Reports suggest that Apple will introduce a cheaper plastic-bodied iPhone 5C on September 10. The 4-inch phone will supposedly replace the iPhone 4 and the iPhone 4S in the product lineup. While the company will certainly gain market share in the lower-end spectrum of the smartphone market in the U.S., it’s just a side effect. The new model is the perfect iPhone for the rest of the world. In many countries, carriers are switching to unsubsidized, SIM-only plans and the iPhone is too expensive for regular people.
U.S. carriers are the exception, not the rule. AT&T, Verizon and Sprint won’t bill you less if you bring your own phone. It’s the same for Canada. But in Europe, you can choose between a standard subsidized plan and a much cheaper SIM-only plan. For example, in France, you get unlimited talk, text and data (with a speed reduction after 3GB) for $25 per month (€19.90). The only downside is that you have to pay full price for your phone.
The same thing is true for the U.K., our own Natasha Lomas currently pays $23 (£15) for unlimited talk, text and data. And you can switch carriers whenever you want. T-Mobile is trying to bring the same experience to the U.S., but its prices don’t come close to what European carriers provide.
Would you pay $900 upfront for a 16 GB iPhone 5?
The European market shift happened a few years ago. Instead of seducing customers with cheap subsidized phones, young and scrappy carriers like Free chose to lure customers away from expensive plans, and it worked. These new plans weren’t just marginally cheaper, they were one-half to one-third the cost. Now, there’s no coming back. Unsubsidized plans will only get more popular every year. In France, they now represent 39 percent of the phone subscriber base — with 74.8 million active SIM cards, it isn’t a small market.
Yet, would you pay $900 (€679) upfront for a 16 GB iPhone 5? If you do the maths, it is much cheaper than switching back to a subsidized plan. Moreover, most people don’t want to see expensive bills again on their bank statements. The only option now is to swallow the $900 pill or pick another phone. It’s hard to convince yourself that you need the latest iPhone if you only check your emails and Facebook and take some Instagram pictures. Most people don’t read gadget blogs, they just want an Internet-enabled phone.
These days, most customers have to choose between an old iPhone 4 or 4S and an Android phone. You can buy a Galaxy S4 for $665 (€497). It’s not cheap, but it’s still nearly $250 cheaper than an iPhone 5. Just seeing the 3.5-inch screen of the iPhone 4S in a store should convince you to get a phone with Android, Windows Phone, Or BlackBerry 10.
Apple will be prepared to face the unavoidable shift to unsubsidized plans.
Releasing a cheap iPhone that is competitive with popular Android phones, has a bigger screen than the iPhone 4S display and is considered as “new” by everyone is the right strategy for Apple. The company will regain market share in Europe and will be prepared to face the unavoidable shift to unsubsidized plans.
But Europe is only part of the story. While it is still the second market behind North America, China is the indisputable third market for Apple. The gold iPhone 5S will do well on the Chinese market, but many customers would rather pay less for their phones. That’s why the iPhone 4 and 4S are a lot more popular in China than in the U.S. The iPhone 4 currently costs $500 in Chinese Apple stores. They hurt the margin and the bottom line as production costs remain high — Apple still uses glass and aluminum. A plastic-bodied phone will lower production costs.
The iPhone 5C could be $200 or $300 cheaper than the iPhone 5S, but the key element of the 5C is that it’s a new phone. Apple wants to play the market share game again by exploring new market segments, just like it did with the iPod mini and nano, or the iPad mini. But it all comes down to perception. Why should I buy this phone instead of this one? Here’s what Apple wants you to think: it’s an iPhone, it’s the same price as these other phones, and it’s new.