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iPhone U.S. dominance due to carriers' pricing strategies

March 19, 2013 12:50 PM ET

Unless U.S. carriers change their tune -- perhaps not possible considering the deals they've struck with Apple to purchase set numbers of iPhones -- the rumored lower-priced iPhone won't change that.

But a lower-cost Apple smartphone -- Singh speculated that it would replace the iPhone 4 in Apple's current line-up, and be priced at least as high as the $329 iPad Mini -- could add to the Cupertino, Calif. company's market share in, say, Europe, where contract costs are more in line with the price of the handset.

The wildcard in the U.S., said Singh, was T-Mobile, which will start selling Apple devices, presumably iPhones, this year. T-Mobile is notable because it's dropping subsidies -- requiring customers to pay full, unsubsidized prices, which for the iPhone start at $649 and climb to $849 -- but compensating with unlimited no-contract data plans and handset upgrades at any time.

Because T-Mobile asks customers to finance the smartphone purchase in monthly installments, it's more closely synchronizing the two-year cost with the price of the device. Lower-priced smartphones, in other words, result in lower monthly payments, and less paid out of pocket over a 24-month period.

If T-Mobile's strategy works, AT&T and Verizon could follow: CEOs of AT&T and Verizon told the Wall Street Journal in January that they're watching their rival's experiment, and could mimic it if customers take to the idea.

T-Mobile has slated an announcement for Tuesday, March 26, where it's expected to formally debut its no-contract, no-subsidies model.

A lower-priced iPhone could play well at T-Mobile, and if others emulate that carrier, be a necessity for Apple to maintain its market share position. Apple, of course, has been mum on plans for the speculated device, but Brian White of Topeka Capital Markets was adamant last Friday that one will come.

"We're now sure that a cheaper iPhone will come out this year, also in June along with the iPhone 5S," said White in an interview last week.

"The data shows that U.S. consumers don't consider long-term costs, [which is] perfectly rational because the long-term cost is the same, irrespective of the device chosen," said Singh. "However, in other countries, the long-term cost depends on the chosen device, which is why it becomes a major factor driving purchases."

And the high price of the iPhone, which has pushed Apple's revenue and profit to record heights, may not be able to withstand a spreading of that model to the U.S.

"Carriers in Europe and other countries offer many plans that don't have any upfront cost, so the monthly expenses certainly seems to be having an impact," Singh said.

covers Microsoft, security issues, Apple, Web browsers and general technology breaking news for Computerworld. Follow Gregg on Twitter at Twitter @gkeizer, on Google+ or subscribe to Gregg's RSS feed Keizer RSS. His email address is

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