iPhone U.S. Dominance Due to Carriers' Pricing Strategies

Apple's iPhone dominance in the U.S. is largely due to carriers suppressing market economics, an analyst said today.

By Gregg Keizer
Tue, March 19, 2013


Apple iPhone
Apple's iPhone dominance in the U.S. is largely due to carriers suppressing market economics, an analyst said today.

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U.S. carriers artificially dampen demand for lower-cost smartphones by disconnecting calling and data plan prices from the hardware. The result: No matter which smartphone the customer buys, the total cost of a two-year data plan is nearly the same, said Sameer Singh of Tech-Thoughts.

In countries where contract plans prices are dependent on the smartphone's cost, Apple's share of the market is weaker, Singh maintained.

"The scale of the difference between the iPhone's presence in the U.S. versus Europe suggests that [data plan] pricing plays a significant role," said Singh in an email Tuesday.

In a blog post today, Singh analyzed plan pricing in the U.S., the U.K. and Australia

According to Singh, since late 2011, when Apple released the less-expensive iPhone 3GS and iPhone 4 globally, the iPhone's share of the U.S. market has been between 10 and 15 percentage points higher than in the U.K. and Australia.

He attributed that to the pricing structure of U.S. calling and data plans, which don't gibe with smartphone costs. While the highest unsubsidized price of seven handsets from Apple, HTC and Samsung was a whopping 71% more than the lowest-priced model, the difference between plan costs over 24 months was a measly 14%.

"This gives high-end smartphones, including the iPhone, an unnaturally high share of the smartphone market," Singh said.

That's not the case in the U.K., where -- as in other European countries -- competitive carriers more closely match the price of a two-year contact package to the price of the smartphone.

"The unsubsidized prices of devices are far more in sync with the relative contract pricing -- the contract [cost] of an $820 iPhone 5 is 91% higher than that of the $224 Samsung Galaxy Ace 2 -- which leads to a far more natural price-demand relationship," Singh said.

Because price-sensitive U.K. consumers are more likely to opt for a cheaper handset like the Galaxy Ace 2, which is accompanied by a two-year outlay half as much as the iPhone 5, it's no surprise that the latter has a lackluster share of the European market.

In Australia, carriers use a mixed model that falls somewhere between the U.S. and the U.K., said Singh, by basing the monthly cost of a contract on the smartphone's price, but only until the total value of the calling and data contract reaches a certain point. The bottom line: A difference of 61% between the lowest and highest two-year costs, but some incentive to purchase a higher-priced handset.

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Originally published on www.computerworld.com. Click here to read the original story.
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