How do Cell Phone Companies Get Away With Charging So Much for Off-Contract Phones?

[mamamia88]

An ipod touch costs $200. An off contract iphone costs around $600. How do they get away with this? You could say that the contract allows the carrier to subsidize the price of the phone but, there is no contract for the ipod touch and that only costs $200. Are you telling me that a little tiny radio chip costs $400 additional? I'm sure apple isn't losing money on the ipod touch and is selling them at a profit. I'm sure the carriers could afford to sell the phone off contract for say $300 and not lose a cent. You could say that is there way to force people into a contract but isn't that something like blackmail? Also i don't think they would lose much money on contracts. If you have to go into the att store to buy a phone anyway the employees could talk you into activating it right there with a contract. Am i the only one who doesn't think this is good for the consumer? I personally think that it would be better for everyone if the carriers stopped having store fronts and just offered the service with no hardware. You would have to go to samsung.com or something to buy the phone and then go to att.com to purchase the service. the cost of not having as many employees would probably outweigh any profits lost by selling the hardware.

[qamelian]

The cell phone company isn't "getting away" with anything. Go to the Apple website and check how much it costs to buy an iPhone directly from Apple. For example, I just checked the price of an iPhone 4S via apple.ca, and the cost starts at $649. Blame Apple for the price, not the cell phone companies.

http://store.apple.com/ca/browse/home/shop_iphone/family/iphone

[mamamia88]

The cell phone company isn't "getting away" with anything. Go to the Apple website and check how much it costs to buy an iPhone directly from Apple. For example, I just checked the price of an iPhone 4S via apple.ca, and the cost starts at $649. Blame Apple for the price, not the cell phone companies.

http://store.apple.com/ca/browse/home/shop_iphone/family/iphone

Android phones are in a similar boat. I'm just saying that there is no way that saumsung can sell stuff like http://www.amazon.com/Samsung-Galaxy-Player-4-2-New/dp/B007SRNPPU/ref=sr_1_1?ie=UTF8&qid=1344893285&sr=8-1&keywords=galaxy+player+4.2 for $180 and then charge over $500 for something very similar only difference is one can make phone calls.

[qamelian]

Ah. I assumed you were talking about the service providers instead of the manufacturers.
Anyway, the bottom line is the same as for any other product, after considering their costs, they will charge what people appear willing to pay. If people keep willingly buying products at a certain price point, why would the manufacturers sell something at a lower cost? These are corporations that exist to maximize profits, after all. :)

[deadflowr]

It's a rebate system. Apple and cell phone company make agreements where Apple gives the cell phone companies cheap rebates in exchange for a percentage of the backend(your monthly bill). In the end Apple makes more this way.

[mamamia88]

It's a rebate system. Apple and cell phone company make agreements where Apple gives the cell phone companies cheap rebates in exchange for a percentage of the backend(your monthly bill). In the end Apple makes more this way.

but couldn't they make a deal that is better for the customers? Like make the same deal with all the carriers? Or make the contract term shorter?

[deadflowr]

but couldn't they make a deal that is better for the customers? Like make the same deal with all the carriers? Or make the contract term shorter?

They don't care about the customers, they only care about the customers wallets. They'll only care about the customers when the customers start revolting and change carriers and cell phones.

[deadflowr]

What's really sad is that, sometime in the last decade, Apple went from a technology company to a financial institute.

[era86]

What's really sad is that, sometime in the last decade, Apple went from a technology company to a financial institute.

Whet? They are a technology company... How are they a financial institution?

[KiwiNZ]

The Telcos need to make a profit, off contract means no customer loyalty and at risk revenue therefore they cannot afford to subsidise off contract deals, why should they?

Without profit things would be far worse for the consumer.

[neu5eeCh]

Whet? They are a technology company... How are they a financial institution?

He was speaking figuratively/rhetorically.

However, I would say that Apple's goal was always to be a monopoly. Steve Jobs made that abundantly clear in numerous and various ways. I was fed up with Apple in 1992 -- saw it then and see it now. The fact that so many in the "counter-culture" idolize Jobs/Apple is understandable, but supremely ironic.

[deadflowr]

Whet? They are a technology company... How are they a financial institution?

I didn't say they were an institution, I said they were an institute. Meaning Apple has grown so enormously wealthy, that they have reach a tipping point where profits seemingly exceed all else. They are an institute because so much of the tech world depends(whether for good or ill) on them, and so much of the financial world also rides on how well their revenue/profit streams are doing.Unfortunately, money changes things.


The Telcos need to make a profit, off contract means no customer loyalty and at risk revenue therefore they cannot afford to subsidise off contract deals, why should they?

Without profit things would be far worse for the consumer.

Yes, it is a third way tie. WIN,win,win.
Everybody gets something beneficial out of it.

[Paqman]

You could say that the contract allows the carrier to subsidize the price of the phone but, there is no contract for the ipod touch and that only costs $200. Are you telling me that a little tiny radio chip costs $400 additional?

It's quite possible that part of the difference is that the Ipod Touch is a loss leader, Apple assuming they'll make a fair bit off the back of Itunes sales. That won't account for all $400, but it will factor in the pricing.

[mamamia88]

It's quite possible that part of the difference is that the Ipod Touch is a loss leader, Apple assuming they'll make a fair bit off the back of Itunes sales. That won't account for all $400, but it will factor in the pricing.

how do you explain the samsung android based players then? they don't own the play store and probably don't see any profits from that

[Paqman]

how do you explain the samsung android based players then? they don't own the play store and probably don't see any profits from that

Designed down to a price to compete with the Touch maybe?

I'm pretty sure Apple would integrate the pricing of their devices with the content stores they plug into to some degree. People would probably spend a lot more over the life of an mp3 player on music than they would on content for a smart phone. Smart phones are on a shorter lifecycle and apps are much cheaper than albums. So an mp3 player stands a much better chance of making back a discounted price if you're selling the content that goes with it.

The fact that other folks making mp3s haven't made anywhere near as much money as Apple shows how effective that strategy is. If other manufacturers come down to meet your loss-leading price point, but don't have their own store to lock people into then they're cutting their own throats.

[sammiev]

I was listening to a radio show today on the highway and they now claim iphone is in 4th place now and guess who is in 1st?

[CharlesA]

The Telcos need to make a profit, off contract means no customer loyalty and at risk revenue therefore they cannot afford to subsidise off contract deals, why should they?

Without profit things would be far worse for the consumer.
This.

My Android phone cost me 200 bucks with no contact. I would gladly pay it because the plan I have with no contact is way cheaper than the one I could get with a contract, if I count the separate data plan.

[miho]

The Telcos need to make a profit, off contract means no customer loyalty and at risk revenue therefore they cannot afford to subsidise off contract deals, why should they?

Without profit things would be far worse for the consumer.

I'm loyal to a tellco company that treats me right. US Cellular has treated me right. Comcast on the other hand are a blundering pack of idiots and not deserving of my loyalty, and I am well outside of any initial contract I once had with them. As soon as an equally viable ISP comes to my area, there is no doubt in my mind that Comcast is getting the boot from my home.

As far as cellphones are concerned, it's not really a bad deal. As a customer who signed up for her cellphone service back in January, the fact that US Cellular is offering heavily discounted Samsung Galaxy phones for an absurd price to new customers is beyond my ken and borderline offensive to me because I'd love to get a new phone without paying half a thousand dollars. I admit that the cellphones I use are well worth the money they cost without contract, but the system they use to reward new customers coming over and leaving existing customers high and dry is highly disgruntling to me.

[KiwiNZ]

I'm loyal to a tellco company that treats me right. US Cellular has treated me right. Comcast on the other hand are a blundering pack of idiots and not deserving of my loyalty, and I am well outside of any initial contract I once had with them. As soon as an equally viable ISP comes to my area, there is no doubt in my mind that Comcast is getting the boot from my home.

As far as cellphones are concerned, it's not really a bad deal. As a customer who signed up for her cellphone service back in January, the fact that US Cellular is offering heavily discounted Samsung Galaxy phones for an absurd price to new customers is beyond my ken and borderline offensive to me because I'd love to get a new phone without paying half a thousand dollars. I admit that the cellphones I use are well worth the money they cost without contract, but the system they use to reward new customers coming over and leaving existing customers high and dry is highly disgruntling to me.

The subsidy is not hard to understand, they for go profit on the phone for ongoing profit from the contract.

[miho]

The subsidy is not hard to understand, they for go profit on the phone for ongoing profit from the contract.

Oh, I totally understand that. I do. It doesn't change my feelings on the matter, but yeah.