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Are Verizon’s Android customers paying through the nose to subsidize iPhone prices??!

Posted: , by Scott H.

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Are Verizon’s Android customers paying through the nose to subsidize iPhone prices??!
Verizon charges a lot for its Android phones. Looking at comparable phones on other networks, you can see that Verizon routinely charges $100 for an Android phone that’s identical but for the addition of an LTE radio. Verizon has justified this by claiming that LTE phones are “premium” devices, but the reality is that an LTE radio doesn’t dramatically increase the cost of a phone.

Examining industry subsidies and the timing of Verizon’s change in price structure has led some industry observers to a darker explanation of their pricing strategy: Verizon may be raising prices on Android phones to offset the large subsidies they have to pay Apple for the iPhone.

Apple has negotiated a ~$450 subsidy for every iPhone a carrier sells on contract. It’s an industry-leading number that other handset manufacturers can’t command. To be fair, Apple has created much sought-after products, and their popularity is why carriers will agree to their terms. Still, as a result companies like Sprint and Verizon see their profit margins shrink when they added the iPhone to their stable of mobile devices.

Sprint famously had to pony up $15.5 billion dollars in guaranteed money to land the iPhone, while some foreign carriers have had to drop Apple's products due to the high subsidy. Verizon may have found a different way to make up that revenue: adding $50-100 to the on-contract pricing of their leading Android handsets.

Recall that the CDMA iPhone 4 and the HTC Thunderbolt dropped at about the same time, and while the iPhone 4 started at the usual $199, the Thunderbolt was increased to a $249 on-contract pricing. Verizon saw its margins shrink in the first quarter with brisk iPhone sales, but in Q2 Verizon upped the on-contract price of the Droid Charge to $299, and that’s been the cost of high-end Android handsets on Verizon ever since.

Phones like the Droid RAZR are not significantly more expensive to make than last year’s top-of-the-line Android devices. So the conclusion some have drawn is that Verizon is padding their bottom line to offset the impact the iPhone has on their margins.

What do you think? Does the cost of rolling out Verizon's LTE network make it worth the price bump? Is Big Red robbing Peter to go pay Paul? Is it all some crazy conspiracy theory?

Let us know your thoughts in the comments below, but please try to make this a constructive exchange of ideas!

source: Apple Insider

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posted on 16 Dec 2011, 12:44 4

1. WirelessCon (Posts: 311; Member since: 11 May 2010)


The whole subsidizing model needs to be reformed. Resellers offer far better knowledge and customer service. Something that benefits those kind of businesses would only enhance the carrier's ability to retain customers and income.

posted on 16 Dec 2011, 12:48 2

5. Sniggly (Posts: 7305; Member since: 05 Dec 2009)


That model was already reformed once; the indirects obtained higher commission payouts for smartphones than simple phones to offset the higher cost of the smartphones.

However, if more changes arrived which would help the indirects to not have to sell their phones at a price up to 100 dollars more than the carrier stores, it would be nice.

posted on 16 Dec 2011, 12:50 2

9. bossmt_2 (Posts: 454; Member since: 13 Oct 2009)


Having worked in corporate stores, resellers IMO can offer you a more customer rich experience because they usually have more time to focus on a single customer since they're generally not destination locations.

Now that I've got that out of the way, resellers are nothing but a pain in the butt to corporate Verizon, including things like higher churn rates, more customer complaints etc. I know there are good resellers out there, don't want to knock all of them, but some out there are bad businesses.

posted on 16 Dec 2011, 14:05 1

23. stilt (Posts: 63; Member since: 13 Jul 2008)


im glad you said that there are good resellers out there cause i work for a reseller for almost four years now and we have to shut down the store because of a damn corp. is about a minute down the street. I aid customers waaaaaay better than any corp store rep can

posted on 18 Dec 2011, 12:57 2

62. atheisticemetic (Posts: 377; Member since: 18 Dec 2011)


third party all the way! in the corporate store you just get upselled and told ALL products are "great"

it gets really old. In fact we had a corporate store steal from my old stores inventory because it got shipped to the wrong address.

not all corp stores are bad, but their selling practices are!

posted on 16 Dec 2011, 15:06 2

29. bigdawg23 (Posts: 462; Member since: 25 May 2011)


Just remove the ungodly mark up and I will pay outright. I have no issue with $400, however, $549 is over board.

posted on 16 Dec 2011, 23:07 2

44. ardent1 (Posts: 2000; Member since: 16 Apr 2011)


It's people like bigdawg23 that the no-contract / prepaid market LISTEN and is delivering mid-range to low-range android devices at VERY competitive prices. In hindsight, I clearly overpaid for my Triumph at $300 when I could have picked it up for half price ($150!!!!) during black friday / cyber monday weekend.

The last time I was at Best Buys, I counted over 60 no-contract android devices for sale -- all under $180. There's no reason to sell a device for $549, much even $400. Those devices should not cost more than $350!!

posted on 17 Dec 2011, 07:25 2

46. remixfa (Posts: 14600; Member since: 19 Dec 2008)


tell that to apple. until then, premium phones get a premium mark up.

posted on 16 Dec 2011, 12:44 6

2. Sniggly (Posts: 7305; Member since: 05 Dec 2009)


You know, I never thought about it that way before. I always assumed the higher LTE cost was Verizon's way of helping offset its investment in the 4G network. However, it makes sense, and goes along with the general rule of thumb that whenever Apple is involved, others' profit margins sink.

posted on 16 Dec 2011, 13:57

21. rendHELL (Posts: 304; Member since: 09 Nov 2011)


hey where is your twin lil sniggly alias Lucy????

banned again??? lol...

posted on 16 Dec 2011, 16:50 2

35. Lucas777 (Posts: 2137; Member since: 06 Jan 2011)


but i dont see why verizon and sprint wud want the iphone if it was making everything horrible for them... it is not logical for it to be so detriemental when they both clearly wanted it

posted on 16 Dec 2011, 12:47 3

3. gallitoking (Posts: 4721; Member since: 17 May 2011)


Thank you Mr. Jobs for creating the iphone that revolutionized.... and changed the cell phone game...

iphone made from Android manufacturers..

carriers pay to carry the iphone

resells better than any phone in the planet.

I could go on.. but I want to give the haters some ammo

posted on 16 Dec 2011, 12:49 4

8. Sniggly (Posts: 7305; Member since: 05 Dec 2009)


FYI, this is not an example of keeping you nose clean. This is an example of doing your best to piss people off.

posted on 16 Dec 2011, 12:52 3

10. roldefol (Posts: 4362; Member since: 28 Jan 2011)


Sniggly, this is the Troll King we're talking about. At least he's trolling on an iPhone-related article.

posted on 16 Dec 2011, 13:14 2

15. tacohunter (Posts: 408; Member since: 06 Nov 2011)


If you call that trolling then you all troll about how great android is. He's not talking lies.

You just are using your ammo (and it's not much) on him.

posted on 16 Dec 2011, 13:26 3

17. roldefol (Posts: 4362; Member since: 28 Jan 2011)


When we go on iPhone articles and post about how much the iPhone sucks, yes, we are. But Gallito knows he's just pushing buttons and has fun doing it. Hail to the King!

posted on 16 Dec 2011, 13:37 2

19. tacohunter (Posts: 408; Member since: 06 Nov 2011)


And why do you have to compare android to iphone everytime (while talking mostly lies, and i search if you're talking the thruth). You never talk about other companies or you talk to less about it.

So I've encountered many comments were people did so. And it has an inverted effect. Gallito talks no lies here.

It's like comparing android froyo with ios 5. That's how i read some things. That's unfair. And if apple does something they wanna do it right not rushed.

posted on 16 Dec 2011, 14:03 4

22. roldefol (Posts: 4362; Member since: 28 Jan 2011)


Exactly, which is why there was a lot more backlash from Android fans than the rest of the tech sphere when the 4S was announced. Apple views the current LTE hardware as too immature and bulky for the iPhone, and they have ergonomic justifications for their 3.54" screen. The 4S has gotten a pass for its lack of hardware innovation because it's still a fast, intuitive phone with a great camera.

I get annoyed that the first thing out of the Fandroids' mouths after an Android phone gets a great review is "This will crush the iPhone once and for all!" You and I know the iPhone isn't going anywhere. But it's not just the comments fanning the flames - professional reviews of the Razr and Nexus compare it to the iPhone, even though there are so many design differences I can't see anyone cross-shopping them.

Gallito craps all over Android, but I still appreciate his humor. Whereas the other partisans around here - on both sides - tend to just be meanspirited. But hey, flamewars increase site hits, right?

posted on 16 Dec 2011, 14:51 2

28. tacohunter (Posts: 408; Member since: 06 Nov 2011)


Thx for your comment. I appreciate it.

posted on 16 Dec 2011, 17:10 1

39. jacko (unregistered)


iphone that revolutionized.... and changed the cell phone game lmao

http://www.youtube.com/watch?v=0jUS1H8cCiA

posted on 16 Dec 2011, 12:47 4

4. bossmt_2 (Posts: 454; Member since: 13 Oct 2009)


Actually I think more than subsidizing for the iPhone (though I would imagine that factors into it a bit) they're "punishing" Early Adopters by upping the price on LTE devices due to the R&D. They did a similar thing with EVDO when it launched. Remember that 6 years ago or so 3G devices were expensive. As the radio price comes down and the Network isn't in rapid build the prices will come down.

On that note, compared to the iPhone, Verizon 4G devices are still a good deal, you're getting 32 gigs of memory in pretty much every single LTE device out there.

Though it is amazing how Apple does business, if a competitor did this (locking in subsidized costs and upselling as much as they do) Apple would be up in arms.

posted on 17 Dec 2011, 18:42 2

56. ILikeBubbles (Posts: 525; Member since: 17 Jan 2011)


as if apple hasn't already tried to ban some of android's top manufacturers in many countries INCLUDING the U.S.

as far as the price bump it makes sense that Apple is sort of a siphon on profit because all they care about is their own profit short game, however as a few people have said so far i believe that it is possible for LTE to be part of the reason.

it all comes down to Supply & Demand... as new technology is released the technology that it replaced is much less desirable. Comparable to how dual core processors came down in price once quad core processors became mainstream in the PC market?

it's still no excuse for Verizion... but maybe it will change soon...

posted on 16 Dec 2011, 12:49 8

6. roldefol (Posts: 4362; Member since: 28 Jan 2011)


It's a very interesting theory, and I'm cynical enough to believe it. It doesn't make me dislike Verizon's business practices any more than I already did, or enjoy their service and LTE network any less. One look at the retail price of their phones tells the story: the 4S, Nexus, Rezound and Razr all retail at $650, yet those Androids are all $300 on contract. Are we subsidizing the iPhone or the LTE network? I'm not sure I care. I know that for my $300, I'm getting a tiny computer, MP3 player, GPS, gaming system and phone all in one - with the potential to blow the speed of my home WiFi out of the water. Is it competitive with other carriers? Probably not. But as long as Verizon keeps pouring their profits into building out the nation's best 4G network, I'm willing to pay.

posted on 16 Dec 2011, 12:49 4

7. LewsTherin006 (Posts: 140; Member since: 18 Nov 2011)


Yep it does kinda make sense, but its very dirty. Why punish the people that help you make money in the first place?

posted on 16 Dec 2011, 12:57 4

11. roldefol (Posts: 4362; Member since: 28 Jan 2011)


We won't know until next year when the LTE iPhones arrive, but I am curious to see if the redesigned iPhone is still priced lower at Verizon when it's fully competive with the Android heavyweights.

posted on 16 Dec 2011, 13:09 1

12. safetyfrog (Posts: 12; Member since: 12 Dec 2011)


I always thought it had to do with the fact that all of the phones an $299 had 32gb of storage either through on board or on board with a memory card except the HTC rezound which makes the difference with the beats headphones but it does make sense.

posted on 16 Dec 2011, 13:19 2

16. roldefol (Posts: 4362; Member since: 28 Jan 2011)


That's a pretty weak argument though, unless you actually believe the 32 GB iPhone is worth $100 more than the 16 GB. Memory is so cheap, we shouldn't pay more than $50 for the difference, and that includes a 100% markup. I originally thought they charged $300 for the Charge because of the SAMOLED+ tech, but then everyone priced the SGS2 at the old $200, so there went that theory. No, I think Verizon charges $300 for LTE Androids simply because they can.

posted on 16 Dec 2011, 13:12 5

13. som (Posts: 768; Member since: 10 Nov 2009)


Go to wirefly.com or amazonwireless.com that cost 50% less than Verizon store.

posted on 16 Dec 2011, 14:30 3

26. iHateCrapple (Posts: 734; Member since: 12 Feb 2010)


Watch out, probably a used/refurbished phone.

posted on 17 Dec 2011, 18:51

57. ILikeBubbles (Posts: 525; Member since: 17 Jan 2011)


even amazonwireless? What are some good 3rd party retailers that are worth buying from?

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