Will Apple Be Crushed If Smartphone Subsidies Go Away?

Motley Fool’s Sam Mattera has come up with another “click bait” classic. According to Mattera, Apple will be crushed if smartphone subsidies go away.

Here are the key points Sam Mattera use to support his theory:

• The iPhone doesn’t sell like a premium product – As a company, Apple positions itself to sell premium products at premium prices, pocketing a healthy margin in the process. The iPhone is no exception — at $649, it’s an expensive smartphone, and it earns Apple billions (by some estimates, about two-thirds of Apple’s profits). But the iPhone is special…despite carrying a premium price tag, Apple’s smartphone has been able to absolutely dominate some markets, including the US and Japan. These markets are special in that they are heavily distorted by carrier subsidies. Very few US consumers pay $649 for an iPhone — instead, they get Apple’s best model for just $199 (or free if they’re Japanese).

• Not the same old Android – But it wouldn’t be such a no-brainer if consumers had to pay for the phone themselves. Apple’s iPhone may be better than a cheaper Android handset, but is it really $300 better?

• Carriers are starting to move away from subsidies – T-Mobile was the first of the major smartphone carriers to abandon subsidies, dropping them this year in favour of full retail prices. Consumers can pay for their phone upfront, or pay for it in monthly installments, but either way, they’re paying the full price.

• ..And finally, iPhone sales could plummet if subsidies go away – If that happens, then it stands to reason that iPhone sales would plummet. Of course, Apple isn’t the only handset maker that would suffer — sales of Samsung‘s high-end, high-margin Galaxies would also take a hit. But cheaper handsets powered by Google‘s Android should flourish.

[su_animate]

Here’s the thing, if this actually comes to past, Apple could use its huge cash pile to provide interest free purchase of iPhone over a 12 − 24 months period. On the other hand, the company could charge a very small interest over the life of the loan.

Here comes the iBank.

[/su_animate]

Motley Fool