Over the course of the last couple days, I have been voicing
my distaste over the new Apple iPhones that were released – specifically, I
have thoroughly decided that I am not a fan of the iPhone 5c.
In the first post that I put out, I made a comment that I
was of the opinion that the iPhone 5c should only launch overseas, and that
Apple shouldn’t bother with it here in America.
A lot of people wanted to know why I said that. Is it
because I think other countries are less privileged than us or something?
No, actually this is not the case at all. You see, here in
the United States we don’t pay all that much for phones, and it’s been this way
for so long that we don’t think twice about it, except maybe for the fact that
as consumers, we here in America aren’t really willing to pay more than a two
hundred bucks for a phone, right?
So could you imagine paying seven hundred dollars for an
iPhone?
This is where you violently eject the drink you were sipping
on and laugh, or perhaps wonder why anyone would pay a price like that for a
device that isn’t worth that much.
Well, guess what: it really is worth that much.
You see, smartphones these days have the power to do
anything a modern computer can do, and then some. In reality, it costs apple
well over four hundred dollars to produce an iPhone; but if that’s the case
then why do we only pay two hundred dollars for it?
In steps the contract.
Have you ever wondered exactly why cellphone companies lock
you into a contract? Most people don’t even think about it anymore because it’s
just such a common thing. When considering a cellphone, your internal monologue
usually goes something like this: “You want Verizon or AT&T premium
service? You need a contract”. That’s just how the world has worked for so long
now that the great question of “why” doesn’t even cross our minds. It seems
incredible, too, that with so many “No Contract Phone” options the contract
carriers would still be able to rope people into the contracts. How do they do
that?
Allow me to answer the question you never thought you needed
to know. On average, prepaid carriers will charge you fifty five dollars per
month for “unlimited” smartphone service during the course of a thirty day
period. To get the same deal, the average contract service runs about ninety dollars
per month. Furthermore, a contract requires you to sign on for two years, with
the threat of a “cancellation fee” that can be upwards of three hundred and
fifty dollars in the event that you decide to jump ship early. So why do they
do that? It doesn’t seem like a sound business model to charge more for the
same service, right? Why are they charging you an extra thirty dollars per
month?
To find out the answer to this, I’ll compare the price of a
Galaxy SIII on a contract and on prepaid.
On Verizon services, the Galaxy SIII is currently available
for free as an upgrade. On Boost Mobile, the Galaxy SIII will run you four
hundred dollars.
Yep. Four hundred dollars.
How does that happen? The answer is simple: contract carriers
are using the structure of a contract to reduce the price of the phone. In
other words, a contract carrier charges you a higher monthly price because it
is essentially subsidizing the price of the phone over two years. This is also
why they don’t want you to cancel their service; if you did that, the company would
lose money on the phone. On top of the cheaper phone, a contract carrier can
also offer faster service and better coverage, but all of that is just fluff. What
you, the reader, should walk away from this blog with is that a contract only
serves one purpose: to put a phone in your hands without paying nearly a
thousand dollars for it.
So in the end, what’s the point of “no contract providers”?
The answer there is that it’s all about the marketing. Have you ever had a bad
experience with a contract? Many people at one point or another have
encountered an enormous cellphone bill due to some kind of overage (remember
the days before text messaging was unlimited?) and as a result, they don’t want
to be “locked in” by a carrier. They’re afraid that they’re being ripped off,
mostly because the carrier didn’t properly explain the potential for overages
or how the contract system works in general.
Fortunately, the days of massive overages are long past.
Contract carriers have simplified and dramatically lessened overage fees, and
there are new “transparency” rules in place for things like cancellation fees.
However, a lot of people are still scared of the contract, and no contract
services feed on that fear to draw people away from the premium service of
contract carriers, all the while continuing to provide phones at a
non-subsidized price.
Okay. So, iPhone 5c? You said something about not marketing
it in America?
Right. So now that you know the difference between a
subsidized price and an unsubsidized price, let’s shed some light on the iPhone
5c.
First off, the subsidized price of an iPhone 5c is ninety
nine dollars. Unsubsidized? Three hundred dollars.
Subsidized price of an iPhone 5s? two hundred dollars.
Unsubsidized? Eight hundred.
Subsidized price of an iPhone 5? Ninety nine dollars.
Unsubsidized? Eight hundred.
So let’s look at those numbers. Over the course of the
contract, the “time to profit” point on the iPhone 5c through the course of a
contract is much sooner than the other phones. What is time to profit? Think of
it as a phone provider asking the question “at what point in a contract while
paying the subsidy cost will the
customer pay off the cost of the phone and we’ll begin to make a profit?”
So the iPhone 5c makes a profit a whole lot faster because
it’s cheaper to build. The crazy part about that is: the iPhone 5 costs the
same amount of money on a contract, has the same hardware as the iPhone 5c and
is built a whole lot better! In other words, if you’re thinking about a cheap
iPhone, in our country, you would be a whole lot better off just buying the
iPhone 5. After all, it is the same price.
So, what good is the iPhone 5c, and what does this have to
do with other countries?
Most countries in the world do not have the ability to
subsidize the price of a phone. In China, for example, it’s normal for
individuals to dish out eight hundred dollars for a phone. They don’t subsidize
the phone, which means no contract, but also means an expensive phone.
So, the iPhone 5c would be fantastic in markets like China.
Why? People would only have to pay three hundred dollars instead of eight
hundred for the phone!
Great idea!
This is why I believe it shouldn’t have ever been launched
in the United States. Here in the US, the iPhone 5c is nothing more than a
money-hungry grab at profit. In China, though, it’s a brilliant and ethical way
to get iPhones into the hands of the average person.
So there you have it. This was more of an informative post
than news, but it is something that I believe all phone users should get a
clear explanation on – after all, we’re the ones under contract and buying this
hardware. We have the right to know what we’re getting ourselves into.
Stay empowered, and the next time you walk into a phone
store to get your next upgrade you’ll be prepared.
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