Apple iPhone subsidies won't disappear says J.P. Morgan analyst

Apple iPhone subsidies won't disappear says J.P. Morgan analyst
The recent decision by a pair of Spain-based carriers to end subsidies on the Apple iPhone has some stateside fans of the device worried that this idea might spread to the U.S. and beyond. A small backlash against carrier subsidies had sprung up earlier this year led by T-Mobile's USA Chief Marketing Officer Cole Brodman. The executive, who is leaving his position at the end of this month, said in March that subsidizing phones is hurting carriers. But Apple iPhone fans needn't worry according to J.P. Morgan analyst Katy Huberty who doesn't expect any changes in the current process beyond the move in Spain.

Huberty issued a research note on Friday that noted that the three major U.S. carrier offering the Apple iPhone (AT&T, Sprint and Verizon, as if you didn't know) must offer subsidies on the phone according to the terms of each carrier's contract with Cupertino based Apple. Each carrier's pact with Apple runs for a few years and each expires on a different date making it unlikely that the trio would team up to pressure the manufacturer to remove the subsidy clause on the contracts.

Because of the heavy subsidies offered by mobile operators, selling a new smartphone is usually a money-losing affair for the carriers which is made up for by the two year contract imposed on new and upgrading iPhone buyers. And while profits are usually turned after the 2-year contract expires, it forces these companies to charge ETF fees and other penalties on customers who try to break a contract. Huberty says that AT&T is no longer allowing 18 month  upgrades to the Apple iPhone and the nation's second largest carrier now requires a customer to have completed at least 20 months of a 24 month contract before they can upgrade to a new phone. With companies like AT&T laying out money for customers to buy the latest smartphone, this shows how much they depend on a completed contract to turn a profit. Some carriers are charging $30 and more to a customer who is upgrading to a new phone, even if the customer has fulfilled the requirements of a 24 month pact.

With no changes in how John And Jane Doe purchase their Apple iPhone in the U.S., Morgan's Huberty expects it to be business as usual with second quarter shipments of 25 million to 28 million units of Apple's smartphone. That is lower than the 30 million units expected by Wall Street and Huberty says that when it comes to the Apple iPhone 4S, supply and demand is finally in balance. As for the next iteration of the device, the analyst expects an LTE enabled model to be launched in October which should lead a strong surge of upgrades in the second half of this year. And for those in the U.S. worrying that they might have to dig deeper into their pockets to pay for the handset, don't worry. Huberty says that it is not going to happen anytime soon.

source: CNET

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28 Comments

1. bragzter

Posts: 53; Member since: Feb 21, 2012

Without carriers Apple is doomed. So why don't carriers negotiate a lower fee with Apple. But I don't know if they will do that especially as it was rumored Apple wanted to drop carriers. We'll see how this plays out. But if all carriers demand that from Apple, they will have no choice.

10. taco50

Posts: 5506; Member since: Oct 08, 2009

Apple will do fine without subsidies, but android is dead without them. For a case study check the tablet market. Apple dominates with no subsidies.

12. atheisticemetic

Posts: 377; Member since: Dec 18, 2011

but we're talking about phones genius lol apple is eventually going to bend. Once the fad goes away and people realize what they're missing with other OS's (windows android...pick your poison) carriers will eventually fight back, but for now they iLube it up and take it where the sun dont shine

19. taco50

Posts: 5506; Member since: Oct 08, 2009

iPhone isn't a fad so that's wishful thinking. The tablet market is not heavily subsidized like the smartphone market. People just aren't willing to pay high prices for android.

26. chadrick0814 unregistered

Correct me if I'm wrong, but iPad had about 80% of the tablet market and is now down to just over 50% in a year and a half. Is that really "dominating" considering that just a few years ago Apple dominated the smartphone market? Subsidies will eventually erode along with eroding market share. JP Morgan is the same bank that just lost $ 2 billion in a matter of days over another bad prediction they made.

15. remixfa

Posts: 14605; Member since: Dec 19, 2008

Chinchillas

21. eDiesel

Posts: 142; Member since: Mar 17, 2012

What are you talking about. Apple will sink without subsidies. I sell androids all the time with out subsidies. (virgin mobile, boost, Go phone......)

23. phantom1076

Posts: 11; Member since: Oct 21, 2011

except the iphone 4s without subsidy cost $649 while similar phones with better specs, better looking like HTC One S is going for $$400. I dont care how popular Apple is, pricing at the end of the day still matters. Not that many people will pay $700 for a phone. I know you will point out Asian markets, but those people are not going to make Apple selling 35m/quarter. Everyone knows Apple makes out like bandits with carrier subsidy while Android manufacturers don't hold the same power. Even the Samsung Galaxy S II is only paid for around $300-350 by Carriers, while iphone 4S is $450 for each carriers. They subsidize the iPhone high pricing by raising the price on 4G Android.

22. APPLE_R0YALLY

Posts: 73; Member since: May 08, 2012

We need and require subsidies, this is Business™

2. theoak

Posts: 324; Member since: Nov 16, 2011

The iPhone is like 50% (exaggerating some) of all smart phones being used on a given carrier. And hence gives the carrier data and texting revenue. Like it or not, the carriers need the iPhone too; probably more so. Look at Sprint for example. They needed the iPhone to keep folks on Sprint.

5. -box-

Posts: 3991; Member since: Jan 04, 2012

Yeah but that hasn't really worked for them yet. They got some new subscribers and kept some, but they lost a fair amount due to data speeds and coverage gaps

9. taco50

Posts: 5506; Member since: Oct 08, 2009

Wrong Sprint had their best quarter with the iPhone. T-Mobile got crushed without one though.

13. atheisticemetic

Posts: 377; Member since: Dec 18, 2011

they had their best selling quarter in terms of sales themselves, but their profit margin? isnt that what business is ultimately about??

18. taco50

Posts: 5506; Member since: Oct 08, 2009

Yes business is about making money. So why do you think carriers are willing to sell cell phones at subsidy prices? That's all phones not just iPhones. Why do all the carriers want an iPhone? Pa posted an interview with Randall Stephenson last week. He goes over why the iPhone subsidies are worth it to carriers.

17. remixfa

Posts: 14605; Member since: Dec 19, 2008

Tmobile just had a positive quarter. you are wrong like always.

25. jdcxxx

Posts: 15; Member since: Nov 14, 2011

Although sprint record an increase in subscribers they lost over 800 million dollars. The same time last year sprint lost around 450 million. The iphone subsidies and converting to LTE led to sprints huge losses.

3. networkdood

Posts: 6330; Member since: Mar 31, 2010

Good article...instead of lowering subsidies...raise the upgrade fees....right?

4. remixfa

Posts: 14605; Member since: Dec 19, 2008

Subsidies may never go away, but they are going to lessen as the years go on. Why do I think that? Look at the rise of prepaid services. What used to be just a tiny fraction of the industry is now big big money and growing. You dont get heavily discounted phones with prepaid. I think that will take a lot of pressure off the big carriers to make phones so cheap and we will start to see a rise in phone pricing as subsidies shrink a long side plan costs. As more and more people move to the metro's and to plan's like Tmobile's Value plan unlimited for $60 bux, people will start wising up to how much they are actually paying for that "upgrade pricing". Its not going to happen tomorrow, but I believe it will happen.

6. PimpStrong

Posts: 310; Member since: Jul 25, 2011

I would love to keep my phone for years and pay a cheaper non-subsidized plan on TMO but I'm buying a new phone almost annually.

16. remixfa

Posts: 14605; Member since: Dec 19, 2008

then get smart about it and pick up phones on places like ebay and craigslist and get on an unsubsidized plan. If they are breaking on you from use, then pay for the insurance which gives u lifetime warranty on it. Once I'm out of the mobile business i have no intentions of ever going back on contract. its too expencive and you get locked in. Bunk that. $30 bux a month for 5 gigs of 4g data, unlimited text, and 100 mins.. perfect plan for me. You would have to buy a new high end phone every 6 months just to equal what you pay on contract at places like VZW and ATT.

7. jdcxxx

Posts: 15; Member since: Nov 14, 2011

J P Morgan just admitted to losing 2 billion dollars from trade loses. I'm hesitant to believe any analyst from jp Morgan right now

8. Bluesky02

Posts: 1439; Member since: Dec 05, 2011

I hope subsidies on Windows Phone aren't so expensive... :)

11. Phoneguy007

Posts: 218; Member since: Jun 02, 2011

I think apple will eventually lower subsidies but I dont see them doing it any time soon.

14. atheisticemetic

Posts: 377; Member since: Dec 18, 2011

took the words right out of my mouth when the fad dies down they'll be forced to give a little. right now the name sells itself, but when the novelty wears off with newer operating systems coming out the tide will change

27. mrochester unregistered

5 years and we're still waiting for this "fad" to be over! I think the Android "fad" will be over long before the iPhone "fad" is.

20. jeff327

Posts: 87; Member since: Feb 28, 2012

Is today the day you want to run a story based on a JP Morgan analysts? Considering their own news today I would not trust anything that comes there way.

24. networkdood

Posts: 6330; Member since: Mar 31, 2010

If apple can adapt to whatever changes in the marketplace occur, then they should be fine. We will see how it goes, if and when a smaller ipad is actually released, as well as seeing if when the iphone 4GS is released, if it will have 4G LTE and a bigger screen as customers want those qualities in a phone and settle for the tiny iphone at times.

28. Fuego84

Posts: 357; Member since: May 13, 2012

Where did you get that info on the HTC One S being $400 unsubsidized? I went to T-Mobile and it cost $600 unsubsidized and at best buy its $649.00, which is where I bought my HTC One S + $168.99 on the 2yr Black Tie Insurance plan. Oh and yes I'm more willing to pay $700 to for an android handset not tied down to a 2yr contract than to buy an outdated Apple IPhone.

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