The biggest news, though it wasn't much of a surprise, at Apple's (NASDAQ:AAPL) iPhone unveiling Tuesday was the introduction of the "mid-range" iPhone 5c alongside the higher-end iPhone 5s. However, it looks like the iPhone 5c is going to be a dud, at least in terms of attracting subscribers to carriers that offer low-cost or no-contract service.
That's mainly because Apple will charge $549 for the 16 GB iPhone 5c without a contract and $649 for the 32 GB model without a contract. Those prices are only $100 less than the iPhone 5s.
Apple discontinued the iPhone 5 altogether (the 5c is basically the iPhone 5's internals with a colorful plastic shell). Apple will sell the iPhone 4s for $450 without a contract.
Many analysts and observers had expected the no-contract cost of the 5C to be between $400 and $500. The thinking was that such a low price point would open the iPhone up to more consumers in emerging markets, where shoppers don't have much money and where carriers rarely subsidize the cost of phones. But the iPhone 5c isn't much of a bargain.
In the U.S. market, a cheaper 5c could have been a windfall for T-Mobile US (NYSE:TMUS), whose no-contract Simple Choice plans are even more appealing when paired with a low-cost smartphone. Since there's not much of a difference in price between the 5c and the 5s, T-Mobile's advantage essentially evaporates. In fact, at $99 with a two-year contract, the 5c--the "cheaper" model--is actually more immediately attractive from carriers that subsidize devices in exchange for contracts.
"It doesn't help the more budget-challenged individuals," Recon Analytics analyst (and FierceWireless contributor) Roger Entner. "And therefore it doesn't help the value-centric carriers, everybody from prepaid to T-Mobile and Sprint."
Sprint and T-Mobile have worked to set themselves apart from Verizon Wireless (NYSE:VZ) and AT&T Mobility (NYSE:T) in part by offering less expensive services. But the steep price tag on the iPhone 5c could push more shoppers to the subsidies offered by AT&T and Verizon.
With its pricing, Apple has said clearly that it is more concerned about maintaining its margins than expanding its market share. Sure, the company's deal with NTT DoCoMo will help expand its addressable base, and an agreement with China Mobile would be a major boon, but the 5c will be geared toward customers at those carriers willing to pay a premium.
"Nobody was expecting [Apple] to go cheap exactly, but there was a reasonable expectation they would go cheaper" than the price of the iPhone 5c, IDC analyst John Jackson said, adding, "They're going to stay premium and aspirational for as long as they can."
Apple will undoubtedly sell millions of 5c models in addition to the iPhone 4s, which is now being offered free with a two-year service contract or $450 unsubsidized. However, the clear losers in this, from a carrier perspective, are the low-cost and no-contract providers. If the iPhone 5c had been priced cheaper, they could have presented a powerful alternative to the subsidy models from AT&T and Verizon. Apple may have brought more color to the iPhone, but T-Mobile and other no-contract providers will face a gray day.--Phil