Subsidies for Apple's iPhone are 40% higher than the industry average

Posted:
in iPhone edited January 2014
The iPhone will be a $15 billion investment for Sprint over the next few years, as subsidies for Apple's smartphone carry a price 40 percent greater than other competing handsets.



About $7 billion in new financing agreements will be necessary to compensate for a cash shortfall that will be created, in part, by the new arrival of the iPhone on Sprint's network, the carrier's CEO, Dan Hesse, told Reuters on Wednesday. In all, the iPhone is expected to cost the company $15 billion over the next four years.



The high cost of the iPhone comes from a subsidy that is 40 percent higher, or $200 more per device, than the average subsidy for other smartphones. But the addition of the iPhone to Sprint's smartphone lineup is also expected to add between $7 billion and $8 billion in revenue over the next four years.



Hesse admitted that the iPhone is "expensive" for his carrier to offer, but added that it is "worth every penny," as Apple's smartphone is expected to add new customers for Sprint.



Back in September, Hesse told investors that the iPhone was the top reason that Sprint was losing customers. The carrier began offering the iPhone earlier this month, and preorders of the iPhone 4S quickly broke sales records at Sprint.



The CEO was said to have privately told his board of directors in August that Sprint will lose money on its iPhone deal with Apple until 2014. The rumored $20 billion investment in 30.5 million iPhones was characterized as a "bet-the-company" move by The Wall Street Journal.







As part of the alleged deal, Sprint is said to have agreed to purchase 30.5 million iPhones from Apple over the next four years whether or not the carrier can find customers to buy them. Together, its rivals AT&T and Verizon sold nearly 12 million iPhones in the first half of 2011.



Sprint is the third-largest carrier in the U.S. with about 52 million customers, much less than AT&T, which has roughly 100 million subscribers, and Verizon, with nearly 108 million. Sprint remains larger than T-Mobile, which has about 34 million customers.
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Comments

  • Reply 1 of 30
    You gotta pay if you wanna play.......
  • Reply 2 of 30
    linkgx1linkgx1 Posts: 742member
    No kiddin, AI.





    1. Sprint is just plain stupid.

    2. Of course, it's Apple.

    3. Sprint needs to fire it's CEO.

    4. If they have iPhones left over, where do they put them?
  • Reply 3 of 30
    The subsidy model for cellphones is ridiculous and obfuscatory at best.
  • Reply 4 of 30
    mhiklmhikl Posts: 471member
    Quote:
    Originally Posted by Naboozle View Post


    The subsidy model for cellphones is ridiculous and obfuscatory at best.



    It?s the consumer?s choice to do subsidy or outright purchase. Subsidy may get you in sooner, but paying through the nose for the life of the contract is the penalty.



    It would be interesting to see what the costs for a subsidized iPhone 4S over two years would be compared to purchasing the 4S outright along with the cost of the same level of service over the same period.
  • Reply 5 of 30
    Once again, value trumps cost. A lesson Apple's competitors either never learn, or simply are content to sweep up the crumbs.
  • Reply 6 of 30
    Quote:
    Originally Posted by linkgx1 View Post


    No kiddin, AI.





    1. Sprint is just plain stupid.

    (...)

    3. Sprint needs to fire it's CEO.



    Is Sprint selling its subsidized iPhones for a lower price than the competition? If not, then Sprint is paying the same subsidy premium as any of the other players; therefore, looking specifically at subsidies, Sprint would be no more stupid or in need to fire its CEO than any of its competitors...
  • Reply 7 of 30
    Quote:
    Originally Posted by mhikl View Post


    It’s the consumer’s choice to do subsidy or outright purchase. Subsidy may get you in sooner, but paying through the nose for the life of the contract is the penalty.



    It would be interesting to see what the costs for a subsidized iPhone 4S over two years would be compared to purchasing the 4S outright along with the cost of the same level of service over the same period.



    On AT&T -- assuming the unsubsidized customer chose not to discontinue their service for any interval during the 2-year period, and also assuming that both the subsidized and unsubsidized customer had the exact same usage patterns and subscribed to the exact same number of monthly minutes, the exact same calling features, and the exact same data tiers: The unsubsidized customer would have the exact same monthly service fees as the subsidized customer.



    Therefore, at the end of 2 years, the unsubsidized customer would end up worse off due to the increased upfront costs.



    T-Mobile has so-called "value" plans, which reward unsubsidized customers with lower monthly fees than their subsidized counterparts. But you still have to commit to a 2-year agreement to access the value plans, even though you didn't receive a subsidy. If T-Mobile even offered the iPhone, then there might have been an interesting comparison to be made there.
  • Reply 8 of 30
    Quote:
    Originally Posted by mhikl View Post


    It?s the consumer?s choice to do subsidy or outright purchase. Subsidy may get you in sooner, but paying through the nose for the life of the contract is the penalty.



    How is that? If you want to get service from AT&T or Verizon, it looks to me like you end up with the same monthly cost for iPhone service, even if you own the device. How do you save money with a device you purchased outright?



    I am looking to keep visual voicemail, etc, so I don't think I can use TMobile or Virgin services for the unit. What am I missing ('cause I hate the big bill!)
  • Reply 9 of 30
    linkgx1linkgx1 Posts: 742member
    Quote:
    Originally Posted by lfmorrison View Post


    Is Sprint selling its subsidized iPhones for a lower price than the competition? If not, then Sprint is paying the same subsidy premium as any of the other players; therefore, looking specifically at subsidies, Sprint would be no more stupid or in need to fire its CEO than any of its competitors...



    Sprint commited whether they sell phones or not. I mean ,seriously. The shares are down. Investors are HATING the CEO right now (Um....HE'S SPENDING ALL THEIR CASH REVERSES UPGRADING TO LTE). That's what's pissing me off. How can you commit to apple when your stocks are below $3 a share, you have a terrible retention rate and don't have a large profit margin (HOW'D THAT ACQUISITION OF NEXTEL GO, HMM?).
  • Reply 10 of 30
    kreshkresh Posts: 379member
    Quote:
    Originally Posted by linkgx1 View Post


    (HOW'D THAT ACQUISITION OF NEXTEL GO, HMM?).



    I agree, "Push to Talk" services have fallen off a cliff, that was another mistake in my opinion. However, I will admit that my comment relies on hindsight having 20/20 vision.
  • Reply 11 of 30
    ssquirrelssquirrel Posts: 1,196member
    Push to talk was always stupid. I got over my interest in walkie talkies when I was 12.



    So for the 40% higher subsidy to be $200, that means the carrier is paying Apple $500 per phone and then I would assume $600 and $700 for the larger storage units. Also for those who say it makes more sense to buy the phone outright, yeah it probably does if you are using T Mobile or live in a country that isn't the US. None of the other major US carriers give your plan a discount if you own the phone outright.
  • Reply 12 of 30
    linkgx1linkgx1 Posts: 742member
    Quote:
    Originally Posted by kresh View Post


    I agree, "Push to Talk" services have fallen off a cliff, that was another mistake in my opinion. However, I will admit that my comment relies on hindsight having 20/20 vision.



    Lolz.
  • Reply 13 of 30
    linkgx1linkgx1 Posts: 742member
    Quote:
    Originally Posted by SSquirrel View Post


    Push to talk was always stupid. I got over my interest in walkie talkies when I was 12.



    So for the 40% higher subsidy to be $200, that means the carrier is paying Apple $500 per phone and then I would assume $600 and $700 for the larger storage units. Also for those who say it makes more sense to buy the phone outright, yeah it probably does if you are using T Mobile or live in a country that isn't the US. None of the other major US carriers give your plan a discount if you own the phone outright.



    I think the benefit is that you are NOT in contract. I mean, unless LTE is nation/carrier wide then most of the phones are tied to carrier anywho.
  • Reply 14 of 30
    Quote:
    Originally Posted by mhikl View Post


    It?s the consumer?s choice to do subsidy or outright purchase. Subsidy may get you in sooner, but paying through the nose for the life of the contract is the penalty.



    It would be interesting to see what the costs for a subsidized iPhone 4S over two years would be compared to purchasing the 4S outright along with the cost of the same level of service over the same period.



    Sorry, but I do not believe this is true in the US, because whether you buy the subsidized phone or the full price one, you still pay the same for your service. Who would buy a full priced iPhone in the US (except for frequent world travelers) when this is the case? As long as my service costs me the same, I will go with the subsidized phone, thus the carrier wins again as they have locked the conditions to be this way. It would be nice if things were different, but in the US right now they aren't.
  • Reply 15 of 30
    mjtomlinmjtomlin Posts: 1,754member
    Quote:
    Originally Posted by cwoloszynski View Post


    How is that? If you want to get service from AT&T or Verizon, it looks to me like you end up with the same monthly cost for iPhone service, even if you own the device. How do you save money with a device you purchased outright?



    I am looking to keep visual voicemail, etc, so I don't think I can use TMobile or Virgin services for the unit. What am I missing ('cause I hate the big bill!)



    Unsubsidized phones are unlocked and can utilize pay-as-you-go plans.



    I recently went to BestBuy, bought a $10 GoPhone, activated the SIM online, signed up for $25 voice/text, and $15 data service and slipped the SIM into my off-contract 3GS.



    It's not unlimited, but it also means I'm not locked into 24 outrageous monthly bills.



    I'm actually thinking about canceling my iPhone 4S order and just buying one outright and having it unlocked. I don't need unlimited data as most places I go usually have WiFi.
  • Reply 16 of 30
    mhiklmhikl Posts: 471member
    Quote:
    Originally Posted by lfmorrison View Post


    On AT&T ? . / / The unsubsidized customer would have the exact same monthly service fees as the subsidized customer.

    Therefore, at the end of 2 years, the unsubsidized customer would end up worse off due to the increased upfront costs. . . .



    Quote:
    Originally Posted by cwoloszynski View Post


    How is that? If you want to get service from AT&T or Verizon, it looks to me like you end up with the same monthly cost for iPhone service, even if you own the device. . . .



    Quote:
    Originally Posted by SSquirrel View Post


    . . . Also for those who say it makes more sense to buy the phone outright, yeah it probably does if you are using T Mobile or live in a country that isn't the US. None of the other major US carriers give your plan a discount if you own the phone outright.



    Quote:
    Originally Posted by SixnaHalfFeet View Post


    Sorry, but I do not believe this is true in the US, because whether you buy the subsidized phone or the full price one, you still pay the same for your service. . . .



    Wow! This doesn?t make any sense at all.



    What seems obviously lacking is true competition. Maybe there should be another breakup of telephone companies in the US.



    Appreciate the info.
  • Reply 17 of 30
    shawnbshawnb Posts: 155member
    Ah, so maybe that's why my Verizon corporate store pushes Android and has the iPhones over in the corner to sell themselves.
  • Reply 18 of 30
    Quote:
    Originally Posted by mhikl View Post


    Wow! This doesn’t make any sense at all.



    What seems obviously lacking is true competition. Maybe there should be another breakup of telephone companies in the US.



    Appreciate the info.



    Break up? AT&T, the 2nd largest carrier, is trying to buy up T-Mobile, the 4th largest, leaving only 3 big carriers in addition to a few regional MVNOs, and I fully expect it to go through, much to the detriment of us consumers. Our choices are shrinking while their profits are growing.



    I'm glad Sprint is now on equal footing to the other two with devices, but it's only a matter of time before they adopt the same behavior as the other two - expensive fees, long contracts, and soon no more unlimited plan.
  • Reply 19 of 30
    Quote:
    Originally Posted by mhikl View Post


    It?s the consumer?s choice to do subsidy or outright purchase. Subsidy may get you in sooner, but paying through the nose for the life of the contract is the penalty.



    It would be interesting to see what the costs for a subsidized iPhone 4S over two years would be compared to purchasing the 4S outright along with the cost of the same level of service over the same period.



    Nobody in North America buys a phone outright because the carriers charge the same amount per month for voice/data whether you own the phone or have a subsidized one from them.



    I'd love to be corrected on this point. Can anyone show me a carrier that offers a better deal to those who bring their own phone?
  • Reply 20 of 30
    ssquirrelssquirrel Posts: 1,196member
    Quote:
    Originally Posted by yuusharo View Post


    I'm glad Sprint is now on equal footing to the other two with devices, but it's only a matter of time before they adopt the same behavior as the other two - expensive fees, long contracts, and soon no more unlimited plan.



    As I point out in so many threads, none of the other companies charged an extra $10/line smartphone fee like Sprint is doing to help absorb the cost of high data usage. If Sprint gets rid of the unlimited plans, they would have to ditch this line fee too, both moves that would be phenomenally stupid for them
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