Why all this crazy talk about a less expensive iPhone when iPhones are free with a cell phone plan? Well, there’s free and there’s free. There’s price and there’s cost.
In the U.S. AT&T, Verizon, and Sprint help customers buy their iPhones by subsidizing the price of the phone and spreading out the cost over the length of a contract.
The iPhone 4, a model that’s over two years old already, is priced at $0 on the Apple Store. The iPhone 4S starts at $99, while the iPhone 5 starts at $199. The amount you pay the cell phone company also covers the price of the phone, minus what you pay upfront, of course.
The latest trend is unlocked iPhones, no monthly subsidized cost, and lower monthly cell phone plans. Walmarts and the company’s StraightTalk wireless plan is a prime example, although T-Mobile says they’ll begin selling iPhone 5 in a few months– without the subsidy.
The benefit to the customer is a lower monthly data plan. The negative is that a customer must buy the phone at a retail price (often less than a monthly subsidized rate).
This is a trend with legs. Say goodbye to the iPhone subsidy. This trend is one reason why Apple may indeed be working on a less expensive iPhone. Faced with the requirement to buy the phone outright– name a phone that has a higher price tag than the iPhone– without a monthly subsidy, customers might go down the food chain toward a less expensive smart phone.
This trend also means the cell phone company no longer works as your banker, bankrolling your purchase of a more expensive phone. It also relegates the cell phone company to a big, dumb wireless pipe company. Data, calls, and text for a low monthly price. Walmart’s StraightTalk plan starts at $45 a month for unlimited calls, unlimited data, and unlimited text. The 16GB iPhone will set you back about $650.
Over the course of 24 months, typical for most AT&T, Sprint, and Verizon plans, you’d pay $1,080 for the plan, and $650 for the phone, far less than a 24-month contract with a subsidized monthly plan on the major cell phone carriers.
I don’t expect subsidized price plans to go away. Too many customers may balk at paying $650 up front for a new iPhone. But the toothpaste is out of the tube. This trend has legs.