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Is The iPhone Already Subsidized? Probably

Posted November 21, 2007 4:00 AM by Tanner Godarzi
Categories: Opinions 

image I was looking at the available smart phones for AT&T when one has an existing 2 year contract and what shocked me was the iPhone was one of the cheapest smart phones.

It sounds shocking but it got me thinking whether or not the iPhone is already subsidized. A phone is usually subsidized by the carrier to entice users to upgrade or come to their network. The iPhone when activated either puts you on a new 2 year contract or extends your contract by 2 years.

AT&T alongside O2 and T-Mobile Germany pay revenue sharing fees every month to Apple and while the exact price has yet to be officially determined, analysts have given their estimates ranging into the teens.

If Apple is using the revenue sharing fees to subsidize the iPhone then it would explain their lack of approval for unlocked devices. This would also explain why the price of an iPhone is the same for a new contract as well as an exiting contract.

What this fails to show though is why Apple hasn’t taken a more aggressive stance on unlocked iPhones, the only major incident was caused due to the AnySIM worked and not something intentional by Apple.

Taking the figure from Piper Jafray analyst Gene Munster of $18 per month over a 24 month period, Apple makes enough money for a 8GB iPhone and then some. Citibank analyst Richard Gardner arrives at about $12 per month from each iPhone or $288 over the course of a 2 year contract.

Taking a look at other subsidized prices from similar phones they tend to have about 1/4 to 1/3 shaved off the price.

The HTCM Tilt from AT&T is normaly $549 (normal prices, could vary for individual retail outlets) with a 2 year price of $399, roughly 25% off.

The Blackjack from AT&T usually runs $349 (once again normal pricing) but goes down to $249 with a new 2 year contract. We get around the same amount of savings.

So if Apple is taking in 300 to 400 over the course of a 2 year contract which is significantly more than the price difference of other phones, it could only mean they’ve anticipated unlocked phones being used

So while a user ends up paying $300 to $400 over two years to Apple, it subsidizes two or even 3 iPhones, a locked and unlocked phone(s). Even then, only 1/6 of iPhones have been unlocked according to Apple, if it passess more than half then Apple could be in quite a pickle. For now though, they’re taking in quite a bit to potentially lower the retail price of the iPhone.

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