The Hidden Cost of Device Subsidies

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http://blog.t-mobile.com/2012/03/12/...ice-subsidies/

In the future, my hope is we will see the U.S. industry follow our lead and move away from the subsidy-only model. Not only would this help level the playing field and foster competition, it would also help consumers by keeping rate plans affordable, providing more transparency in how they purchase wireless and it could encourage a robust, consumer-driven market for affordable (yet still amazing) used smartphones and tablets.

http://ezinearticles.com/?Ditch-the-...ion&id=7083876

According to IHS iSuppli, that iPhone in your hand cost Apple $188 to manufacture. You probably think you got a steal; after all you paid $200. But that is not the retail price; you paid the carrier subsidized price.

See, cell phone carriers want your business, so they want the hottest phones, and they want to offer them to you at a low price. So handset makers, like Apple, manufacture the product and then sell it to carriers. Then the carriers give you a screamin' deal on the device for signing a lengthy contract. Notice how people rarely buy phones off contract? That's because the retail price of an iPhone is $700.

That's right; Apple is making a cool $512 on each and every iPhone it sells. That's a 272% markup. That is also $200 more than the base iPad, and that device cost Apple just north of $300 to manufacture.

To put it simply, it costs Apple $112 less to produce an iPhone compared to an iPad, but they sell the phone for $200 more.

Without subsidies, customers will be more selective with their smartphones. Price will play an important factor. With price competition (price war) profit margin for the phone manufacturers will drop. Consumers win.

Look at the HDTV market.
Look at the PC/laptop market.
We will see the same intense "price competition" in tablets.

Smaller margin for manufacturers = more saving for consumers.





Even something like this would be a win for consumers.

A 2 year contract will be separated into two segments as part of the bill:

- wireless service monthly cost
- hardware monthly cost

A crude example:

-a wireless service with unlimited talk, text, 5GB of data for $70 a month.
-a hardware cost monthly (for a $600 device / 24 months = $25 a month)

Total cost $95 a month

If a customer opts for a $300 device instead, that person will be charged

-$70 a month for the wireless service
- $12.5 a month for the hardware

Total cost: $82.5 a month


By opting for the $300 device instead of $600 device, the consumer will save $12.5 a month.

Phone manufacturers will now be in a price war with each others like they are in HDTV, laptop, PCs, and tablets. Subsidies (paid for by the consumers) distort the open market.

[murraypaul]

According to IHS iSuppli, that iPhone in your hand cost Apple $188 to manufacture.
[...]
That's because the retail price of an iPhone is $700.

That's right; Apple is making a cool $512 on each and every iPhone it sells. That's a 272% markup.

I wish people like the writer of the ezinearticles article would stop quoting iSuppi figures like this, or at least take ten seconds to see if what they have written makes a blind bit of sense.
Going by this you are forced to believe that manufacturing is the only thing in the world that actually costs money. Research and design is free. Packaging is free. Distribution and warehousing are free. Retail staff work for no money. There is no such thing as corporate overhead. Malls just give away floor space to anyone who wants it. Government don't want any taxes.
And it isn't just Apple, for any new release the same 'analysis' is done. I'm sure in the next few days we'll be told how much Amazon is/isn't making on the new Fire models, and it will be just as useless as this article.
(Having said all that, the iPhone is still really expensive anyway)

[HarryT]

Please continue the discussion in the existing thread on the same subject:

https://www.mobileread.com/forums/sho...d.php?t=190555

Thanks.