Handset makers may be significantly affected by the carriers’ shift from subsidized to full price smartphone purchases, The Wall Street Journal reports, with Apple’s iPhone singled out as a device that could see significant harm.
T-Mobile’s ‘Uncarrier’ no-contract initiatives did not go unseen in the U.S., with competitors looking to adapt their offers as well. T-Mobile replaced handset subsidies – which offered users the ability to purchase new devices for lower price, as long as they agreed to ink a costly two-year agreement – with a new purchase model that allows buyers to choose a cheaper service plan with a new handset, and pay for the device separately in installments over a certain period of time.
Because Apple’s iPhone is among the most expensive smartphones when it comes to full retail pricing, the move to full price handset purchases may negatively affect Apple’s bottom line as customers become increasingly aware of the cost of the smartphone.
The cheapest iPhone 5s model, the 16GB version, costs $649 without a contract.
“The U.S. is among the iPhone’s strongest markets, in large part because of subsidies,” the Journal wrote. “But it is already showing signs of strain amid strong competition and slowing adoption rates for smartphones as the market becomes more saturated.”
In addition to T-Mobile, other carriers have adopted, or are considering, the no-subsidy model. AT&T sold 15% of smartphones without a subsidy in the fourth quarter of the year, with the percentage expected to go up to 35% this year. However, Verizon is not that eager to move away from a business model that worked so well in the past, and take on the challenges that come with off-contract smartphone purchases, including financing and trade-in potential issues.
“We believe that the subsidy model is an extremely good model,” Verizon Chief Financial Officer Fran Shammo said. “It has done wonders for us in this industry. So I think to abandon that I think is a mistake.”
Furthermore, the no-subsidy model could give cheaper smartphones a boost, Oppenheimer analyst Tim Horan told the publication, and could further put pressure on the iPhone. Apple is yet to launch a true low-cost iPhone, but the company keeps selling older iPhone models alongside the newest versions.
Other high-end devices such as the Galaxy S5 could be similarly affected by the move to no-subsidy smartphone sales business model.