FreedomPop is a new start-up that plans to challenge AT&T (T) and Verizon (VZ) by providing free mobile data–500 MB per month. Both AT&T and Verizon have huge margins on mobile data because of the lack of competition. AT&T and Verizon use these big margins to subsidize Apple‘s iPhone, Google‘s Android and other devices.
The big carriers provide a higher amount of subsidies on iPhones than on Android devices. An iPhone that costs the consumer $199 may cost a carrier $500 to $700 even though they may be buying millions of these devices. The carriers more than make up for the upfront subsidies over the life of the contract due to huge margins on data plans.
Major carriers have already conceded that the money is not in voice but in data. Similar subsidies are offered by carriers in most developed markets.
Imagine what will happen if subsidies go away and consumers have to pay $700 to $1000 for an iPhone. My own research at The Arora Report shows that in such a scenario, Apple may easily lose over 50% of its sales of iPhones. Considering that Apple derives over 70% of its profits from iPhones, such a scenario will be a virtual death knell.
Our research shows that Apple is more dependent on subsidies than its competitors. Many other analysts have come to the same conclusion. Most of such research is proprietary, our readers can refer to excellent work done by Sameer Singh in his pieces iPhone market share heavily depends on carrier subsidies and The iPhone’s Churn Rate Illusion: Carriers Revolt over Subsidies.
It is widely accepted that iPhone users are more affluent….Read more at Forbes