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The danger in Verizon's new $299 phones

Posted: , by Michael H.

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The danger in Verizon's new $299 phones
Since the introduction of the iPhone 3G, the standard cost of a smartphone on contract has been $199, but that is now changing in the world of Android phones, at least those released on Verizon. We're sure you've noticed recently, Verizon is trying to drive up the cost of top tier Android phones by offering lower subsidies. The new standard for top-tier Androids seems to be $299 on a two-year contract. We've already seen the DROID Bionic launch at that price, and the DROID RAZR set to be the same. And, leaked Verizon release schedules show the Samsung Galaxy Nexus and HTC Rezound (formerly HTC Vigor) are also expected to be the same cost. 

The pricing line

The danger in Verizon's new $299 phones
The last of the $199 Verizon smartphones seems to be the DROID 3, which features a dual-core CPU and qHD screen, much like the new high-end phones that are clocking in at higher prices. Verizon seems to want to price dual-core LTE phones at $299, while putting single-core phones, like the HTC Rhyme, at the classic $199 price. At first, it looks like Verizon is trying to put a divide between what is essentially last-gen hardware (single-core CPU, WVGA screen) and current-gen hardware (dual-core, qHD), and create a new pricing scheme in the process. But, it is actually placing the line in a less obvious place between CDMA phones with <512 MB of RAM and LTE phones with 1 GB of RAM.

The trouble with this trend is that the reasoning behind the price bumps are a little opaque, and may not be so easily explained to the average user. Since the introduction of the first LTE phones, Verizon has been trying to push up the price of handsets. At first, certain LTE handsets, like the HTC Thunderbolt, were launched at $249, and this seemed like nothing more than a sort of "4G tax". But, this recent bump looks more like an across the board change aimed simply to see whether or not customers are willing to pay more.

The key behind these price bumps looks like the full retail price of the phone. The pattern seems to be that phones with a full retail price of $400-500 get a price tag of $199. This includes the DROID 3 (full retail of $459) and the HTC Rhyme ($439). While phones with full retail prices over $500 get the new $299 price tag, like the DROID Charge (at launch, full retail of $569), DROID Bionic ($589). Of course, the big outlier of this trend is the iPhone. 

Subsidy disparity and the average customer

The danger in Verizon's new $299 phones
The Apple iPhone 4 (8GB) which is now selling for $99, still has a full retail price of $549, while the new iPhone 4S (16GB) is selling for the standard $199, but has a full retail price of $649. We've known for a long time that Apple gets much higher carrier subsidies than any other manufacturer, but given the new pricing scheme for Android devices, this benefit seems more unfair than ever before. Granted, the iPhone is a "cultural touchstone", and "one of a kind" and blah blah blah. However you spin it, the end result is still that top-tier Android phones which match or surpass the iPhone in every spec or feature list around are getting $100 less in subsidies. This has the unfortunate side-effect of not only putting those Android devices at a disadvantage, but it makes the iPhone seem like a bargain as a dual-core phone at the mid-tier price of $199.

The majority of consumers still likely don't understand the subtle differences between the top-of-the-line smartphones. We can assume that workers in stores can do a fair job of explaining the difference between iOS and Android. But, what exactly would these workers be saying to justify a $100 premium on the top Android phones? The differences between the DROID 3 and DROID Bionic ultimately fall to two things: the LTE radio and double the RAM of the Bionic. Explaining the difference in speed between LTE and CDMA is an easy task, but explaining the performance difference between 512 MB of RAM and 1 GB of RAM can be tricky, especially in smartphones that are already more powerful than most users care about. And that's something that we want to stress: we know that most of our readers are not the "average". Most of you are a little more fervent about technology, so you will likely not only notice, but have use for that extra power. Average users will notice the difference in browsing speed with LTE, but maybe not much else. 

The danger of the new prices

The danger in Verizon's new $299 phones
Aside from consumer confusion over the reasons behind the new pricing scheme, the bigger issue is that Verizon is attempting to derail the update process of manufacturers and create a new norm. The way pricing schemes have traditionally worked is that new devices move in and get the $199 price point, while older phones get a minor price drop to around $149 or $99. With this system, consumers could get last-gen hardware at a slight discount if they didn't want or need the top-notch devices. The new system would put another level in that system with top-tier phones at $299, last-gen phones at $199, and older than that would be lower priced. This means that at the top, consumers will have to pay more for not as much of a performance boost, and those looking for bargain or free phones will be left with worse hardware at the lower levels. 

It also gives the iPhone what could be considered an advantage being placed in the upper middle-tier price range. As we mentioned, it's easy to explain the differences between iOS and Android, but it isn't as easy to describe the real-world difference between a $199 Android and a $299 Android, or why that premium is worth it. However, it's more likely that because of the pricing structure, the iPhone 4S will be lined up as a competitor to the top Android devices like the Bionic even though the iPhone 4S doesn't have the specs that Verizon seems to be setting up for that top tier (LTE and 1 GB of RAM). That leaves the iPhone 4 being compared to devices like the HTC Rhyme on the lower middle-tier. Because Apple doesn't list RAM capacity, that means LTE will be the only real selling point that will be noticeable for average consumers on the Android competitors at the top, and are customers really going to pay an extra $100 for that?

So far, the other major American carriers have not followed Verizon's lead, but if Verizon finds that customers will pay the extra cost, you can be sure that AT&T at least will follow that lead. We may be lucky enough that T-Mobile and Sprint will keep lower prices in order to be more competitive, but it's hard for any company to give up the bigger profits available from offering lower subsidies. If we're lucky, this pricing structure won't last, but it has the potential to set a dangerous precedent in smartphone pricing.

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posted on 18 Oct 2011, 16:50 2

1. Snapdude (Posts: 128; Member since: 27 Aug 2009)

couldnt have said it any better! carriers are looking to raise bottom line profits upfront by lowering subsidies so they see profit from the get go, not jus waiting until the subsidy is paid off. If this scheme works i fully agree att and possiblly sprint will follow shortly. but without better resoning consumers will fail to understand the process and may ultimately lose this battle with price tags in the end :/

posted on 18 Oct 2011, 20:10 1

117. narley (Posts: 357; Member since: 14 May 2009)

each phone that has been both dual core and LTE will be 299.99.
Anything that is ONLY LTE or ONLY Dualcore has been less...
I just wrapped up your entire page in a sentence.

posted on 18 Oct 2011, 21:07 5

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

i really think verizon is making a mistake and android manufacturers are making a big mistake... before when the droid was say the same price as the iphone, salesman could convince customers to buy the droid that supposeddly was even better... but with this price raising, peope will simply buy the iphone... (i say this becuase most people get very caught up in the price of the phone even though its only a small part of the 2 year payment)... i personally do not think the iphone is mid teir, because its real world experience is far superior to what its specs wud refer to... we tend to base specs on android phones where i dont think thye are fully utilized, as they are on the iphone..

posted on 19 Oct 2011, 13:49

142. gdbw (Posts: 17; Member since: 18 Dec 2009)

In most of western Europe they either give these phones away or charge you a minimal $50 for an 18 month contact. Some carriers over sea's will even toss in a free DVD player or what not just for signing up with them. I for both Verizon and AT&T over the past 6 years; we are being ripped off by the cell carriers in this country!

posted on 18 Oct 2011, 16:54 6

2. andro. (Posts: 1999; Member since: 16 Sep 2011)

It doesn't matter what pricing the iphone 4s is it turns out that its a massively faulty phonew and those you were suckered into buying it not only have last years phone on their hands but also a faulty one

Iphone 4s faulty screen:



Iphone 4s appalling battery:



posted on 18 Oct 2011, 16:55 8

4. MichaelHeller (Posts: 2707; Member since: 26 May 2011)

Unfortunately, Apple has already sold enough iPhones that any issues it has won't really matter overall. People who were waiting will still buy it.

posted on 18 Oct 2011, 16:55 9

5. GoodFella (Posts: 112; Member since: 18 Oct 2011)

Thanks for the worthless post Andro...

posted on 18 Oct 2011, 19:29 1

105. Paden (Posts: 262; Member since: 07 Jul 2011)

All phone models have defective units. I certainly wouldn't keep buying Apple products if this happened all the time...

posted on 18 Oct 2011, 20:13 1

118. bucky (Posts: 2912; Member since: 30 Sep 2009)

Andro, you r a goof! Do you have any idea how many android phones have issues? Stop bashing blindly. Even android owners like myself dont side with you...

posted on 18 Oct 2011, 20:39 1

121. remixfa (Posts: 14461; Member since: 19 Dec 2008)

all first run handsets have issues. its first adopter syndrome. we like to focus on when the big names have the issue, but reality is all brands have the same issue. first run phones get all the glitches that get ironed out in 2nd/3rd run phones. If you dont want the glitches, wait a month or 2.

the difference is how the manufacturer decides to handle it. If they own up to it and replace/fix/update the defective hardware, then its all good. if they ignore it then i hope angry customers bash the doors in until they are heard.

posted on 19 Oct 2011, 01:08

132. Landmarkcm (Posts: 506; Member since: 11 Aug 2009)

Lol. obviously a strictly android fanboy. I never thought id be team apple actually but best Sprint phone all around ive ever had! & finally one to stick with instead of wondering what new droid is out every other day. Theres a reason why apple holds the best resale value as well. You can find good and bad with all devices. Your article links are not widespread problems.

posted on 18 Oct 2011, 16:54 3

3. GoodFella (Posts: 112; Member since: 18 Oct 2011)

You'd be really surprised how many people in my store ordered the $299.99 32GB iPhone. I think since the 64GB Phone came out, many people are thinking, "Oh, I'll just get the one below it" and they are still paying $299.99 for a phone. I see the point of the article, and there will be some people who will turn away from that price point, but I am not sure its that drastic.

posted on 18 Oct 2011, 16:56 5

6. WsuppMjay (Posts: 4; Member since: 18 Oct 2011)

Oh please, stop the complaining! At the end of the day they are still subsidized !! Here in Belgium we have to pay the full price if we want to buy a cell phone, no subsidies whatsoever !!! :(

posted on 18 Oct 2011, 18:42 2

86. SPcamert (Posts: 56; Member since: 06 Feb 2010)

Thank you! The concept of a "subsidized" phone is unique to America anyway. Any subsidies given to a phone automatically dilute the value of the product in the eyes of the consumer anyway. You think those "free" phones are actually free? No. Try almost $200 in most cases. Companies just give them away because no one would ever pay that for them anymore and the relative value of the phone in the eyes of the consumer is so much less because of other offerings. If no company offered subsidies in America you can bet there'd be a lot less iPhones and a lot less DROIDs activated. If customer's are willing to pay $299.99 on contract for a 4G phone then that is their market value not necessarily reflective of their suggested retail price. If they don't sell the prices will drop. What's amazing to me is that American wireless providers still offer discounts this high given the surrounding global market.

posted on 18 Oct 2011, 18:56 2

91. MichaelHeller (Posts: 2707; Member since: 26 May 2011)

Yes, but those subsidies are usually passed along to the customer anyway through higher monthly costs on the plan, and it comes with the limits of a 2 year contract.

posted on 18 Oct 2011, 16:58 3

8. biophone (Posts: 1994; Member since: 15 Jun 2011)

Iphone 4S middle tier really mike give me one good reason besides specs why it is middle tier. Its a 4G handset it is dual core it has siri its made of premium materials etc. its even priced well how good of a deal is that!

posted on 18 Oct 2011, 17:01 4

10. Snapdude (Posts: 128; Member since: 27 Aug 2009)

correction: 3g handset

posted on 18 Oct 2011, 17:02 2

11. Snapdude (Posts: 128; Member since: 27 Aug 2009)

and siri is software based not hardware which means no real impact to production cost

posted on 18 Oct 2011, 17:03

14. WsuppMjay (Posts: 4; Member since: 18 Oct 2011)

You ask for one good reason why the iPhone 4s is a middle tier device but the argument cannot be based on the specifications of the device ? Does that really make any sense to you ? :o

posted on 18 Oct 2011, 17:05

16. Scuba_Steve (Posts: 79; Member since: 16 Oct 2011)

Pricing tier for Verizon. It's not a 4G phone on Verizon so with pricnig it's a premium 3G device and if you look at the 16GB iPhone4s *most popular* Then it's correctly seen as a middle tier phone. *Pricing wise*

posted on 18 Oct 2011, 17:07 1

17. Snapdude (Posts: 128; Member since: 27 Aug 2009)

following your logic the droid x2 and droid 3 are rightfully priced as well so you just proved that the iphone is mid tier, since it is a generally accepted fact that those two dual core phones are mid range. good job :)

posted on 18 Oct 2011, 17:09

18. biophone (Posts: 1994; Member since: 15 Jun 2011)

On at&t it does 14.4 mb/s which means it is a 4g handset. Thats the same speed as the atria 4g. There is no debating this its a 4g handset.

posted on 18 Oct 2011, 17:10

19. biophone (Posts: 1994; Member since: 15 Jun 2011)

Ok look at this way a gt-r is faster then ferrari 458. You going to tell me that the gt-r is high end and the 458 is not?

posted on 18 Oct 2011, 17:11 1

23. biophone (Posts: 1994; Member since: 15 Jun 2011)

Price doesn't make something high end. I can sell a piece of my s**t for 1 billion dollars. Is my piece of s**t high end. I don't think so!

posted on 18 Oct 2011, 17:13

25. biophone (Posts: 1994; Member since: 15 Jun 2011)

My logic doesn't involve price making something high end or not. Where did I say that?

posted on 18 Oct 2011, 17:14

26. biophone (Posts: 1994; Member since: 15 Jun 2011)

What does cost have to do with anything.

posted on 18 Oct 2011, 17:15 3

27. Snapdude (Posts: 128; Member since: 27 Aug 2009)

14.4 is not true 4g, just "att's 4g"

posted on 18 Oct 2011, 17:16 2

28. Snapdude (Posts: 128; Member since: 27 Aug 2009)

production cost has much to do with what the end price of the phone will be to the comsumer... if it costs more to make it will cost more to buy from the manufacturer which means higher cost for the customer... siri is not hardware based so it costs next to nothing to implement on the phone which means it wont raise prodction cost so it should not be factored into the customer price for a device

posted on 18 Oct 2011, 17:19

29. Scuba_Steve (Posts: 79; Member since: 16 Oct 2011)

However a premium device does cost more than a non-premium device. That's in any market, just not phones.

So I don't get what you're trying to say?

posted on 18 Oct 2011, 17:21 1

31. biophone (Posts: 1994; Member since: 15 Jun 2011)

It meets the goverments standard for 4G so its 4G. No debate.

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