Much as U.S. wireless carriers would like to reduce the high subsidies they pay on Apple’s iPhone, there’s little chance that they’ll do so anytime soon.
They’re far too worried about what would happen to their customer retention rates if they did so.
“We continue to believe carriers would lower iPhone subsidies if they collectively felt that competing devices would drive the same economics as iPhones,” says BMO Capital’s Keith Bachman. But right now, they don’t. And with no other hero handset to mitigate the risks of the spike in customer churn that might follow a reduction in iPhone subsidy, we’re unlikely to see one in the near term.
There are other reasons as well, one being the presumed launch of a new LTE iPhone. That device will likely inspire a strong surge of upgrades late in the year. And with carriers looking to move subscribers onto their LTE networks, they’re probably not going to mess with a device that will surely be instrumental in helping them do it.
Finally, as we’ve noted here before, Apple’s multiyear agreements with its carrier partners very likely prevent them from changing iPhone subsidy pricing. These deals are said to have most favored nation clauses so that any reduction in subsidy offered to one carrier would have to be offered to the others. And with Verizon and Sprint both newly locked into their contracts in for some time, Apple has no cause whatsoever to even entertain the idea of a lower iPhone subsdidy.