Cupertino (CA) - An important part of the Apple’s iPhone pricing strategy has always been a tight control over the retail handset price. Wireless carriers were not allowed to subsidize the iPhone in order keep the perceived value of the product at a high level. This strategy may have played well in the U.S., but it backfired in Europe where customers are used to getting the latest and even most expensive smartphones at heavily subsidized prices from their carriers. A media report now suggests Apple may adjust its pricing strategy in North America, enabling AT&T to subsidize the 3G iPhone by as much as $200 – and bringing itself a bit closer to that 10-million-units-per-year goal.
Citing a "person familiar with the strategy", Fortune claims that AT&T will decrease the price of the 3G iPhone by $200, "bringing the price down to $199" for those who agree to two-year contract with the AT&T. If this information in fact is accurate true, it would confirm previous reports that the retail price of the handset, without subsidy, should be $399 for the 8 GB and $499 for the 16 GB model.
Also, the report states that customers can get the handset for the full price, which is likely to apply to customer who do not want to be tied to a 2-year service contract. However, that does not necessarily mean that the no-contract 3G iPhone will be sold unlocked. On the contrary, there is little doubt that AT&T will not sell a locked phone no matter which way you go – with a two-year contract, a subsidized phone route or just the phone at full retail price without contract. It is interesting to note that the $200 rebate won't be available in Apple's own brick-and-mortar stores.
The author of the article claims the 3G iPhone will be 9.2 mm thick and will include dedicated GPS hardware for positioning and various other location-based services. He also notes that Apple will clear the current-gen stocks prior to 3G iPhone launch "on or about June 27" to stir up the demand.
Carrier subsidies on phones are always tied to a contractual obligation by a customer. Although the carrier is often losing money by subsidizing handset below the device’s wholesale price, the company is usually bringing the cash back in by locking a customer into a long-term service agreement. And that strategy certainly works well with the iPhone: Instead of an average revenue per user that usually hovers around $52 per month, Apple iPhone users are billed about $100 per month on average, mostly due to the unlimited data plan.
At least U.S. customer appear not have been deterred from Apple’s pricing strategy so far, but the lack of carrier subsidizing was a primary concern for the phone’s success in Europe. With no available discount in European territories, many considered Apple's handset as too expensive. Several analysts noted in the past that Apple needs to change its pricing strategy in Europe, if the company is serious about its mobile business. Apple being Apple, the company has been milking the iPhone utilizing the current pricing model for all it's worth. But it is obvious that Apple cannot change an established global industry all by itself – and subsidies may have been one such barrier for the company. Recent 8 GB model discounts by T-Mobile in Germany and O2 in the UK are early signs, although these offers are time-limited promotions that will end in June and only apply to existing iPhone stock. Apple apparently allowed these carriers to drop the price of the 8 GB model to clear out the existing iPhone stock.
All events taken in consideration, it seems to us that there is a good chance that Apple may not only update its hardware, but also overhaul its market strategy with prices that are in reach for more customers. In the end, lower prices is what Apple needs to achieve its 10 million-unit-per-year goal.
Of course, device prices are only one side of the equation and are a drop in the bucket when you consider what you are paying AT&T over the life time of the product. It is really AT&T that needs no make its data plans more affordable and it remains to be seen if that will really happen.
Citing a "person familiar with the strategy", Fortune claims that AT&T will decrease the price of the 3G iPhone by $200, "bringing the price down to $199" for those who agree to two-year contract with the AT&T. If this information in fact is accurate true, it would confirm previous reports that the retail price of the handset, without subsidy, should be $399 for the 8 GB and $499 for the 16 GB model.
Also, the report states that customers can get the handset for the full price, which is likely to apply to customer who do not want to be tied to a 2-year service contract. However, that does not necessarily mean that the no-contract 3G iPhone will be sold unlocked. On the contrary, there is little doubt that AT&T will not sell a locked phone no matter which way you go – with a two-year contract, a subsidized phone route or just the phone at full retail price without contract. It is interesting to note that the $200 rebate won't be available in Apple's own brick-and-mortar stores.
The author of the article claims the 3G iPhone will be 9.2 mm thick and will include dedicated GPS hardware for positioning and various other location-based services. He also notes that Apple will clear the current-gen stocks prior to 3G iPhone launch "on or about June 27" to stir up the demand.
Carrier subsidies on phones are always tied to a contractual obligation by a customer. Although the carrier is often losing money by subsidizing handset below the device’s wholesale price, the company is usually bringing the cash back in by locking a customer into a long-term service agreement. And that strategy certainly works well with the iPhone: Instead of an average revenue per user that usually hovers around $52 per month, Apple iPhone users are billed about $100 per month on average, mostly due to the unlimited data plan.
At least U.S. customer appear not have been deterred from Apple’s pricing strategy so far, but the lack of carrier subsidizing was a primary concern for the phone’s success in Europe. With no available discount in European territories, many considered Apple's handset as too expensive. Several analysts noted in the past that Apple needs to change its pricing strategy in Europe, if the company is serious about its mobile business. Apple being Apple, the company has been milking the iPhone utilizing the current pricing model for all it's worth. But it is obvious that Apple cannot change an established global industry all by itself – and subsidies may have been one such barrier for the company. Recent 8 GB model discounts by T-Mobile in Germany and O2 in the UK are early signs, although these offers are time-limited promotions that will end in June and only apply to existing iPhone stock. Apple apparently allowed these carriers to drop the price of the 8 GB model to clear out the existing iPhone stock.
All events taken in consideration, it seems to us that there is a good chance that Apple may not only update its hardware, but also overhaul its market strategy with prices that are in reach for more customers. In the end, lower prices is what Apple needs to achieve its 10 million-unit-per-year goal.
Of course, device prices are only one side of the equation and are a drop in the bucket when you consider what you are paying AT&T over the life time of the product. It is really AT&T that needs no make its data plans more affordable and it remains to be seen if that will really happen.