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If this is driven by carrier request, as the article speculates, then it is yet another example of how the mobile market is broken... Are phone manufacturers se

If this is driven by carrier request, as the article speculates, then it is yet another example of how the mobile market is broken... Are phone manufacturers selling to consumers/end-users or are they selling to networks/providers? You can't do both, equally -- at least not at the moment -- because the carrier's interests and profit models generally directly conflict with the interests of consumers. Until the wireless industry works a bit harder to align themselves to the needs of their consumers, stuff like this is going to happen. The exception are models like Apple's where they've figured out how to consistently drive profits by focusing on the consumer and using the phone as a platform for selling other things (i.e.: apps and content like movies and music) -- the carriers are almost incidental in Apple's model. Almost.

mikeash 13y ago
Apple still works with the carriers quite a bit. For example, you can't turn on tethering unless the carrier allows it (often requiring you to pay more money), and most iPhones sold in the US are locked to a single carriers. But who can blame them? Of the $650 cost of a new iPhone, the user only pays $200, while the carrier pays $450. Apple knows where their bread is buttered.
- dak1 13y ago
  Don't worry, you're paying that entire $650 (and usually then some). It's just hidden in your contract price.
  - sigkill 13y ago
    THIS is what I don't understand. Why do people call it "subsidized" when you're locked in to a 2 year contract with an early termination fee. IT IS NOT SUBSIDIZED, PEOPLE. You may say, well I'm paying the same per month whether I take a new phone or not from the carrier, so... it's subsidized right? Nope, they're just gouging you when you're on an old phone. Taking the new phone just slightly reduces your disadvantage. Let's put it this way, if MVNOs can offer you piggybacked network rates at $X while traditional operators rates are $3X aren't you a bit surprised? It's not that the operators are going to sell to MVNOs for a loss, and not that MVNOs are going to sell to you for a loss.
    - mikeash 13y ago
      I doubt that anyone on this site is the least bit confused as to how the system actually works. It's not exactly a secret. They still front the money, then get it back from you over time. I'd say that qualifies as "subsidized", especially when the "over time" payments are not broken out separately. Regardless of how it works out afterwards, the fact is that most American buyers prefer to pay $200 up front with a contract versus paying all $650 themselves. If Apple wants the carriers to keep putting up $450 in exchange for locking people into contracts, they have to cooperate at least a bit.
      - PeterisP 13y ago
        Comparing oranges with oranges - you compare the "bundle" cost with the price you'd pay if you simply took the phone on credit from any electronics shop with the same upfront payment and length of contract, and added a cheap no-handset mobile plan. The phone qualifies as "subsidized" only if buying it from your mobile company turns out cheaper than if buying it separately. Generally it isn't.
        mikeash 13y ago
        Where do I obtain one of these "cheap no-handset mobile plans" on my carrier of choice?
        PeterisP 13y ago
        You can do such a comparison probably in any country worldwide except US. For US in particular the "subsidy" answer is simple - no, you're not getting any subsidies, in mobile comms pricing you're getting ripped off, and noone has any idea on how to fix it.
        mikeash 13y ago
        I don't understand this idea that subsidies are mutually exclusive with getting ripped off. Yeah, I pay a lot of money. I also get ~$450 back to help pay for my phone. That's a subsidy. The fact that my monthly bill is ~$65/month/person is irrelevant to that.
  - mahyarm 13y ago
    I remember several years ago back in canada, the plan prices were the same if you brought your own phone or if you got one on contract. They wouldn't even give you decent promo plans unless you got the contract anyway. So when pricing is the same, the rational thing to do is to buy a subsidized phone.
- kalleboo 13y ago
  In my experience, Apple will enable/disable the following features by carrier: - Tethering - FaceTime over 3G - 3G, LTE, toggles to turn 3G or LTE on or off - APN settings And unlike on Android, where these features just get disabled on the phones locked to/distibuted by that carrier, even unlocked iPhones bought on another continent will lock these features when they see the carrier's SIM card.
- fpgeek 13y ago
  Absolutely. Carriers are Apple's biggest customers, not end users. Possibly the funniest part of the "you are the product" meme many Apple fans are fond of is how many of them fail to notice that they are the product that Apple has sold to a carrier.
- incongruity 13y ago
  Do they work behind the scenes with the carriers? Absolutely, but the consumer doesn't see it. They see that their iPhone works. Consistently and without any branding or experience difference accross cariers. AT&T doesn't get to customize or pre-install anything and Verizon can't lock out features. (Teathering is perhaps a small exception in this, but the point is largely true). The point is that as you model a product/service experience, don't confuse what happens behind the line of visibility -- it doesn't matter to the consumer -- and Apple has done a great job of shifting that line of visibility to abstract away the carrier experience as much as it can. As others have mentioned, don't for a second think the consumer isn't paying the full cost of the phone. They are and more -- but that subsidy doesn't differentiate any carrier from another. They all do it. So, once again, the consumer fails to see any differentiation based on carrier. As I discuss at length above, consumers are primarily buying the Apple experience and platform -- and the carrier is secondary.
Touche 13y ago
> The exception are models like Apple's where they've figured out how to consistently drive profits by focusing on the consumer and using the phone as a platform for selling other things (i.e.: apps and content like movies and music) -- the carriers are almost incidental in Apple's model. Almost. This is absolutely untrue. Apple's business model is to sell $650 phones to carriers, who then turn around and sell them to consumers for the same price as $350 dollar phones. This is why they have fantastic margins. If the carrier model ever goes away it would be bad news for Apple, who would have to compete on price to a greater extent than they do today.
- incongruity 13y ago
  To an extent, you're right, I overstated my case. They make their profits from hardware, yes, but they don't sell to carriers. They sell to consumers, some of whom buy from individual carriers but the majority channel for iPhone sales is from Apple itself. No other phone maker can say that. Secondly, Apple's profit is uniquely enriched because it has built the platfrom that it has -- again, no other phone manufacturer reaps the direct from consumer benefit Apple does. Lastly, because Apple sells markets/sells to the consumer, the consumer picks Apple first and then the carrier -- many change carriers but continue to be loyal to Apple as a phone maker. This is definitely the culmination of a major sea change in the mobile industry. Apple may not the only phone maker that has ever had a consumer act this way, but they are the first to have it happen on a widespread basis.
  - FeloniousHam 13y ago
    Horace Dediu makes the case that carriers pay more for Apple hardware because Apple does a better job of getting high value customers onto the network (use more data or more expensive contracts).

mikeash 13y ago

Apple still works with the carriers quite a bit. For example, you can't turn on tethering unless the carrier allows it (often requiring you to pay more money), and most iPhones sold in the US are locked to a single carriers. But who can blame them? Of the $650 cost of a new iPhone, the user only pays $200, while the carrier pays $450. Apple knows where their bread is buttered.

dak1 13y ago
Don't worry, you're paying that entire $650 (and usually then some). It's just hidden in your contract price.
- sigkill 13y ago
  THIS is what I don't understand. Why do people call it "subsidized" when you're locked in to a 2 year contract with an early termination fee. IT IS NOT SUBSIDIZED, PEOPLE. You may say, well I'm paying the same per month whether I take a new phone or not from the carrier, so... it's subsidized right? Nope, they're just gouging you when you're on an old phone. Taking the new phone just slightly reduces your disadvantage. Let's put it this way, if MVNOs can offer you piggybacked network rates at $X while traditional operators rates are $3X aren't you a bit surprised? It's not that the operators are going to sell to MVNOs for a loss, and not that MVNOs are going to sell to you for a loss.
  - mikeash 13y ago
    I doubt that anyone on this site is the least bit confused as to how the system actually works. It's not exactly a secret. They still front the money, then get it back from you over time. I'd say that qualifies as "subsidized", especially when the "over time" payments are not broken out separately. Regardless of how it works out afterwards, the fact is that most American buyers prefer to pay $200 up front with a contract versus paying all $650 themselves. If Apple wants the carriers to keep putting up $450 in exchange for locking people into contracts, they have to cooperate at least a bit.
    - PeterisP 13y ago
      Comparing oranges with oranges - you compare the "bundle" cost with the price you'd pay if you simply took the phone on credit from any electronics shop with the same upfront payment and length of contract, and added a cheap no-handset mobile plan. The phone qualifies as "subsidized" only if buying it from your mobile company turns out cheaper than if buying it separately. Generally it isn't.
      - mikeash 13y ago
        Where do I obtain one of these "cheap no-handset mobile plans" on my carrier of choice?
        PeterisP 13y ago
        You can do such a comparison probably in any country worldwide except US. For US in particular the "subsidy" answer is simple - no, you're not getting any subsidies, in mobile comms pricing you're getting ripped off, and noone has any idea on how to fix it.
        mikeash 13y ago
        I don't understand this idea that subsidies are mutually exclusive with getting ripped off. Yeah, I pay a lot of money. I also get ~$450 back to help pay for my phone. That's a subsidy. The fact that my monthly bill is ~$65/month/person is irrelevant to that.
- mahyarm 13y ago
  I remember several years ago back in canada, the plan prices were the same if you brought your own phone or if you got one on contract. They wouldn't even give you decent promo plans unless you got the contract anyway. So when pricing is the same, the rational thing to do is to buy a subsidized phone.
kalleboo 13y ago
In my experience, Apple will enable/disable the following features by carrier: - Tethering - FaceTime over 3G - 3G, LTE, toggles to turn 3G or LTE on or off - APN settings And unlike on Android, where these features just get disabled on the phones locked to/distibuted by that carrier, even unlocked iPhones bought on another continent will lock these features when they see the carrier's SIM card.
fpgeek 13y ago
Absolutely. Carriers are Apple's biggest customers, not end users. Possibly the funniest part of the "you are the product" meme many Apple fans are fond of is how many of them fail to notice that they are the product that Apple has sold to a carrier.
incongruity 13y ago
Do they work behind the scenes with the carriers? Absolutely, but the consumer doesn't see it. They see that their iPhone works. Consistently and without any branding or experience difference accross cariers. AT&T doesn't get to customize or pre-install anything and Verizon can't lock out features. (Teathering is perhaps a small exception in this, but the point is largely true). The point is that as you model a product/service experience, don't confuse what happens behind the line of visibility -- it doesn't matter to the consumer -- and Apple has done a great job of shifting that line of visibility to abstract away the carrier experience as much as it can. As others have mentioned, don't for a second think the consumer isn't paying the full cost of the phone. They are and more -- but that subsidy doesn't differentiate any carrier from another. They all do it. So, once again, the consumer fails to see any differentiation based on carrier. As I discuss at length above, consumers are primarily buying the Apple experience and platform -- and the carrier is secondary.

Touche 13y ago

> The exception are models like Apple's where they've figured out how to consistently drive profits by focusing on the consumer and using the phone as a platform for selling other things (i.e.: apps and content like movies and music) -- the carriers are almost incidental in Apple's model. Almost. This is absolutely untrue. Apple's business model is to sell $650 phones to carriers, who then turn around and sell them to consumers for the same price as $350 dollar phones. This is why they have fantastic margins. If the carrier model ever goes away it would be bad news for Apple, who would have to compete on price to a greater extent than they do today.

incongruity 13y ago
To an extent, you're right, I overstated my case. They make their profits from hardware, yes, but they don't sell to carriers. They sell to consumers, some of whom buy from individual carriers but the majority channel for iPhone sales is from Apple itself. No other phone maker can say that. Secondly, Apple's profit is uniquely enriched because it has built the platfrom that it has -- again, no other phone manufacturer reaps the direct from consumer benefit Apple does. Lastly, because Apple sells markets/sells to the consumer, the consumer picks Apple first and then the carrier -- many change carriers but continue to be loyal to Apple as a phone maker. This is definitely the culmination of a major sea change in the mobile industry. Apple may not the only phone maker that has ever had a consumer act this way, but they are the first to have it happen on a widespread basis.
- FeloniousHam 13y ago
  Horace Dediu makes the case that carriers pay more for Apple hardware because Apple does a better job of getting high value customers onto the network (use more data or more expensive contracts).