Analyst thinks Apple should cut iPhone 3GS cost to $0 in September

Jun 30, 2011
Finance

Apple’s iPhone is performing well in all its forms for being a single device that recently doubled the number of cellular providers carrying it – to two. But Apple’s iOS platform has nothing on Google’s Android, an operating system that currently dominates the market with better than 50 percent of the smartphones on the market […]

Apple’s iPhone is performing well in all its forms for being a single device that recently doubled the number of cellular providers carrying it – to two. But Apple’s iOS platform has nothing on Google’s Android, an operating system that currently dominates the market with better than 50 percent of the smartphones on the market running it.

It’s tough to keep up with Android simply because Apple’s iOS system is limited. The company can’t expect the iPhone to compete with all manner of Android phones, from top-tier to entry level and mid-range. Or can it? One analyst thinks that Apple not only can compete with lower-cost Android phones, but that the company is planning a pricing move in September to do just that.

According to a story from Forbes, RBC Capital analyst Mike Abramsky says he expects Apple to drop the price of the iPhone 3GS to nothing with a two-year contract from AT&T this fall. That’s when Apple is expected to roll out the iPhone 5 (or at least some new generation of its smartphone), and Abramsky thinks a price tag of free could help Apple seriously capitalize on users who are interested in the iPhone but for whom cost has been a limiting factor.

Here’s a quote from the Forbes story:

‘As its entry-level iPhone strategy, Apple is expected to cut iPhone 3GS to $0 (on contract, $399 unsubsidized) in conjunction with iPhone 5 launch,’ Abramsky writes in a research note. ‘This approach is intended to target mid-market smartphone buyers and counter Android’s mid-market expansion.’

A proprietary study from RBC Capital states that a free iPhone 3GS “would double the company’s global market opportunity and re-accelerate iPhone share growth outside of North America,” according to the Forbes piece. Abramsky also expects the iPhone 4 to drop to $99 with a contract in September, and the iPhone 5 to start at $199 on contract.

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Can we expect two iPhones in September?

And while we’re talking about markets that the iPhone could expand into given the right circumstances, it’s worth mentioning a rumor one analyst chucked out into the ether recently stating that he thought Apple would break out two iPhones in September – one, a scaled-back, unlocked model called the iPhone 4S, and the other the true design revamp, the iPhone 5.

A few outlets around the Internet reacted negatively to the story, and it sounded like bunk to us too. After all, analyst Chris Whitmore of Deutsche Bank didn’t really have any “facts” to back up his “rumor” of two iPhones. But another analyst, Horace Dediu of Asymco, raises a good point: There are far more prepaid cellular phone users out there in the world than on contracts, and Apple isn’t really serving any of them.

Apple does offer a few unlocked iPhones that can be placed on any carrier, but Dediu writes that there’s still 70 percent of the cellular phone market worldwide that Apple isn’t reaching:

Roughly 1.5 billion [phone users] are post-paid and 3.7 billion are pre-paid. That means that nearly 70% of the world is not being addressed by the iPhone as it currently stands. Put another way, a shift in positioning might result in a 250 percent increase in addressable market.

So maybe all these analysts aren’t too far off the mark when they suggest that Apple might be planning to make some changes with its mobile strategy. It would certainly help in the fight against Android, in which Apple is staying relatively steady but not gaining much ground.

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Phil Hornshaw

Phil Hornshaw is a freelance writer, editor and author living in Los Angeles, dividing his time between playing video games, playing video games on his cell phone, and writing about playing video games. He’s also the co-author of So You Created a Wormhole: The Time Traveler’s Guide to Time Travel, which attempts to mix time travel pop culture with some semblance of science, as well as tips on the appropriate means of riding dinosaurs. Check out his profile.

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