Apple Inc. (NASDAQ:AAPL) prices have dropped more than ten percent following news that the iPhone 5C wouldn’t be nearly as cheap as people had hoped, and that it would cost more than $700 in the lucrative Chinese market, but now that more detailed pricing information is available it looks like Chinese consumers can actually get the iPhone for free if they are willing to sign a lengthy contract, as reported by Philip Elmer-DeWitt for CNN Money.
China Telecom and China Unicom phone subsidizing
The information comes from China’s second and third largest carriers, China Telecom Corporation Limited (ADR) (NYSE:CHA) (HKG:0728) and China Unicom (Hong Kong) Limited (ADR) (NYSE:CHU) (HKG:0762). It shows that they are committed to subsidizing high-end phones for customers, as long as they are willing to sign long contracts at above-market rates. China Unicom alone has eight different plans that give the iPhone away as a loss-leader. Customers in the UK and Japan will also be able to get the iPhone 5C for free with a contract.
Analysts had expected Apple Inc. (NASDAQ:AAPL) to attempt to reclaim its dominance over the smartphone market with a cheap model priced in the $300 – $400 range, and were disappointed when their predictions didn’t come true. But it looks like Apple Inc. (NASDAQ:AAPL) may have a solid plan, just not the one people were clamoring for.
Apple selling strategy with iPhone 5C
Instead of creating a sub-standard product that could act as an affordable gateway model to full-featured models (with serious risks to the company’s brand), Apple Inc. (NASDAQ:AAPL) is trying to change the way other countries sell smartphones. The contract model, so common in the U.S., is almost unheard of in most of the rest of the world. Looked at this way, the iPhone 5C isn’t introducing customers to Apple Inc. (NASDAQ:AAPL) so much as the idea of long-term phone contracts.
One of the side-effects of those contracts is that the real cost of a phone is obscured by confusing rates and fees, so customers are more likely to compare phones based solely on features. Take away sticker prices, and Apple Inc. (NASDAQ:AAPL) increases its competitive edge over Samsung Electronics Co., Ltd. (LON:BC94) (KRX:005930) and other Android phone manufacturers.
The ‘cheap iPhone’ theory never really made sense for a company that has spent a decade following an approach to business that is bold and uncompromising, but trying to change the way entire nations sell their phones fits perfectly.