Photo: Cicarese Design
Thanks to a monster Q4, Apple’s iPhone is holding its own against the Android onslaught in the U.S.But according to the WSJ, its performance in markets without carrier handset subsidies is a potential concern.
iPhones sell for about $600. In the U.S., about $400 of that purchase price is paid by the telephone carrier in exchange for a 2-year service contract.
In other countries, however, carrier subsidies are lower or non-existent, and in some of these countries the iPhone is just too expensive to compete well. This is especially true in Europe, where some economies are in a recession, and consumers are strapped.
Anton Troianovski of the Wall Street Journal reports that only 5% of phones sold in Greece are iPhones, for example, and only 9% of phones sold in Portugal. This market share is well below the iPhone’s ~25% share of smartphones in the U.S.
Most of the other smartphones sold in Greece and Portugal, Troianovski reports, are Android.
According to a Greek wireless company interviewed by Troianovksi, the issue is price: Even the cheapest iPhone, the 3GS, sells for $535 without a contract. This compares to the Samsung Galaxy Mini, which runs Android and sells for $188.
Of greater potential concern for Apple is what could be a trend toward carriers reducing or eliminating subsidies.
A Danish telco, for example, stopped offering subsidies last year after realising that preferred having cheaper calling plans than having their handsets subsidized.
When the subsidies were eliminated, handset sales declined 10%.
The WSJ reports that Spain’s telecom giant Telefonica is now considering reducing subsidies as well.
Obviously, the iPhone’s performance in Greece and Portugal isn’t worth a lot of concern. But the subsidy issue is worth watching closely, especially if it becomes a trend.
Apple’s profit margins on the iPhone are nothing short of remarkable, especially relative to the profit margins of its competitors.
One reason the company is able to sustain those margins, however, is the carrier subsidy model, which makes consumers much less sensitive to handset price.
If the subsidy model begins to break down, Apple could be forced to cut prices, thus eating into its margins.
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