Cheaper! Faster! Slimmer!
Apple pretty much invented the hype machine, so itís no surprise itís running wild now. With the developer conference coming up on June 9 in San Francisco, many have pegged this date as coinciding with Apple's release of a 3G version of its handset wonder. With this anticipated new handset comes a whole slew of new hyped-up expectations, obviously including a faster network, as well as a slimmer design and perhaps a price tag thatís even cheaper than before.
In a research note released last week, Bernstein analyst Toni Sacconaghi is recommending a carrier subsidy on the iPhone to bring the price down to the $200 level. He predicts this will lead to a significant boost in sales. Sacconaghi compared Apple to Motorola at the height of its success with its RAZR handset. When the price dropped from $500 to $150, the sales run rate of the RAZR doubled. He expects the same would happen to Apple if it too drops prices.
The subsidy would only apply to those customers that sign up for an AT&T postpaid service plan. According to Bernstein, AT&T activations have only accounted for 50% of all iPhones sold to date. The rest have been unlocked phones used over different networks, something AT&T cannot account for.
ďBy our estimates, AT&T would still book $120 to $240 more revenue from an iPhone subscriber than from the average postpaid subscriber,Ē Sacconaghi wrote. ďFurthermore, the price elasticity required to make a $200 subsidy worthwhile appears relatively modest. The economics may be even more attractive if AT&T raises data fees for the 3G iPhone and/or reduces its revenue share with Apple.Ē
With a 3G network and sleeker design presumably on their way, AT&T could probably get away with increasing the data fees associated with the phone to make up for the subsidy. At $30 per month, it would still fall below the unlimited data fee for BlackBerry users.
The hefty price tag on the iPhone has clearly been one of its biggest limiting factors. Even after Apple instituted the first price drop, $400 or $500 is still a lot to pay for a phone. Yet, that hasnít stopped more than 1 million people from buying the handset faster than any other phone to date. The iPhone subsidy would clearly benefit AT&T. Apple, on the other hand, could potentially be the company feeling the bulk of the subsidyís effects. Since it is probably taking a cut of AT&Tís service revenue from the data plans, AT&T will likely ask Apple to, in turn, lower the price it is being charged for the phones. However, if itís a traditional subsidy that AT&T comes up with, and phone sales double as Bernstein predicts, Apple makes money no matter what. Everyone -- customers, AT&T and Apple alike -- goes home happy.
Apple has always been good at fending off pricing pressure. It has kept its top-tier iPod at relatively the same price over the years to avoid its products becoming commodities. A cheaper iPhone not only runs the risk of cannibalizing the iPod product line, but if it also happens to be souped up with a faster network and sleeker design, the logic of a subsidy just doesnít make add up. It isnít in Appleís DNA.
Right now this is all speculation. Neither AT&T nor Apple have committed to anything. Even the Canadian launch of the iPhone via Rogers did not shed any light as the Canadian carrier hasnít released any specifics. We will have to wait until June or perhaps even later to find out if Apple will thank its loyal customers with a cheaper phone. Knowing Apple, however, nothing is a done deal.
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