iPhone Price Hikes Possible as Carrier Subsidies come into Question
There’s no doubt that some of the success Apple has experienced with the iPhone can be attributed to the subsidies put in place by participating carriers. I mean, who is going to go out and spend $800 every so often on getting the latest handset? While the crazy iPhone sales we always hear about may have Apple swimming in cash, the same isn’t always true for the carriers who are vital to the whole process. In fact, major players such as AT&T are reporting some of the lowest margins in the last decade, and that disturbing trend has called into question whether we’ll continue to enjoy subsidized prices in the coming years.
Taking away that $200 price point that’s usually associated with an upgrade would be akin to removing the wrong piece from a stack of Jenga blocks. Walter Piecyk—an analyst with BITG Research—says that alteration to the current subsidies could wind up costing Apple something like $1 billion in revenue. The drop in sales would be quite understandable when you consider how long we’ve been conditioned to expect certain price points when upgrade time rolls around.
So what happened to make carriers unable to sustain their subsidization policies? According to Piecyk, those carriers got carried away—presumably in their attempts to retain customers:
“Operators, unwilling to stall the pace of ARPU growth, offered generous upgrade policies including some that enabled a fully subsidized phone upgrade only one year in to a two year contract. We expect those policies to change as the faster upgrade rate of smartphones compared to legacy feature phones has been a costly surprise to post-paid and pre-paid operators, alike.”
So is there really trouble on the horizon for Apple, or does this amount to some sort of power move by the carriers to try and shake up the current system? Maybe the more important question is—would you pay more for your next iPhone?