Tim Cook downplays carrier concerns over high iPhone subsidy costs

Posted:
in iPhone edited January 2014
Apple Chief Executive Tim Cook said Tuesday he believes that if his company continues to strive to make the best smartphone in the world, carriers will remain motivated to provide the iPhone to their customers.

Cook's comments came in response to a question during his company's quarterly earnings conference call, in which he was asked about Apple's relationship with its carrier partners. Recently, some carriers have expressed unhappiness with paying for high subsidies associated with the iPhone when compared to competing Android-based smartphones.

"At the end of the day, the carriers want to provide their customers with what their customers want to buy," Cook said Tuesday. "And so the most important thing for Apple by far is to continue making the best products in the world."

The CEO went on to note that the total subsidy that carriers pay is "fairly small" when compared with the monthly payments that carriers collect from wireless subscribers. And in order to provide the iPhone and other smartphones at a subsidized price, carriers lock customers into 24-month contracts to recoup those costs and turn a profit.

Though the iPhone can be had for as little as free with a new two-year contract, the average selling price of the iPhone remains over $600, thanks to those subsidies that carriers offer to bring the cost of the handset down.

Tim Cook


But although the iPhone may carry higher subsidy costs than some competing smartphones, Cook noted that the iPhone also has lower churn rates, a term the wireless industry uses to describe the number of customers who leave a carrier in a given time period.

In addition to being more loyal to carriers, iPhone users are also more likely to have a tablet, like an iPad, Cook said. Because of that, he believes that iPhone users will be more likely to adopt the new shared data plans to which wireless providers are transitioning.

Finally, Cook also noted that Apple's engineering teams work closely with carrier partners in an effort to find the most efficient way of handing data. He said he believes the iPhone is the market's most efficient smartphone in terms of data use and bandwidth congestion.

"We're going to focus on making the best product," Cook said, "and I think the carriers will be very motivated to make sure they provide them to the customers."
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Comments

  • Reply 1 of 38
    SpamSandwichSpamSandwich Posts: 33,407member


    The story linked that supposedly proves carrier "unhappiness" contains a fact-free assertion by an analyst. Here's the quote:


     


     


    Quote:


    BITG Research's Walter Piecyk cut his rating of AAPL stock from "buy" to "neutral" in a note to investors on Monday, saying that telecoms are growing weary of paying high subsidies for the iPhone with returns that don't match Apple's high margins from the handset.




    Walter Piecyk's opinion isn't the basis for proof of anything.


     


    I look forward to the day Apple decides to buy up the available white space from the FCC at auction for use in future iPhones and iPads. I'd rather pay Apple for wireless service than the scum they currently deal with.

  • Reply 2 of 38


    Now I understand why us super-senior retiree's don't get a subsidized smart phone! We won't live long enough for them to turn a profit.

  • Reply 3 of 38
    daharderdaharder Posts: 1,580member
    Of course he's 'downplaying' it... That's part of his job.
  • Reply 4 of 38
    [RIGHT][/RIGHT] What Tim Cook doesn't say is that Apple's high subsidy demands are eventually paid for by us customers (via higher monthly wireless fees).
  • Reply 5 of 38
    michael scripmichael scrip Posts: 1,916member
    The CEO went on to note that the total subsidy that carriers pay is "fairly small" when compared with the monthly payments that carriers collect from wireless subscribers. And in order to provide the iPhone and other smartphones at a subsidized price, carriers lock customers into 24-month contracts to recoup those costs and turn a profit.

    The customer pays $200 for a brand new iPhone... while the carrier covers the other $450. That might seem high... but hold on...

    The carrier then collects $2000 over 2 years for every iPhone customer they have.

    And they're still not happy?

    Guess what, carriers... you sell a service. Your monthly plans are ridiculously high... you make billions of dollars every quarter... so shut up!
  • Reply 6 of 38
    tallest skiltallest skil Posts: 43,388member

    Quote:

    …when compared to competing Android-based smartphones.


     


    I'm sorry, is it Apple's fault that everyone else makes trash that costs less to make? And since the top Android phones cost the same as the iPhone off subsidy, how is this even something that can be said?

  • Reply 7 of 38
    cvaldes1831cvaldes1831 Posts: 1,832member
    I look forward to the day Apple decides to buy up the available white space from the FCC at auction for use in future iPhones and iPads. I'd rather pay Apple for wireless service than the scum they currently deal with.
    I doubt Apple would ever do that. Apple sees mobile operators as dumb pipes, a utility like the people who deliver water or electricity to your house.

    Apple's strategic acquisitions are generally leveraged to benefit a large percentage of Apple's customers, like acquiring PA Semi or Intrinsity. Those acquisitions benefit anyone using an Apple device powered by an ARM chip. Even Siri is eventually destined for many countries. Acquiring wireless spectrum from the FCC would only affect the users in one country, the United States.

    Note that today's conference call revealed that 62% of Apple's global revenue comes from outside the United States. The acquisition of North American wireless spectrum would not benefit any of those customers.
  • Reply 8 of 38
    cvaldes1831cvaldes1831 Posts: 1,832member
    I'm sorry, is it Apple's fault that everyone else makes trash that costs less to make? And since the top Android phones cost the same as the iPhone off subsidy, how is this even something that can be said?
    Actually, some of the blame is Apple's.

    Tim Cook's mastery of the supply chain has squeezed availability of key components, like Retina displays and NAND flash memory chips, as well as access to certain key processes such as CNC machines for unibody case manufacturing.

    In many cases though, it could be argued that Apple's competitors willingly chose to manufacture garbage. No one pointed a gun at Acer's head and said, "make sh-tty netbooks that people will return in gigantic piles or end up gathering dust on some shelf in six months so your founder Stan Shih can eventually come out and apologize to investors that their relentless pursuit of marketshare resulted in a bunch of crappy products not worth being proud of".
  • Reply 9 of 38
    tallest skiltallest skil Posts: 43,388member

    Quote:

    Originally Posted by cvaldes1831 View Post

    Actually, some of the blame is Apple's.

    Tim Cook's mastery of the supply chain has squeezed availability of key components, like Retina displays and NAND flash memory chips, as well as access to certain key processes such as CNC machines for unibody case manufacturing.


     


    Ah, you're absolutely right. I'd forgotten about that. Was it hilarious how the ultrabook guys were complaining about how Apple had scarfed up all the machines they wanted to use? They didn't seem to have much interest in them four years ago when they could have gotten them for much less. image

  • Reply 10 of 38
    wizard69wizard69 Posts: 13,377member
    Ah, you're absolutely right. I'd forgotten about that. Was it hilarious how the ultrabook guys were complaining about how Apple had scarfed up all the machines they wanted to use? They didn't seem to have much interest in them four years ago when they could have gotten them for much less. :lol:

    Much of that complaining is also bull crap. CNC machines are a dime a dozen. Integrated manufacturing lines are something else, and as such are engineering projects that take a bit of effort and investment. They can blame the lack of CNC equipment, which everyone in the industry knows is bogus, instead of just admitting to not putting in the effort. In the end manufacturing lines like these are big projects and the actual CNC hardware is just a small component of the over all expense in setting up the line. In many cases these manufactures simply don't have the cash to do what Apple did.
  • Reply 11 of 38
    charlitunacharlituna Posts: 7,217member

    Quote:

    Originally Posted by noexpectations View Post




     

    What Tim Cook doesn't say is that Apple's high subsidy demands are eventually paid for by us customers (via higher monthly wireless fees).


     


    So sic the DOJ on the carriers for overcharging customers. Certainly the whole business of lumping in subsidy pay back with voice etc service so that at 28 months you are paying the same as you did at 12 months but your subsidy is paid off would qualify. 

  • Reply 12 of 38
    charlitunacharlituna Posts: 7,217member

    Quote:

    Originally Posted by Tallest Skil View Post


     


    I'm sorry, is it Apple's fault that everyone else makes trash that costs less to make? And since the top Android phones cost the same as the iPhone off subsidy, how is this even something that can be said?



     


    The carriers make the same money off both but it turns into more profit since they only need $100 out of the $2000 with an Android phone compared to the iPhone's $450 out of $2000. The carriers might be morons about what is good customer service but this is math they can actually do

  • Reply 13 of 38
    charlitunacharlituna Posts: 7,217member

    Quote:

    Originally Posted by cvaldes1831 View Post





    I doubt Apple would ever do that. Apple sees mobile operators as dumb pipes, a utility like the people who deliver water or electricity to your house.


     


    I agree. Apple has no deserve to be a cell phone company, a cable company or an ISP. Any one of them is a bigger bag of hurt than blu-ray


     


    what I think Apple might do is join up with some other companies to expand city wide wifi efforts and then go for something that is VoIP based. Single pipe that seems everything as data regardless of the flavor. They might continue to put in cell data support but everything will still go that way rather than split up into 3 plans. And at that point we might just pay $400 for our iPhone and have our plans prepaid like the iPad. or since it's all data just be able to use our iPads instead. I use mine for basically everything anyway so I wouldn't mind this so much. 

  • Reply 14 of 38
    The story linked that supposedly proves carrier "unhappiness" contains a fact-free assertion by an analyst. Here's the quote:



    Walter Piecyk's opinion isn't the basis for proof of anything.

    I look forward to the day Apple decides to buy up the available white space from the FCC at auction for use in future iPhones and iPads. I'd rather pay Apple for wireless service than the scum they currently deal with.

    Walter's opinion actually affected Apple share prices for a short bit, even though he speculated on carrier negotiating power. It's sad when an analyst with their own agenda can write and article that flucuates a company's market cap $100s millions.

    But Wallsteet still doesn't understand Apple, and honestly how could they since they spend their entire life in excel on windows 7 computers.

    I could get 8 of my Wallsteet friends in a room that currently hold over $100 million of Apple stock, and they still don't understand how the company operates. They are still dumbfounded by Apple's success.

    Honestly, I wonder how they even would have achieved their positions without being cut-throat SOBs. Whoops 7/8 of them are SOBs , I'd only invest with one.
  • Reply 15 of 38
    hngfrhngfr Posts: 72member


    that's a very arrogant statement form the ceo,


    they should be wary, ms/nokia are about to launch their models,


    and i'm sure everyone knows how ms plays dirty behind the scenes,


    back room deals by ms to launch its partners products could see carries give iphone subsidies the boot,


    ONLY because they are concerned with apples dominance.

  • Reply 16 of 38
    cnocbuicnocbui Posts: 3,613member

    Quote:

    Originally Posted by Tallest Skil View Post


     


    I'm sorry, is it Apple's fault that everyone else makes trash that costs less to make? And since the top Android phones cost the same as the iPhone off subsidy, how is this even something that can be said?





    Not all iPhone alternatives are 'trash'  that costs less to make.  It is Apples fault they demand a higher margin than anyone else.

  • Reply 17 of 38
    hmmhmm Posts: 3,405member

    Quote:

    Originally Posted by cvaldes1831 View Post





    Actually, some of the blame is Apple's.

    Tim Cook's mastery of the supply chain has squeezed availability of key components, like Retina displays and NAND flash memory chips, as well as access to certain key processes such as CNC machines for unibody case manufacturing.

    In many cases though, it could be argued that Apple's competitors willingly chose to manufacture garbage. No one pointed a gun at Acer's head and said, "make sh-tty netbooks that people will return in gigantic piles or end up gathering dust on some shelf in six months so your founder Stan Shih can eventually come out and apologize to investors that their relentless pursuit of marketshare resulted in a bunch of crappy products not worth being proud of".




    You should consider doing a portion of your reading on other sites too. The supply chain management aspect is likely overblown. You make it sound legendaryr. Beyond that given their complete lack of cash flow problems why wouldn't they choose to negotiate necessary supply contracts in advance? You make it sound like they're buying up supplies and capacity without the intention to use it. Buying it to keep it from your competitors is a completely different principle from buying it for actual use. As to product quality, they all break. I've had some kind of hardware problem with almost every piece of Apple hardware that I've owned. In the cases of exceptionally problematic items, I've moved onto other things. It's not so much that I'm rough on anything. I just don't upgrade constantly unless it's an important device. Batteries have been the worst issue of all in terms of batteries that died just outside  of warranty (older ipods) and an expanding battery (macbook pro).

  • Reply 18 of 38
    rayzrayz Posts: 814member

    Quote:

    Originally Posted by cvaldes1831 View Post





    I doubt Apple would ever do that. Apple sees mobile operators as dumb pipes, a utility like the people who deliver water or electricity to your house.

    Apple's strategic acquisitions are generally leveraged to benefit a large percentage of Apple's customers, like acquiring PA Semi or Intrinsity. Those acquisitions benefit anyone using an Apple device powered by an ARM chip. Even Siri is eventually destined for many countries. Acquiring wireless spectrum from the FCC would only affect the users in one country, the United States.

    Note that today's conference call revealed that 62% of Apple's global revenue comes from outside the United States. The acquisition of North American wireless spectrum would not benefit any of those customers.


     


    Mmm. I hadn't thought of that. 


     


    But I can't see how they can go much further with this cloud stuff without having control of the pipe. No one is going to download huge all their movies if the ISPs throttle your connection after your tenth movie, or the mobile broadband is too expensive to use.


     


    I was thinking that Apple needs to offer high-speed, fixed-cost mobile connections if they want to avoid hitting the wall caused by stubborn pipe suppliers.

  • Reply 19 of 38
    jragostajragosta Posts: 10,473member
    cnocbui wrote: »

    Not all iPhone alternatives are 'trash'  that costs less to make.  It is Apples fault they demand a higher margin than anyone else.

    Fault? Isn't that the purpose of running a business? Apple has created a series of products that are so much superior to the competition that they are able to obtain a significantly higher selling price (on average) than the competition while keeping manufacturing costs low. So that's supposed to be a problem now?
  • Reply 20 of 38
    tallest skiltallest skil Posts: 43,388member

    Quote:

    Originally Posted by cnocbui View Post

    It is Apples fault they demand a higher margin than anyone else.


     


    How, particularly since they don't.

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