Cingular/Rogers Not Subsidizing iPhone Cost?

[MacRumors]

Earlier today brought reports that Rogers would be providing the iPhone to Canadian customers. This confirms a word-of-mouth forum post made last week. Of interest, the post provided a little more information about the market dynamics between Apple and Rogers.

Apparently, the [Canadian iPhone] prices won't be much higher than the US versions (just currency conversion I guess) and that they aren't allowed to subsidize the cost of the phone relative to your contract (ie you won't save more by signing a longer contract) as is customary with most phones

When Apple announced the $499 and $599 prices for the 4GB and 8GB iPhone with a 2 year contract, many assumed that this was a subsidized cost from Cingular. In the U.S., high end mobile phones are typically discounted several hundreds of dollars by cell phone carriers when customers sign up for 1-2 years of service. An earlier CNN Money article discussed this balance of power and how Apple could disrupt it with their phone:

Device manufacturers reportedly don't like [this discount/subsidy system] in that it devalues their phone, and gives them less control on how to market their phone and accessories. .... Apple's entry into the market could convince consumers to pay a premium for their cell phone.

Indeed, the $499/$599 pricepoints may simply represent full retail prices for the Apple iPhone. If Cingular is not providing these substantial subsidies for the iPhone, it paves the way towards today's rumor that Cingular may be significantly discounting the monthly service for the iPhone. Without being permitted to discount the phone itself, Cingular can afford to discount the service as an alternative incentive to attract outside customers.

Assuming all this is true, Apple's incentive to keep iPhone prices high might be the expectation that they will introduce more products based on the same technology (touchscreen iPod). Prices of these standalone devices would be harder to justify if they were compared to discounted/subsidized iPhone prices.

[ digg this ]

 

[Frisco]

Good bye Sprint, hello Cingular!

Sprint, your service was pathetic anyway

What was the reason was I waiting for a change in service?
Okay now I remember: Apple Inc!

 

[bigbossbmb]

I would switch immediately if they offer free/discounted service for iPhone customers...

 

[Dale_Nx26]

i still don't get why we have to be stuck with cingular. I like cingular but i dont want to feel like I am being trapped.

I'm also still unclear about ppl who has contracts/plans with cingular already. Is there a fee to change phone? I have an unlocked phone but do i have to make a new plan if i want the iphone?

 

[iSee]

So, If Cingular gives away the service, how exactly do they make their money???

A couple hundred dollars off a phone amounts to > $10 / month over a two-year contract, even given that a cell phone company has to front the $200, but collect over time.

So, the best case is that Cingular could afford to discount their regular rates slightly for a phone they didn't sell at a discount.

Sorry, but I think the idea of 18 months of free service is wishful thinking.

 

[arn]

I would switch immediately if they offer free/discounted service for iPhone customers...

I think people were quick to assume it was 18 months of "full service". Perhaps it will be just 18 months of basic service. Their cheapest service I see right now is $39.99 for 450 minutes.... which is still substantial.

arn

 

[EricNau]

I think people were quick to assume it was 18 months of "full service". Perhaps it will be just 18 months of basic service. Their cheapest service I see right now is $39.99 for 450 minutes.... which is still substantial.

arn

Or maybe a free data plan with the purchase of any 'talk' plan (and of course, the iPhone)?

 

[nagromme]

I'd love to pay full ($499) for an iPhone and have my contract with Cingular be shorter as a result

Though I'm intending to hold out for second-gen versions, knowing that I'll keep my phone a while.

 

[Grakkle]

I could imagine the iPhone being priced at $500ish, unsubsidised. After all, there are phones out there that are similar (albeit, not quite so versatile and sleek) in that price range.

If it's true, I think a price in that range would make the iPhone enormously more popular than it will be if the unsubsidised price turns out to be $1000>, as in more popular to a factor of quadruple or more.

I don't know of many people willing to drop a grand on a phone, but I'd think a lot would want to own an iPhone for $500, without having to commit to a 2 year or more contract in order to get it at that price.

 

[jettredmont]

Indeed, the $499/$599 pricepoints may simply represent full retail prices for the Apple iPhone. With Cingular not providing these substantial subsidies for the iPhone, it paves the way towards today's rumor that Cingular may be giving away 18 months of service with the iPhone. Without being permitted to discount the phone itself, Cingular can afford to discount the service as an alternative incentive to attract outside customers.

Well, if it requires a 2-year contract to buy an iPhone, then Cingular's getting a 2-year contract out of the deal. Whether Apple sends the iPhones over to Cingular for $599 and the 2-year contract is just payment for the back-end work Cingular did (I think the exclusivity should have more than covered that!) or Apple is sending the iPhone to Cingular for $799 and they are eating the $200 cost as payment for the 2-year contract: I don't care. My cost is still $599 and a 2-year contract!

My point is this: the iPhone is truly unsubsidized by Cingular when I can buy it outright and use it freely, without Cingular (or any other cell phone company) service.

Now, the 18-months-free deal would of course change that, but I see that as highly unlikely. If it were true, then that would be the cheapest way to get Cingular service, plus you get a mind-blowingly awesome phone essentially free. 18 months of service at, say $30/month, is $540. Even if you need to sign on to the 2-year contract (meaning, you're paying full price for that last 6 months and have to cancel or renegotiate), that's still one hell of a deal, essentially $540 discount for a 6-month contract. I mean, hell, I'd buy one and just never use Cingular's network, at least!

I suspect, though, that the "18 months free service" is for some level of "extended visual voice mail" or whatever they'll brand the iPhone voice mail system as, instead of $10/month or so. You'll still be on the hook for the last six months of bound service, but presumably you could turn this extra feature off and live with a much less exciting phone until the contract is up (and you buy the iPhone 3rd-Generation with another contract).

Assuming all this is true, Apple's incentive to keep iPhone prices high might be the expectation that they will introduce more products based on the same technology (touchscreen iPod). Prices of these standalone devices would be harder to justify if they were compared to discounted/subsidized iPhone prices.

I don't know. If the iPhone were discounted $200 down to $399, and I had the choice between (a) buying that and selling my soul to Cingular for 2 years, and (b) buying a "non-phone" iPod for the same $399, I think I'd choose the latter. Sure, boneheads would write blogs and filler articles on how they're the same price, but some of us see multi-year contracts as a cost and economic risk, not to be signed lightly.

 

[tangerineyum]

im already a cingular customer and my contract ends in june. I pay my bill online and fully intend to get an iphone. That said, has any one gone into a cingular store and tried to reserve an iphone ? Cuz a deal like this can only increase the publics interest in the phone. More than technophiles are going to want it now.

 

[MattyMac]

This is the best mac news I heard all week!

That is definitely a good strategy, and will surely bring cingular and apple many more customers having a cheaper phone plan and a sick phone.

C'mon June...HURRY UP!

 

[Grakkle]

If the iPhone were discounted $200 down to $399, and I had the choice between (a) buying that and selling my soul to Cingular for 2 years, and (b) buying a "non-phone" iPod for the same $399, I think I'd choose the latter. Sure, boneheads would write blogs and filler articles on how they're the same price, but some of us see multi-year contracts as a cost and economic risk, not to be signed lightly.

I agree entirely. I'd love it if the unsubsidised cost of the iPhone turns out to be lower than expected, but unless it can be bought unlocked that lower cost is essentially meaningless.

Same here about the contract thing: I don't want to sign a long contract just to get a cheap phone. It's too limiting - what if I move, for instance, or something or other changes. I don't want my life to revolve around my mobile contract.

 

[zoltamatron]

Unlocked....

Damnit apple.....why won't you sell an unlocked phone!

I think apple is the only company that could've easily marketed a phone as unlocked and open to any network, but they chose to buddy up with Cingular of all people??

I just hope that perhaps the lack of price subsidy is in anticipation of marketing the phone without a carrier eventually. It would be harder for apple to justify selling the phone for 499 in a year when you could get the phone for 299 today.

 

[arn]

I think there's some confusion about the terminology.

What the article is saying is that the $499/$599 prices are unsubsidized. In that Apple is charging $499/$599 for the phone, and that's it.

If the iPhone was subsidized, the cost to the customer would be $499/$599 minus whatever subsidy Cingular was kicking in.

arn

 

[LastZion]

great news. I am currently a Fido customer (owned by ROgers) but if its not possible to use it on my network I will switch for this phone.

 

[jettredmont]

i still don't get why we have to be stuck with cingular. I like cingular but i dont want to feel like I am being trapped.

I'm also still unclear about ppl who has contracts/plans with cingular already. Is there a fee to change phone? I have an unlocked phone but do i have to make a new plan if i want the iphone?

While matters have changed slightly over the last couple of years, before that if you were already a customer of cell company X you were screwed. Loyalty schmoyalty!

In the last few years more companies have begun offering minor "loyalty" contract renewals, but typically the subsidy for those is around $100, fixed, instead of $150-200 depending on the phone. You're still screwed, but a little less roughly.

That having been said, I can't imagine Cingular charging anything other than Apple's advertised price at introduction. Well, I can imagine Cingular wanting to screw their customers, but I can't imagine Apple standing for it.

 

[dongmin]

I think there's some confusion about the terminology.

What the article is saying is that the $499/$599 prices are unsubsidized. In that Apple is charging $499/$599 for the phone, and that's it.

If the iPhone was subsidized, the cost to the customer would be $499/$599 minus whatever subsidy Cingular was kicking in.

arn

So if I get this straight...

Apple is demanding that Cingular charge $499/599 because Apple is gonna introduce more devices at lower price points.

So Cingular will offer discounts on the contract to get people to buy the iPhone. Isn't that backwards?

What about rebates? Amazon undercuts Apple with rebates even though the retail prices are the same. I can see Cingular doing something similar.

 

[powermac_daddy]

What a greed company! $1.99 for this. $29.99 for that. and now $599 for a damn phone? Regardless if this phone is amazing or not. Pay $600 to advanc brain cancer? ...... Materialist world.

 

[justflie]

I was planning on buying an iPhone anyways, but this just sounds better and better.

 

[boombashi]

I REALLY like how this story is unfolding. Here's to hoping it's true.

 

[LaDirection]

I used to do tech support for a GSM carrier. I remember how the first Nokia 2190 costs us A FORTUNE vs the $300 we would charge for it. We needed to keep cx's 4 years at $40 a month to make money off of it!

Everything in this story makes perfect sense and sound extremely plausible.

 

[chicagdan]

I think people were quick to assume it was 18 months of "full service". Perhaps it will be just 18 months of basic service. Their cheapest service I see right now is $39.99 for 450 minutes.... which is still substantial.

arn

I asked Cingular customer service last week about this ... I won't be upgrade eligible until December of this year, so I asked how will Cingular handle customers like me who want to buy the iPhone?

They replied that I would have to buy the iPhone for full retail price but would not have to extend my contract. When I pressed them on the price, they said that Apple is quoting the full retail price that does not take into account rebates and "other discounts" that they said the company would spell out later.

So I would tend to believe that the rumors are true, that Cingular is pursuing some kind of calling plan discount to woo iPhone buyers. It's also possible that there will be rebates because Apple allows retailers like Amazon to offer rebates, as long as they maintain the full retail price of items.

Also bear in mind that if you have a family plan, you aren't upgrade eligible and the iPhone new contract deal looks outrageously good, it might be worth it to add an additional line onto your account and eat the extra $10 per month. You'd have to do the math to see if your two-year savings will exceed $240.

 

[arn]

also... don't forget the iSuppli analysis of the phone:

https://www.macrumors.com/2007/01/18/apple-iphone-component-costs/

which brought the estimated cost of components at 50% of the price... this was 50% of $499, which is on target with Apple's other product margins. If the $499 price reflected a discount from cingular, then the cost of components would be closer to 30%, giving near 70% margins... which seems unlikely.

arn

 

[shadowfax]

What a greedy company! $1.99 for this. $29.99 for that. and now $599 for a damn phone? Regardless if this phone is amazing or not. Pay $600 to advanc brain cancer? ...... Materialist world.

If you're as stingy as you sound with your money, who's the materialist? Don't be so greedy that you can't part with a load of money for a little piece of functional art. seriously, be generous. it helps the economy