US Mobile Carriers’ Plan to Cut iPhone Subsidies Spells Trouble for Apple


cut iPhone subsidies

How much are you willing to pay for your next iPhone? More than likely, you’re probably willing to pay about $300, roughly the price of the iPhone 6+ with 16GB of onboard storage, the minimum storage capacity available on the iPhone. For years, US carriers have heavily subsidized the cost of Apple’s iPhones, hiding the high price tag from the customer. But that may all soon be coming to an end. If US mobile carriers cut iPhone subsidies, Apple might have bigger worries than a slow-selling smartwatch.

Contractual Agreement vs. Installment Plan

If you’re in the market for a new smartphone and you’re hoping for the wireless carrier to subsidize that phone, you might be disappointed.

In the past, when you bought an iPhone, or any smartphone for that matter, from a mobile carrier in the US, the carrier paid the most upfront costs of the phone; in exchange, you signed a contract (typical mobile contracts last for two years), agreeing that you would pay a certain amount of money for their service for at least two years. It was a win-win: you got a brand new smartphone, and the carrier could rely on a steady stream of revenue for 24 months.

cut iPhone subsidies

Recently, US carriers have started to offer alternatives to signing the traditional contracts (and paying the traditional subsidies for smartphones), leaving the customer with the bill; so called “installment plans” have taken the subsidies’ place. With installment plans, you, the customer, pay for the price of the phone over the course of two years.

The contracts are gone, but the carrier still has you on the hook for the full price of the phone. This is a fairly new phenomenon, but some of the largest carriers in the United States have jumped on board with this idea. New customers at Sprint, T-Mobile and Verizon will be brought into the fold under these new plans. These new plans can be confusing for Americans who are used to signing contracts and getting a heavily subsidized iPhone.

To fully understand what these costs mean for consumers, here’s an example: at Verizon Wireless, one of the carriers that has recently started transitioning its customers to its month-to-month service, you can buy a new iPhone 6+ for $31.24 per month, and in 24 months, you will have paid off the cost of the phone, a total cost of $749.76 ($0.76 more than you would pay buying the phone directly from Apple). Verizon doesn’t need you to sign a contract like they did in the past; under this plan, you’re on the hook for the total cost of the phone, not the contractual agreement.

Apple’s the Loser

Buster Hein over at Cult of Mac argued convincingly that the new installment plans will actually be good for Apple. Hein argues that because you’re paying for the phone in its entirety, you can upgrade at any time. You can sell your current iPhone and upgrade to Apple’s next latest-and-greatest model. While I think he has a point, when iPhone users are looking for new phones in this brave new world, there are several phones that might entice them to leave the iPhone for a more cost-efficient Android. At a full retail price of $768.00, Samsung’s Galaxy S6 Edge + and other new Android devices are a tough sell, but there are a lot of cheaper options available.

cuts iPhone subsidies

For example, if we use the Verizon example again, the iPhone 6+ costs $31.24 per month, but all of the iPhones available on the website are almost $20 per month, going back to Apple’s iPhone 5C at $18.74. Compare that to the much more affordable (if slightly out-of-date) Android phones: LG’s Lucid 3 is $8.33 per month, HTC’s Desire 526 is $5.00 per month and Samsung’s Galaxy Core Prime is $7.00 per month. If someone was interested in a Microsoft phone, the Lumia 735 is only $8.00 per month. Just for the sake of comparison, over the course of two years, Microsoft’s 2014 Lumia 735 would cost a whopping $557.76 less than Apple’s 2014 iPhone 6+. That might not be enough to change the minds of diehard Apple fans, but I think it’s enough to turn the heads of people who aren’t as enamored with Apple or people who are tired of iOS and are looking for something different, even if it comes packaged in a Microsoft box. Changing operating systems won’t be for everyone, but a sizable portion of iPhone users might try it. (For a hilarious look at life after an iPhone, take a look at John Herrman’s “Shitphone: A Love Story.”)

The True Cost of an iPhone

Apple’s not the only company that will have to find a new way to compete in this contract-free world; as I mentioned earlier, Samsung’s latest and greatest phones are comparable to Apple’s. Wireless carriers’ decision to do away with contracts changes the game for cell phone manufacturers, and, in the end, that might not be a bad thing for consumers. The price of the iPhone is responsible for most of Apple’s $200 billion mountain of cash.

To put the real cost of an iPhone into perspective, a 128GB iPhone 6+ costs $949, but a 13” MacBook Air starts at $999—there’s only a $50 difference between a cell phone and a laptop. Apple’s making a killing off of iPhone sales, and maybe the end of carrier subsidies will bring make Apple reevaluate the cost of their cell phones (but don’t hold your breath).

Now that Verizon, AT&T and Sprint have cut iPhone subsidies, are you willing to pay full price for your new iPhone? Will you consider moving to a cheaper Android model? Let us know in the comments below.

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Justin McGee

Writer. Editor. Teacher. Thinker. Follow Justin on Twitter @jstnmm.

3 Comments

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  1. The telcos may not subsidies the Iphone but they will make it just as easy for anymore to afford one into a low instalment monthly scheme.

    Looks like FUD is especially tasty especially when it comes in Apple flavour.

  2. Over the long run and hopefully sooner than later Apple will be forced to drop the price of the iPhone is it’s market share starts to drop, which won’t bother anyone that has bought a iPhone in the past and contributed to Apples huge bottom line, their ego will take a beating.

    1. Yeah, I think Apple has to drop the price. It seems practically inevitable, but Apple has surprised us before.

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