Analyst: Apple could be hurt in shift away from subsidies

Although Apple (NASDAQ:AAPL) is the world's No. 2 smartphone maker and, for now, the most popular U.S. smartphone producer, the company's position could be eroded as carriers in developed markets shift away from providing handset subsidies, according to a financial analyst.

In a research note, Wells Fargo analyst Maynard Um notes that Apple is expected to have a strong year, with expected product introductions including the iPhone 6 and a so-called iWatch smart watch. However, he wrote that "the balance of power may start to shift back to wireless operators from handset vendors."

Apple's iPhones, especially new, high-end models such as the 5s, are subsidized by carriers in many markets, including the U.S., to the tune of hundreds of dollars per device. For instance, the 16 GB iPhone 5s costs $650 unsubsidized but is generally $200 with a two-year carrier contract.

"Wireless operators have been offering generous subsidies of ~$400 per smartphone, getting the price to consumers to ~$250 in an effort to drive increased smartphone penetration," Um wrote. "With 75%+ penetration in some developed countries (US), we fear subsidization may become less of a focus as operators switch to a focus on driving usage. While we do not anticipate an immediate value swing, we believe we could see further evidence of a shifting balance of power that could weigh on Apple shares."

All four Tier 1 U.S. carriers, sparked by T-Mobile US (NYSE:TMUS), have launched handset financing and upgrade plans. The move could boost lower-cost smartphone vendors. 

Last month AT&T (NYSE:T) CEO Randall Stephenson heralded the shift away from subsidies as a "transformative" moment for the industry. "When you're growing the business initially, you have to do aggressive device subsidies to get people on the network," he said at an investor conference, according to CNET. "But as you approach 90 percent penetration, you move into maintenance mode. That means more device upgrades. And the model has to change. You can't afford to subsidize devices like that." 

For more:
- see this CNET article

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