Why are carriers turning away from the iPhone?

May 9, 2013

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.

apple-money-2

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.

Comments

  • MasterMuffin

    People also buy Apple because of the “quality”. Well my first computer was actually a mac and I can say that the quality isn’t so different from the rest. And one day it just died, didn’t turn on and now it’s lying somewhere collecting dust… I just don’t understand what people see in Apple today, because it just isn’t better in anyway anymore (unless more expensive means better product).

    • master5hake

      How long ago did you by your Apple computer? Because I would have to disagree with you. I bought my first iMac in 09. It has an Intel dual core processor. The quality is great and it still runs smoothly on Snow Leapord. I can count on one hand the number times I have had to turn it off from the back because of it misbehaving. On the other hand my mom bought a Dell laptop with I3 processor about 2 years ago and it one of the worst built least functioning computers I’ve ever used. I used that laptop for a couple of months until I finally had to give up on it. Now I just unplug my iMac and carry it from room to room, whenever I need it (which is a lot). With iOS I don’t think Apple will ever live up to the freedom and functioning that Android has, but to say that Apple lacks build quality is simply just ignoring the facts.

      • gokusimpson

        The Core i3 is not a great chip. It’s used mainly on low end laptops that are made up of just garbage components. i5 and i7 is where it’s at.

        • http://www.facebook.com/simplexion Simon Matthews

          Wrong. i3′s are plenty powerful. The best thing about them is their low power consumption. Perfect for a mid-range gaming computer.

          • gokusimpson

            Not sure what you mean by mid-range. I would not be surprised if some mid-range gpus are bottlenecked by the i3.

          • MasterMuffin

            Not plenty but okay. Macs have i5 or i7

        • adi132

          You guys don’t understand anything. The desktop i3 is really good better than most of the laptop i5. You know the i3 on a notebook sucks. Most of the laptop i5 is only two cores. You don’t know anything

      • http://profiles.google.com/eric.soulliage eric Soulliage

        apple used to mean powerPC a RISC processor , along with fast scsi drives that blew away pc’s ide , now they just have the same intel processors i can buy oem , the same sata drives , but ohhhh what’s still very different : the obscene price tag

      • MUTINOUS

        Apples are built to last. Great quality. BUT REALLY, think about it. I can buy (generalizing) 4 (brand name) laptops for the same price as a high end Macbook air. That means even if the (brand name) laptop broke every couple years I could just go out and buy a new laptop to replace the broken one. This would set you up for 8 years or more. Even if your Mac lasted that long it would be so far behind the times CHILDREN would laugh at you. I would hate to have a computer for more than 3 years. Computers are not like washing machines.

        • MasterMuffin

          I agree

      • MasterMuffin

        I believe it was this http://en.m.wikipedia.org/wiki/PowerBook_550

        It was new when I got it, point still remains :D

      • K.

        I have a desktop with an Intel i7 860 since 2009 and it still runs smoothly. So, what is your point? Comparing a low/mid-range laptop with a high-end desktop!

        Moreover, have you looked at the price to get extra RAM or hard drive for your Mac? It is a real joke. As example: extra 8Gb cost £160.

    • http://twitter.com/piyushr21 Piyush

      So some bad things happen to you, that dosent mean its overall bad ,look at s3 bug in which when s3 couldn’t be turned on at all and had to be replaced. Shit happens my friend.

      • MasterMuffin

        Sadly yes, and I didn’t say all Apple products suck. I just said that the quality isn’t do different from the rest. And don’t get me started on iPhone, all my friends who’ve had iPhone have had either the power button or the home button broken (and often both) many times even when their devices have been pretty new. Few weeks of repairing and back again to get broken again

        • http://twitter.com/piyushr21 Piyush

          Its a device , not a miracle , if you use roughly its gonna break and yeah some device may defects , but still you can easily replace them :)

    • RarestName

      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.

      • MasterMuffin

        Nice copy paste, but that’s way there’s the word “also” :)

  • Bradley Larcher

    Apple still draws the American consumer. Look what happened when T-Mobile got the iPhone 5. The rest of the world is where Android dominates where majority of the cheaper devices are available

    • http://www.facebook.com/mike.palmer.716 Mike Palmer

      Not true because over 30% are on jelly bean and that alone out numbers iPhone and if they are on jelly bean then they probably are high end. Plus think Samsung sells over 40% of Androids and most are high end, i think that’s just a miss conception.

  • http://twitter.com/gommerthus gommer strike

    Well thing is, are carriers truly turning away from the iPhone, or is it just another phone offering in their lineup(even if they are loathe to sell it)?

    I don’t know, because right now I’m still seeing iPhones being offered almost everywhere I look. If a big enough customer base wants an iPhone…then the carriers need to have it there as a choice. It is a bit surprising to me that even after all this time, customers haven’t voted with their wallets and just bought the device from the Apple store, instead of being roped into a contract.

  • carlisimo

    Doesn’t most of that apply to all the good Android phones too? (meaning the expensive ones)

    I also disagree with, “For those buyers, it’s another way to wedge themselves into societal acceptance.” It’s not that they’re looking for acceptance, but that the iPhone is considered a low-risk choice. The Galaxy brand is building a similar reputation, but only recently. It takes a few years of putting reliable phones in the hands of non-power users – and then not changing too many things, especially the brand name – to do that.

  • Roberto Tomás

    “Apple, the company that really created the modern mobile technology market”
    yeah.. just like their other major inventions. The personal computer. The graphical user interface. And the mouse.

    • Nacos

      I believe the key word here is: MARKET. Nobody can take that away from Apple.

      • Roberto Tomás

        Apple isn’t, and hasn’t been, the dominant player in the smartphone market either. They earned that for like half of 1 year .. at the peak of sales with the iphone 4 and 4S … well after the market was alive and well.
        Even Nokia has a better claim to that title than Apple.

    • http://twitter.com/alexN350z Alex Zhao

      So you don’t know that Android’s father is a ex Apple employee. Google also helped design of first generation of iPhone. If there is no Apple, will be no Android today. Learn some history before get to your conclusion.

      • K.

        Andy Rubin worked at Apple between 89 and 92. He also worked at Carl Zeiss, Microsoft … Does that mean that without Carl Zeiss, there would be no Android??? And where did you get the info that Google helped desing the iPhone?

    • http://twitter.com/piyushr21 Piyush

      just look how phones were before iphone and after iphone ,credit needs to be given where its needed.

      • APai

        yeah, but it wasnt like apple did not draw inspiration from the phones before. apple behaves like they invented the phone. they might have brought around a significant moment in history, but it was much more marketing and “this changes everything” than an entirely new phone altogether. grid of icons, rounded edges, capacitive screen, slick animation – that’s the claim to fame ? all they did was execute a phone brilliantly – an excellent phone that kicked the existing symbian & windows mobile’s butt when nokia & others were a bit cocky with their existing offering. but i find it hilarious when anyone would say, that apple pulled off a miracle!

        • kascollet

          You “just” forgot about the iPad.

          • APai

            you mean the large iphone ? :P

          • kascollet

            This “large iphone” thing used to be funny three years ago, when nobody imagined such a device could sell so well and really had a place in the market.
            In 2013, the competition is still struggling to actually make its place in the tablet market so it becomes a bit less funny :-)

        • http://twitter.com/piyushr21 Piyush

          I love google, but iphone UI was unique at that time ,no phone had the best touch screen ,the integration to ecosystem and great browser ,yeah it lacked some simple functionality but , user experience was top most and fluid and this inspired google and windows and i am happy about it today we get all great smartphone that can do everything.

      • Roberto Tomás

        the second gen iphone design, the one with the wrap-around aluminium body that all the others since have been based on, was not a design but a purchase. it was originally an Indonesian phone. it cost $1500, you can see online .. I just went looking for the ad but I didn’t find it.
        it’s not that apple didn’t own it, its just that they bought it from another company. Apple didn’t invent the modern smartphone. Sorry.

        • http://twitter.com/piyushr21 Piyush

          yeah design was there but not sotfware , many people bought iphone for excellent ui experience at that time with great build hardware , and that time it kicked all oem to make great smartphone and you know first android was not build for touch screen thats why it still today lags.

          • Roberto Tomás

            :) okay, sure. I agree that Apple is a good smartphone company. They just didn’t invent the smartphone. Nor the smartphone market.

          • http://twitter.com/piyushr21 Piyush

            yaa kicked android and pushed to its boundries with great os now it has become.

          • Marvin Nakajima

            If they actually used a HW design that was from another company, why did they use that as one of their main ‘Samsung copied us” points in their court cases? Weird.

      • John Mortimer

        The nokia n95 was a way better phone than iPhone 1 but the USA did not Have it if they did the iPhone will not have sold (Nokia was not sold big time in the USA)

    • MasterMuffin

      What, Apple didn’t invent all that :OOO

      ;D

  • freedomspopular

    I keep reading about how Apple and their iDevices are failing, yet I fail to see numbers backing up that claim. They’re still selling million and millions of devices. Yeah, sure, their market share is dropping, but Apple’s never been about market share. They’re about providing a “premium” experience and locking people into their ecosystem. Just about any “hardcore” Apple person has all Apple devices, and people like that will most likely NEVER leave the platform; thus, supplying an endless stream of money. In the end, all that really matters to a company is money. Apple’s rolling in it and I really don’t see that changing any time soon.

    • http://profiles.google.com/eric.soulliage eric Soulliage

      they are down to less then 33% in the mobile market , and a premium experience i more then a screen full of static icons ,and they are still stck with the dual core A6 when the quad core A15 is starting to show up in droid handsets , apple’s money bag is being munched by lawyers , and they have a big appetite , 5 years from now people are going to say apple what ? and look at you like you are some kind of decrepid dinosaure

      • kascollet

        Last year Apple A6 platform was more powerfull globally (CPU/GPU/RAM/NAND) than the quad-A9 platforms (Tegra3 & Exynos 4) and nearly as powerfull as the quad-Krait (Qualcomm) platforms used in top of the line Android handsets. I guess 2013 will see Apple send quad-core (A7 ?) platforms that will at least be on par with quad-A15 (speaking about global platform performance again). Don’t forget the fact that their “Swift” core is more powerfull than A15 cores at the same frequency (just compare Nexus 10 vs iPad 4).
        If they manage to update deeply their OS and UI and bring to the table a few new key functionalities, which is well anticipated, I don’t see Apple being so late in the game.
        The main question is when ? They’ll have to be very quick to meet the demand otherwise, yes, they may suffer even more.

        • John Mortimer

          The CPU Came last’ it was easy to be bertter

          • kascollet

            Yes. This consideration is true for each iteration. GS4 is brand-new, thus more powerful.

      • http://twitter.com/alexN350z Alex Zhao

        The problem with iPhone is not A6 or A15 but memory, still 1 GB in iPhone 5 and iPad 4 limits lots of games apps.

        • kascollet

          Which ones exactly ?
          Real Racing 3 runs on a 512Mb iPad 2, flies on the Ipad4… and desperately lags on a 2GB Nexus 10.
          What games are you talking about ?

      • On a Clear Day

        The same people who have been blindly and without thought buying the iPhones will begin to move away from it because the value of Android so exceeds what you get with the iPhone.

        It just takes time for people to give up an old, safe habit and move on to a new, safe habit. You are right, the day will come when someone says, “Apple? No I don’t have one in my lunch bag.”

    • On a Clear Day

      No ship can safely navigate treacherous waters without a captain at the helm who actually knows what he or she is doing. Apple lost their captain; has a good manager/2nd mate – not a captain – now at the helm.

      Companies that were lead by charismatic leaders – no matter how brilliant they may have been – tend to begin their decent into oblivion and mediocrity within 24 to 48 months after “the great man” departs.

      Did you happen to notice that Apple’s stock took a bit of a dive? Apparently the market doesn’t respond to religious like exhortations to keep the faith by Tim cook as willingly as the died in the wool Apple-ites of the world and the stock market smells trouble “right there in Cupertino” in the offing, if it has not already arrived.

      Who would have thought that GM could go down the tubes, but they did. Apple is not immune to reality – even if they are good at spinning a heck of a good lot of fiction about their products’ excellence.

  • http://twitter.com/Jdecka03 Jay Decks

    I thought this is “Android authority” not Apple authority! I come here for android news and reviews not some BS opinion piece on Apple. I’m really tired of the same “people buy iPhones to be cool” or the best one yet from AA “people buy iPhones for social Acceptance”. Are you kidding me?? You really think that the iPhone is so useless that people buy it to be “cool” or “Socially acceptable”??? This is why I can’t take you guys seriously anymore. It’s articles like this that Perpetuate the stupid flame wars. You guys at Android authority really need to pull your heads out of your asses! This garbage just makes you look childish and desperate to be relevant.

    • http://profiles.google.com/eric.soulliage eric Soulliage

      dude for the $$/what you get ratio , iphones are crap , i paid my SGS3 300$ untied to a telco contract , easily 9 months before it came out to north america this is the quad core A9 version , and you want me to buy a 800$ dual core A6 ? WHY ?

    • CiMO

      I have asked all my friends, coworkers, and every classmate that have pulled an iPhone in front of me. Why did you get an iPhone? The answers were all about the same: because it’s…an iPhone; it’s nice; my friends have one; it’s cool; I like Apple; and so on. Also, from my everyday observations, iPhones are mostly owned by females (that know s*** about technology and like to show off their fashioned iPhone cases). I hope this helps you see the “social aspect of the iBlah.”

      • On a Clear Day

        I agree with your female observation and so does a recent study of who uses the iPhone I think I saw on Fox News.

        Today I saw a woman in the subway – dressed to the nines sashaying along with her Prada purse and iPhone decorously held in her hand giving off a “I’m here – look at me” vibe – somehow I don’t think she bought it because she was technologically astute. lol

        • John Mortimer

          Ha, so many times on the bus do I see girls using there iphones to make calls and using there iPods for music playing, hahaha no joke

      • RarestName

        lol get new friends

  • Mike Bastable

    I think that Carriers like to add their own software to phones, some like their own product names for phones (Verizon), some like to add their logo to the physical product. The Android OEMs allow this, they are easier to work with. Apple refuses to let anyone alter or change the product or the OS, their answer is make an app, if it is good, people will choose to install. Cutting out the carriers allows across the board OS updates thus virtually null platform fragmentation, unlike Android. The iPhone continues to be great, but no longer the best, and a great iPhone remains first choice for many.
    The next AppleOS update will be fascinating as Mr I’ve reimposes Steve Jobs design philosophy on iOS.
    I look forward to it reinvigorating Apple.
    However, like many, I have jumped ship to Android, i still have my iTunes music, and most apps are available on Play. My Xperia Z is as well designed as the iPhone and offers me more user freedom.
    Apple will always have an uneasy relationship with carriers, because it does not need them the way they need it. Unit sales make iPhone easily the most successful handset on the planet.
    Imagine a world where Apple does a Nexus…online sales at a low price point, no carrier involvement at all…that would be at least 20% of the global market lost to Apple by the carriers overnight. Thus whilst hating their partner for it ts irritating stubbornness no one will be ditching Apple just yet.
    More interesting is Samsung, what gonna happen to them as the rest catch up…already it is strange to see their flagship having to ship with free SD cards because their software is full of bloat. Consumers are realizing that a major smartphone with virtually no user storage onboard is NOT a viable propostion….the backlash has started. Sony is returning to the USA and it will be an interesting year for all Android OEMs as Google /Moto launch their x phone concepts…,

    • http://profiles.google.com/eric.soulliage eric Soulliage

      yup this is why why we root and alt rom , just not to have carrier crap ware bloating our devices , even better i buy mine in asia and leave their crap subsidized in the store , i want bits transport not a phone they played with

  • Nacos

    You nailed again, Nate. Nicely written article and excellent market analysis! Congrats!

  • Adam

    I had always thought it to be the higher subsidies that the carriers had to pay to Apple. Apple demands a steep return from the carriers per device sold.

  • swtrainer

    The modern mobile market was really started by Palm and then followed by Blackberry. You give Apple too much credit and they willingly accept it. Apple is losing market share because of their arrogance and dictatorial practices – both with the wireless companies and the consumers. I would never own an Apple product no matter how many lawsuits they file against their competitors.

  • IHATEHIPSTERSSS
  • Dave

    This artical is ridiculous, you can’t buy a S4 for less then 634 dollars from AT&T. The iPhone 5 and s4 are premium phones they cost about the same, both cost around 200 ish to make. Samsung is the company releasing a ton of crap phones to the market that don’t have the power to be upgraded to the latest OS. Only the small phone shops have these phones. You can’t complain about iPhone price when the s3 and s4 are in the same price bracket. Your only argument is apple doesn’t have a low budget phone for people that can’t afford it.

  • Gary

    I dont even blink at an iphone when i walk into a telco store. Can someone answer me this, I was told an iphone cant download music like android wirelessly straight to the device. And that it needs to be connected to itunes on a pc! is this true, because i have been downloading for 4 years music wirelessly to android then bluetoothing my music to my friends android phones for free. I was told the iphone cant do any of this. If true why is this phone still sellingbecause something dosent add up then!