It's fashionable to talk about emerging markets like China, and how important they are to global smartphone growth.
But Apple also needs a low-cost smartphone in the U.S. to stay dominant domestically.
It's believed that Apple will launch a low-cost smartphone tomorrow, which the press has dubbed the iPhone 5C.
If that happens, its domestic impact shouldn't be overlooked. That's because of three interrelated trends in the U.S. smartphone market, which we analyzed in a new report from BI Intelligence, Business Insider's subscription tech research service.
First, led by T-Mobile, the carriers are shifting away from subsidies and they're stepping up efforts to get consumers to pay more of the up-front cost of their smartphones (it's working by the way, consumers are starting to shift away from the rigid subsidy-and-contract model to unsubsidized phones on flexible "prepaid" plans, as the chart above shows).
Finally, the remaining pockets of consumers that don't have smartphones are concentrated in lower income brackets and among older age groups.
If Apple's going to lure late adopters and older Americans onto its platform it's much more likely to do so with a lower-priced phone that makes these consumers feel they're getting access to the Apple experience at a "bargain price," even if that price is an unsubsidized $350 or higher.
A more reasonably priced phone would also help Apple handsets remain attractive as U.S. carriers slowly shift away from subsidies and toward more flexible contracts and data plans.
If consumers begin paying full-price or near full-price for their phones upfront, a new Apple device for $650 to $850 will feel like a big reach (that's the current price range for an unlocked contract-free iPhone 5). Even superseded models like the iPhone 4 retail for $450 or above.
Apple is still very dependent on subsidies. Let's remember that it was only once AT&T started subsidizing iPhones that the iPhone line got past its "sticker shock" problem and began running away with U.S. market share. In a smartphone market gradually inching away from generous subsidies, Apple has to diversify its price points.
The United States is Apple's key market. As a manufacturer, Apple currently holds a 40% market share, according to comScore's latest numbers, for July 2013. Samsung, Apple's closest competitor domestically, is at 24%. To protect that dominance and have a shot at increasing it, Apple can't afford to find itself outflanked here by companies with more flexible hardware pricing.
If a low-cost Apple smartphone isn't made available in the U.S., that would be a major strategic error for Apple since subsidies won't prop up the domestic smartphone market indefinitely.