One of theories about why Apple’s stock had a run of down days was that BTIG analyst Walter Piecyk said carriers were going to fight back against fat iPhone subsidies this year.When a consumer pays $200 for an iPhone, Apple collects $600 on the sale. The missing $400 comes from carriers, who subsidise the cost as a way to get people to pay over $100 a month on data plans with those $200 smartphones. Unfortunately for the carriers, this plan hasn’t generated the sorts of huge profits they’d like to see.
As a result, carriers could, in theory, want to lower the subsidy. If they did lower the subsidy, then either Apple would collect less money per phone, or have a more expensive phone in comparison to its rivals. Either way, it’s bad news for Apple.
There’s just one problem with the theory, according to Bill Shope at Goldman Sachs: It’s not going to happen.
Apple is ready to release a new iPhone (he calls it the iPhone 5) in the September-October time frame, and Shope says,”the iPhone 5 launch is likely to be one of the most important smartphone product cycles we’ve seen to date.”
He’s right. Everything is set up for Apple to have the biggest smartphone release of all time. It will be on more carriers than ever. It will probably release a phone that runs on LTE, the high-speed wireless network. It will probably get a hardware refresh making it look brand spanking new.
Add it up, and it will be hard for one carrier to suddenly cut subsidies. As Shope says, “We find it very hard to believe that a large number of carriers will lower subsidies and risk share loss during this launch.”
Imagine if AT&T says to Apple, we’re only going to give you $300. Apple, can say, fine, and make it a Verizon exclusive. Or, as a lot of consumers come off 2-year contracts on AT&T from the iPhone 4, they’ll jump over to Verizon where the iPhone is cheaper.
Sure, the carriers could work together to lower subsidies, but that’s illegal.
The carriers don’t have a lot of room for negotiating leverage, which is why Piecyk’s argument never made much sense.