updated 10:30 am EDT, Thu April 4, 2013
Price pressure on plans in Europe is putting squeeze on carriers
As part of an interview with Bloomberg, France Telecom CEO Stephane Richard says that sales of "premium" smartphones such as the iPhone and Galaxy S models may start to suffer as the economy of Europe continues to stagnate. The top smartphones bring with them high subsidies and up-front costs which are no longer fashionable, creating more demand for lower-priced models to accompany the cheaper plans that some European customers enjoy. Customers have become more frugal, says Richard.
"We are in a period of changing customer behavior," said Richard, claiming that his customers are becoming less interested in the "latest and greatest" and more interested in lowering their overall monthly bill. Typical plans from France Telecom, which is renaming itself Orange after its acquisition of the popular brand, including unlimited in-country text and data and a generous data allowance (by North American standards) for substantially less than typical US prices. The cheapest plan from the French carrier (which may be a student deal) includes 3GB of data along with unlimited voice and text for around $26 per month.
Richard's remarks, if accurate, may signal slower European growth for both Apple and Samsung's most expensive phone models over the next year or two. The CEO said that "selling a phone for $600 [these days] is getting more and more difficult" when more common models offer much of the same core functionality at lower cost.
Apple, for its part, has so far responded with reducing pricing on older iPhone models such as the 4S and 4. Rumors have the company preparing a lower-cost iPhone, thought to be aimed primarily at the prepaid markets in emerging economies such as China and Brazil.
Economic problems across Europe may not necessarily reflect on sales of premium phones in North America or elsewhere, however. According to the most recent sales figures, the iPhone makes up around 84 percent of AT&T's smartphone sales, 60 percent of Verizon's sales and a rising part of Sprint and now T-Mobile's hardware sales.
Among Android models, Samsung's Galaxy S line is far and away the most popular device as well, seen by customers as one of only a handful of flagship Android phones that are truly full-featured and worth paying extra for. Price, however, is a much stronger driver of sales in the Android market than with customers who already know they want an iPhone.
In France, economic slumps and increased competition in carriers and phone models have seen prices overall drop by around 25 percent over the past three years, causing stock price drops amid reduced profits. Richard said in the interview that he expects fewer "early adopters" when Apple brings out its next iPhone refresh -- perhaps implying that Samsung's latest flagship, the Galaxy S4, hasn't done as well as expected in its pre-order period.
Apple also may see a drop of first-to-buy customers, since its next iPhone model is widely expected to be the "iPhone 5S" -- a refinement of the existing iPhone rather than an overhaul, though rumors of some key new features such as a biometric home button persist. France Telecom's plan prices are expected to drop further in 2013, mostly due to competition from a company called Iliad, a low-cost carrier who's plans are on average 40 percent lower. Canada, previously known for its long contracts and expensive plans, has likewise seen increased pressure to reform and reduce consumer costs in the face of competition modelled more closely on the US' two-year, extras-included "unlimited" bundles, which is changing the profit picture for the biggest carriers.
If Apple can find a way to offer buyers a quality iPhone experience while bringing down the total cost of ownership, it may find more excitement among customers -- as it did when it brought out the iPad mini. Long resisted by the company, the Mini's improved design sacrifices a few premium features (most notably the Retina-quality display) for a lower build cost and dramatically lower point-of-entry price tag.
Though pundits predicted its "premium" price (for its size class) would be an obstacle, in fact the company found it could barely meet demand and that the smaller version is outselling the full-size, heavier but more powerful iPad by a significant margin since it has been seen by buyers primarily as a "lower cost iPad." It has since gone on to far outsell any competing (and generally smaller) "seven-inch" category tablet.
Possible "low-cost iPhone" concept art by Nickolay Lamm