Why are carriers turning away from the iPhone?

May 9, 2013
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Apple-Store

Apple, the company that really created the modern mobile technology market, is slowly becoming less relevant in it. Some of that has a lot to do with users, who find much more tangible benefit to an Android device. Another aspect of their slide are calculated business tactics that are beginning to catch up with Apple.

The average consumer views the iPhone and iPad as ubiquitous to sector they represent, much like we call facial tissue ‘Kleenex’. Rather than really weigh their options, consumers often go for what’s known. Apple has relied largely on their past image, as well as consumer ignorance, to carry them through.

For many, the iPhone is simply the device that works best for them. They are either invested heavily into the Apple ecosystem, or have a very finite set of needs that only the iPhone can provide. In those instances, that consumer has made the right decision for themselves, and negotiated the muddy waters of smartphones successfully.

That’s a long term strategy, with no initial return on investment, in a market that changes rapidly.

A majority of consumers simply want a device that’s fun, and maybe ‘cool’. To really understand the market is to grasp that not everyone follows tech closely, or is heavily invested in who makes a device or what it represents. Many people gravitate towards the iPhone because of the image Apple has manicured for it, not due to any particular use case scenarios or personal preferences. For those buyers, it’s another way to wedge themselves into societal acceptance.

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Bloatware and bloated wallets

Carriers are interested in our wants and needs, but only because it translates into dollars and cents. The price carriers pay for an iPhone is astounding, at nearly $600 per device. Considering the ‘it’ factor the iPhone had for so long, carriers found themselves needing the device more than they wanted it.

Sprint had the Apple dilemma a few years ago. They didn’t have the device, and were suffering from it. The goal for subsidy carriers like Sprint is to have people sign contracts, and the device is a large factor in the decision. At the time, it was simple: no iPhone, no customer.

They signed a deal with Apple, agreeing to purchase $15.5 billion in iPhones over the next several years. What the deal accomplished was making Sprint more relevant to the consumer. What it failed to do was make Sprint solvent, or even profitable.

Sprint reluctantly admitted that the deal would not earn them a profit until at least 2015. That’s a long term strategy, with no initial return on investment, in a market that changes rapidly. Carriers also can’t manipulate an iPhone, as they can with another device. There is no bloatware to be added, or security software to weigh it down. You get what Apple gives you, at the price they ask.

So why do it?

Let’s get down to the dirty details. A carrier pays $600 for an iPhone, yet sells it to the consumer for $200. The carrier is now $400 upside down on the deal, initially. They make that up to you in monthly service fees. We’ve explained before how unsubsidized plans can actually save you quite a bit of money, and this is a very typical case. For unsubsidized plans, everyone wins. Consumers may need to spend a little more upfront, but the long terms savings are undeniable. Carriers, in turn, don’t have to make up lost revenue via a bloated monthly contract fee.

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You get what you pay for

Apple is a for-profit company, and will maximize their profit as best they can. This is normal practice, but Apple seems especially adept. If carrier attitude is any indication, these practices may be coming to an end.

There have been rumors of a budget-friendly iPhone for some time now. That is partly due to carrier reaction to Apple, based on customer reaction to the carrier. Even that ‘cool’ label Apple wore so proudly is beginning to wash away. Samsung is steadily making strides toward cell phone prominence, and Android is a much more mature system now. As consumer attitudes change, so do carrier needs.

A larger carrier, like Verizon, can readily recoup the cost of steep subsidies. Smaller carriers, however, can not. With companies like Samsung offering a much better deal to the carriers, as well as a lot of bells and whistles to consumers, Apple is starting to lose face, and market share. A budget iPhone may help a bit, but that’s a sector in the market that Apple is unfamiliar with, and perhaps unwilling to enter. Pride in the product they offer is their gift, and the curse. It put them on their pedestal, and may topple them as well.

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