Will Carriers Eventually Force Apple To Change The Way It Sells The iPhone?

Five years on, the iPhone's still got it.

How much longer can Apple keep milking the carriers?

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.

  • FriarNurgle

    Until the big name carriers like AT&T and Verizon offer an un-subsidized plan price that is much much lower than their current plans, there is no reason to but outright. IT is great that some carriers and aftermarket sim sellers are offering cheaper plans but time and time again it’s proven that you get what you pay for. I’m not holding my breath that Apple nor the big carriers are willing to rock the boat. Just look at the shared/family data plans. Those are basically statues quo for the vast majority of users.

  • Virgil

    Perhaps Apple’s grip on the carrier may loosen in the future, because its certainly not happening right now. Based on 4th quarter 2012 numbers, 85% of all smartphones sold by AT&T and about 60% of all smartphones sold by Verizon were iPhones. With those type of numbers, Apple still has the upper hand.

  • why_u

    Verizon and AT&T should lower their monthly rates for phones that are “paid” off! There are millions of phones being passed around that are off contract. Providers should step up and reduce those monthly charges!? Will be “very intriguing” to see what they do!

About the author

Alex HeathAlex Heath is a staff writer at Cult of Mac and co-host of the CultCast. He has been quoted by the likes of the BBC, KRON 4 News, and books like "ICONIC: A Photographic Tribute to Apple Innovation." If you want to pitch a story, share a tip, or just get in touch, additional contact information is available on his personal site. Twitter always works too.

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