A couple of months ago Apple’s share price took a dive when analysts started getting nervous about whether US carriers would continue to subsidise the iPhone. Now analysts are claiming that any ceasing of, or changes to the subsidies paid by mobile networks, will not have a negative effect on Apple, in fact, according to one analyst it may help the company.
Jefferies & Co analyst Peter Misek suggests that the networks in the US will focus subsidies on the “high-end” smartphones such as the LTE 4G iPhone 5, pushing those sales over Android sales. He predicts that the subsidisation of smartphones offering “long-term evolution” technology means “iPhone prices to the consumer could be lower than prices for mid-range Android devices and other handsets.”
He told investors: “The iPhone 5 will be LTE-enabled and that the subsidy reallocation will likely help rather than hurt Apple,” notes Barrons.
One way that carriers recover some of the cost of their subsidiaries is by tying customers it longer contracts. It is estimates that the average selling price for an iPhone is about $660. Of the $660 carriers pay Apple for an iPhone, about $200 is being picked up by the customer directly. That leaves about $440 to be made up by the carrier over the length of a contract, explains a Digital Trends report.
Piper Jaffray analyst Gene Munster, wrote that AT&T is likely to tie in iPhone 5 customers into longer contracts than it has previously, but he doesn't think this will have a measurable impact on sales of the new iPhone.
Munster wrote: “The bottom line is we expect both AT&T and Verizon’s (~12% of Apple’s revenue) upgrade threshold to be 20 months for the iPhone 5 release (October), with some potential AT&T exceptions for highly valued customers to get an upgrade after 18 months.”
Munster noted previous upgrade thresholds at AT&T have been 11 months, 12 months, and 18 months. Verizon offered 20-month contracts from the 4S launch.
Munster wrote: “While this threshold is slightly less generous than past upgrades, due to the high level of expected interest in the iPhone 5, we don’t believe less favourable upgrade windows will have a measurable impact on demand and we remain comfortable with our 49 m unit estimate (up 32% y/y) for the Dec-12 quarter.”
Back in April, an analyst claimed mobile networks will stop subsidising iPhones. BITG Research analyst Walter Piecyk claims that operators have been highly subsidising handsets in order to offer generous upgrade policies. Piecyk suggests that this costly exercise that will not continue.
T-Mobile’s Chief Marketing Officer Cole Brodman claimed earlier this year that if he would like to eliminate carrier subsidies of devices. Brodman complained that subsidies devalue the technology and create a “disposal marketplace” with people throwing away “pretty amazing products” after two years. Digital Trends noted that T-Mobile is the only major US mobile carrier that does not offer the iPhone.