iPhone Sales Hurt By Lack Of Carrier Subsidies

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Anyone who has ever tried to buy a contract-free iPhone has first-hand experience with how heavily Apple relies on carrier subsidies to sell its phones. The price difference, usually in the neighborhood of several hundred dollars, is made up for by the contract users purchase with their phones.

For customers in the United States, this process brings the iPhone into a much more accessible price range. Many overseas carriers, however, do not subsidize phones - particularly smartphones - in the same way. This means that an iPhone in much of Europe costs far more. This, in turn, drives many users to more affordable phones. Many Android-based smartphones, for example, are far cheaper than iPhones even without carrier subsidies.

This explains some of the recent data we have been seeing concerning the iPhone’s market share in non-U.S. countries. While the iPhone still enjoys a strong user base in many countries, Android has been growing at a much greater rate. For example, one recent report shows that in Britain in the past year Android has surged past the iPhone in both installed base (i.e., the number of overall smartphone users who have Android phones) and in market share (i.e., the number of new phone sales). Meanwhile, the iPhone has also lost market share in China in the last year, dropping to fifth place behind Samsung, Nokia, Huawei Technologies, and ZTE Corporation. While Apple’s recent deal with a second Chinese carrier, China Telecom, may help boost market share somewhat, the iPhone’s price is seen as a major factor in its slip to fifth place.

Meanwhile, though the iPhone enjoys a substantial chunk of the U.S. market, there is evidence that carriers may be getting the short end of the stick where the iPhone is concerned. The iPhone definitely draws customers to those carriers who have it. T-Mobile, the only major U.S. carrier without the iPhone, lost 800,000 customers in the fourth quarter of 2011 due to its lack of the iPhone. Yet the subsidies on which iPhone sales rely so heavily are apparently not good for carriers. While iPhone sales have done wonders for Apple’s revenue, the subsidies have taken a significant bite out of carrier profits.

AT&T and Sprint suffer most from the iPhone. AT&T sells more of them than any other carrier, which means that the iPhone takes a bigger chunk of the company’s profits. Sprint, meanwhile, is the smallest carrier with the iPhone, and operates on far smaller margins than AT&T or Verizon. Subsidies for the iPhone take so much out of Sprint’s profits that the company will not even be making money on the device for about three more years. Though the iPhone definitely brings a major boost to carriers in terms of customers, one wonders whether they will be willing to endure the damage to their bottom line forever.

What do you think? Would you still buy an iPhone without carrier subsidies, or would it be too expensive? Let us know in the comments.

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