Apple and the U.S. carriers have always had a bittersweet relationship. Carriers love Apple because the iPhone brings people into their stores, but carriers are also pressured by Apple to pay high subsidies so that Apple can maintain its high profit margins.
Given that there’s way more competition for the iPhone these days, Apple’s chokehold on the industry is starting to loosen. Carriers are trying new business models for selling smartphones. T-Mobile recently announced that it would be doing away with subsidized two-year contracts altogether. Instead, customers will pay a cheaper price up front for a device like the iPhone and then pay monthly installments towards the full price of the phone.
Carriers want to drive retail prices down on smartphones so more people will buy, and Apple may have to adapt to that model in the near future.
Reuters has examined Apple’s slipping grip on the carriers in a new article. iPhone competition from the likes of Samsung is giving carriers like AT&T and Verizon more leverage over Apple. It’s not like Apple has totally lost its control, but the iPhone isn’t the only flagship smartphone that carriers need to cater to now.
Asked whether carriers are now in a better position to negotiate lower prices with smartphone makers such as Apple, Fran Shammo, chief financial officer of Verizon Communications, said having four strong platforms – Apple, Android, Windows and BlackBerry – is leading to more competitive pricing.
T-Mobile’s Value plans give lower monthly rates in exchange for buying the device full price. Another pro is that, if you choose to buy unsubsidized, the device is unlocked out of the box, meaning you can use any GSM SIM card you please.
Randall Stephenson, CEO of AT&T, Apple’s first partner for the iPhone, applauds T-Mobile USA’s idea. “That’s something we’ve looked at on several occasions. I kind of like that idea,” Stephenson said. “It’s something we’re going to be watching.”
Verizon CEO Lowell McAdam told Reuters T-Mobile USA’s strategy is “very intriguing,” but wondered if consumers are ready to pay full price.
An iPhone 5 without a two-year contract costs $650 for the base 16GB model. Most customers don’t realize that they’re paying more than that over the life of their contract, but $200 is a way more attractive selling point when you’re shopping.
Apple is expected to introduce a lower-cost iPhone sometime this year that will assumedly retail for less than its flagship model. It will be interesting to see how this all plays out with the carriers when a cheaper iPhone is unleashed on the world.