it should be.

  8. If they want to sell me a phone without subsidy, (financing though) And they keep my phone bill the same, IE charge me $30/mo for data, above all other costs. They are sadly mistaken. I buy new phones, precisely because they are subsidized. I am compensating for the higher costs I pay for the plan that I have. The subsidy accounts for approximately $17/mo of my bill. So if I finance @ $40/mo, then I want $0 down and a reduction of my data plan cost by $17 to $20/mo.

    AT&T, I am speaking to you!

    1. Your numbers are incorrect. Monthly subsidy amount for a $650 iPhone is $20 per month. If your plan is $80 per month, then you’ll need to find a $60 plan (with exactly the same features) in order to break even. Any less than that and you’re coming out ahead.

      1. My understanding is the subsidy of the iPhone is $400, regardless of model. $400/24=$17. But I see your point. The recoup date is at about 18 months. So it should be $400/18.

        The plan rate is the same no matter what phone you have. The data plan is what subsidizes the phone, unless both plans contribute, the base plan less, the data plan more. However monthly rates should come down if they plan on separating the subsidy from the plan. Either way they are going to finance the phone.

        For the 64GB model, I am paying for half the phone upfront.

  9. THERE WAS NEVER ANY CARRIER SUBSIDY. The carriers collected de facto payments every month for the duration of the contract, then CONTINUED to collect payments, even after they had fully recouped the full purchase price of the phone. T-Mobiles aggressive unbundling exposed the other carriers scam and they had no choice but to follow suit.

    Will people continue with a two-year upgrade cycle, now that they can gain a financial advantage by using a phone a bit longer? The bi-annual upgrade was a key tool for the carriers to keep people locked in to contracts. Maybe now they will actually start offering discounts on hardware to get people to commit to contracts. Will people fall for it? Time will tell. I doubt if a longer upgrade cycle for current iPhone users will hurt Apple. They still have to build phones for people finally seeing the light.

  10. The difference is practically non-existent. On the one hand, when the price is bundled (and the carrier advertises “iPhone for $200!”), this is essentially a down-payment, followed by 24 months of loan installments, that actually continue beyond 24 months, even if the user doesn’t upgrade the device. With T-Mobile (the only carrier so far that abandoned the two-year contract), you again have the “iPhone for $200!!”, however, it breaks down in just a little bit different way: the down-payment is $150 (plus about $50 representing retail tax on the full $650 price of the phone), followed by 24 installments of $21. You essentially get an interest-free loan with a 25% down-payment. The difference is that when the loan is paid off, your monthly bill goes down by $21.

    There is one other difference here. With a subsidy-based model, if you want to upgrade early, you have to pay a flat-fee penalty, regardless of how far into your contract you are. With T-Mobile, you can upgrade anytime; all you have to do is pay off the balance on the interest-free loan.

    The T-Mobile model is much simpler, cheaper and more transparent.

  11. Before I signed up for AT&Ts new family offer I compared the cost in my previous subsidized plan and the new “rent to own” plan.
    On average we renew phones every 3 years so with the subsidized plan the total cost for 3 phones was $7500. With the new plan the price dropped to $5000.
    The up front costs are lower with the new plan because you only need to pay tax. The plan monthly cost rose by $50 that covers the cost of buying the phone. That goes down after 26 months.
    The payments are essentially interest free and the plan includes 10GB data which 3 times more than we had collectively with the old plan.
    For me this was a win-win and just like buying a car, the overall cost will go down the longer you keep the phone.

  12. And there is one more benefit.

    Subsidy model bundles all monthly expenses into one amount and calls them “wireless service”. Taxes we pay on wireless services tend to be in the upper teens, and in some states above 20%.

    Meanwhile, T-Mobile breaks this into two parts: one is wireless services (your plan, taxed at 20% or more); however, the other is equipment installment plan, which is the interest-free loan you’re paying for the iPhone. This is NOT taxed (other than you paying the retail tax for the phone upfront, together with the downpayment). That retail tax is well below 10% in most US states. The savings are some $50 for an average iPhone, and this is money that is needlessly donated to the government as tax.

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