T-Mobile iPhone goes from myth to reality: $580, but no contract | Hacker News Reader

T-Mobile iPhone goes from myth to reality: $580, but no contract

arstechnica.com

67 pointsvelodrome83 comments

I really hope transparent pricing takes off in mobile. When consumers see the true cost of the device they are buying, manufacturers are going to have to compete on price. Which is awesome.

I think what T-Mobile is doing here is pretty brillant. Their biggest obstacle is that consumers don't care if the iPhone really costs $600 when all they see is the $199. But they've managed to find a way that makes the upfront costs significantly lower at only a slight bump to their monthly rates. I think this has a chance of working, but I worry that T-Mobile doesn't have the muscle to push other carriers into doing something similar.

It's hard to break the mental model of subsidies. As an example:

Last month my wife dropped her old phone and it broke, and I got her a Nexus 4 for $299 and we signed up for simplemobile (which is a Tmobile MVNO) for about $90 a month for the both of us.

Our previous bill from Tmo was $130 a month, a full $40 more AND on contract. Since it took a few days to wait for the Nexus she was asking "Why don't we just go to the store and get the free phones instead? Why spend all this money on a fancy phone?"

I'm glad tmo is doing this, but I think they will need to market it in such a way that it is obvious to consumers that they will save money in the long run.

Nexus 4 + t-mobile off contract is just fantastic. I knocked $50/month off of my monthly bill from Verizon (and got more in return). The thing pays for itself in 6 months.

I now pay less for voice+data with Ting than I did for voice+text, with an employer discount, on Verizon. Furthermore, the phone (refurb Optimus S) is so inexpensive, I don't have to worry about destroying it.

Sensible pricing is starting to win.

Until MVNOs allow roaming, the idea that they are an acceptable substitute for real cellular coverage is dangerous and we need to stop spreading it.

There are ENTIRE STATES and some major cities where networks like SimpleMobile have zero coverage. Green Bay, WI, for example, is big enough for an NFL team, but if you find yourself there with a SimpleMobile phone, it will be a brick. Be prepared for the fact that you cannot call roadside assistance on a cross-country road trip, from a suburb that's too far away from town, or from some minor population centers. Forget small towns (I have some extended family in fairly remote areas).

If you stay in San Francisco at all times, I'm sure SimpleMobile is great, but it would not be a very good idea to do this in the Midwest. Maybe if there was still a cost savings when you factored in an emergency dumbphone on a strong network like Verizon.

Why pay an extra $480 a year for emergency service, when you can get it for $30 a year?

$30 is what PagePlus will charge you in a year of prepaid service, using the per-minute pay-as-you-go plan. You get access to the entire Verizon network at 10 cents per minute, plus roaming access at 29 cents per minute.

In fact, this is even better for emergencies than postpaid service. Now you have access to both the GSM and CDMA 2G networks.

I use StraightTalk, and I'm pretty sure they use both AT&T and T-Mobile. If you have coverage on either of those (at the very least, on AT&T), I should have coverage as well.

Agreed. I was pretty resistent to the new pricing when the rep was explaining it to me because i just knew there had to be some fine print. Needless to say i'm very happy with the plan change and i'm paying much less than i was. I did have to pay a little more up front for the phone but it was worth it.

Did you explain to her the $40 a month difference? And did she get's it?

I think T-Mo will be fine - they are still offering subsidization for customers who want it, and it's no more expensive than the competition.

So an iPhone is $600, but I can buy an iPad for $320?

That alone is pretty impressive job Apple/AT&T/Verizon have done on positioning & playing to people's psychology.

The iPad mini is $330. Interestingly, the iPod touch is $299 which seems expensive compared to the iPad mini, and cheap compared to the iPhone 5.

Welcome to the magic stratification of Apple's pricing. The next "upgrade" is always $30-$50 away, which makes the upsell so tempting.

That iPad is a generation behind in processor and only has a 1024x768 pixel screen.

Those aren't cost drivers though; in volume I doubt a retina screen is any more expensive than the low-res ones, and semiconductor cost does with die area, not "generation". The iPad 2 is possibly cheaper because of better integration -- as the manufacturer revs the board they can address inefficiencies.

Not also that some components go the other way entirely: battery cost goes with the physical mass of the battery for obvious reasons, and the iPad has 3x as much battery as the phone.

The real reason the "premium" product is cheaper than the "budget" one is pure price discrimination. The iPhone 5 is "better enough" than its previous incarnations that people are willing to buy it for $600. But there are people who won't buy an iOS product at all at that price, and as Apple can manufacture them more cheaply they sell a differently configured model (carefully tuned to be "worse enough" than the premium models that it won't cannibalize sales!) for a lower price that the market will bear and that will still make them money.

Everyone does this, across all market segments (and not just in tech). There's nothing surprising in that.

> in volume I doubt a retina screen is any more expensive than the low-res ones

I'm skeptical! Retina has more and smaller parts that require better machines to work with. Source or evidence?

PS iPhone's miniaturization adds cost compared with an iPad. And it has margins over 50% instead of 30-35%.

The fact that desktop flat panel retail prices have never scaled by LCD element pitch is the best I have. But in general arguments of the form "newer/better/fancier technology must be more expensive!" are always wrong. Things are getting cheaper, not more expensive. This has been nearly-universally true over the last three decades. I see nothing special about LCDs that would argue against that.

Occasionally you can see situations where "old" stuff is cheaper, but usually it's due to things like mature production processes being exploited by manufacturers who aren't competing at the high end anymore (and thus don't have to pay for their own R&D and/or worry about cannibalizing sales).

I know you want to believe that it costs Apple $559 to make that $600 phone, but it doesn't. It's probably not even close. You're being fleeced, and that's a good thing for the industry as it drives innovation.

There's been breakdowns of the cost to produce the iPhone. The BOM on the iPhone 5 is about $170, then throw in labor, marketing, distribution, etc. I think for iPhone 1, it was estimated Apple's cost was about $240 per device.

It takes them, what, four iPads to equal the profit from a single iPhone? Or, equivalently, how many iPad Minis?

If iPhone margins ever fell to what they are on the iPad, they'd be smaller than Microsoft, or IBM, or Google. That's the open secret of Apple's financials. It is only their incredible profit on the phone that keeps them on top of the tech world.

> I know you want to believe that it costs Apple $559 to make that $600 phone, but it doesn't.

Did you miss the part where i mentioned iPhone margins are over 50%? I know that margins over 50% means it costs apple less than $300 to make an iPhone, not $559.

Or something in that ballpark. Margins are lower on the smallest iPhones and go up a great deal on the ones with higher capacity. Putting in a little more flash storage costs apple very little compared to the extra $100-200 they charge for it, the margins on that are much higher than on the base phone.

All I was saying is that i think iPhone components and manufacturing labor genuinely do cost more than for iPad mini, and retina costs more than non-retina. Here are some rough guesses, I think they are in the right ballpark:

  >> 260 / (1 - 0.6)
  => 650.0
  >> 230 / (1 - 0.33)
  => 343.283582089552

Maybe iPhone costs 260 to make and has 60% margins, and iPad mini costs 230 to make and has 33% margins. The results are in the right area for the average selling price of the devices.

This would put the cost of materials $30 apart. If the retina screen costs an extra $15, it actually accounts for half the difference in component costs, it's significant. (higher margins are more significant, of course)

Or maybe non-retina screens are $20, and retina are $30. Then the retina ones cost 50% more, that's significant (and still 1/3 of the component cost differences).

Look at it this way: that first retina screen costs $100 million or so (I pull numbers out of thin air here, so please don't comment on such details) because you need to build the factory. After that, the first million or so cost $300 each because yield is low. In due time, the guys running the machinery get a feeling for how to run it most efficiently and technicians remove some observed problems. So, over time, production cost drops to $100 or so.

You can't price that first one at $100 million, so you have to spread that cost out.

You want to ask $300+ each from that first million, though, because a) if you were to lower price, demand would rise, and you do not want to invest too much in first-generation machinery that you expect to be imperfect, b) you want that $100 million back as fast as possible, and c) you do not know over how many devices you can spread your investment. Your competitor might come out with a 3D screen a year after your production started or two weeks after it.

So, if the market can bear it, you increase prices. Also, retina displays will likely get dirt-cheap over time. The only thing stopping that would be if we hit some technological limit, as sort-of happened with desktop CPU's for the past few years.

The iPod Touch 4th gen with Retina is only $199

Not to mention it has no phone or 3G data connectivity, way worse cameras, and no GPS.

Apple also sells unlocked and contract-free iPhones, starting at $450 for the iPhone 4.

Exactly. Licensing costs for technology involving mobile phone and mobile communication adds lot of expense. Fair comparison is with the IPads with mobile data but that still lacks the licensing for mobile voice.

You, and the parent comment are right. But the main difference in cost between a smartphone and a tablet is miniaturization of hardware.

Not really. iPad and iPhone have the same chips. iPad retina screens are actually more expensive than iPhone retina screens because they're bigger (they're the same panels, just cut to a different size). The same is true for iPad batteries: they're larger than iPhone batteries and hold way more energy.

I couldn't find Bill-of-Materials cost analysis for the latest models, but let's compare the iPad 3 Wifi+4G with the iPhone 4S:

iPad screen: $127, iPhone screen: $37

iPad battery: $32, iPhone battery: $6

http://www.isuppli.com/Teardowns/News/pages/New-iPad-32-GB-4...

http://www.isuppli.com/Teardowns/News/Pages/iPhone-4S-Carrie...

Thanks for the correction then! I'm checking the links, very interesting

An iPad Mini 3G is also $450 and while there is no default phone app you can just put Google Voice on it or something. Same difference.

That's a good comparison. Those two models both have the same Bill-of-Materials costs: $188.[1][2]

[1] http://www.isuppli.com/Teardowns/News/Pages/iPhone-4-Carries...

[2] http://www.isuppli.com/Teardowns/News/Pages/Low-End-iPad-min...

The human mind has a number of faults hard-wired into it like optical illusions or the illogical notion that it is unfair if your mom gives extra toys to your brother and not you.

Lesson for entrepreneurs everywhere: your brain is lying when it says price should be a function solely of production cost. Supply and Demand is the Law!

> your brain is lying when it says price should be a function solely of production cost. Supply and Demand is the Law!

One must not forget other factors, notably entry barriers into the market. In theory at least, no one should be able to make any profit selling anything at market because someone will always be selling a little cheaper. In practice - just look at the cost of broadband internet!

US carriers were give too much power. I'm surprising that government doesn't want to intervene. There are virtually no pre-paid offers, which are immensely popular elsewhere in the world. They are also the best way for people to control in flexible way how much they spend on mobiles.

For US vs rest of the world price comparison: I spent 1 week in SF last year, and was shocked to spend $60 for cheapest SIM card with data (it was T-mobile AFAIR). In UK (and all other EU countries) you can get plenty of minutes and unlimited data for under $25

There are plenty of threads with comparisons on Hacker News every time this comes out, but yes.

Here's an example of prior discussion and prices:

https://news.ycombinator.com/item?id=4342617

Doesn't every US carrier have a prepaid brand?

Virgin Mobile[0] (Sprint's pay as you go provider) has the iphone 4S for $450, with unlimited text/data[1] plans starting at $35/mo.

[0] http://www.virginmobileusa.com/shop/cell-phones/iphone-phone...

[1] Where unlimited data really means 2.5GB at full speed, and then 256KBps afterwards.

edit: Uses Sprint not Verizon

Virgin actually uses Sprint's network. https://en.wikipedia.org/wiki/Virgin_Mobile_USA

Thanks for the correction, I've updated the original.

And where "full speed" means "limited to Sprint's comparatively weak 3G speeds or spotty 4G coverage".

(Not being able to stream a 360p YouTube video on 3G is kind of a pain.)

iPhones don't support WiMAX at all; the 4[s] on Sprint/Virgin will only ever hit EVDO.

There's a reason Sprint and Verizon were so much faster to market with WiMAX and LTE vs. AT&T and T-Mobile; EVDO doesn't age nearly as well as HSPA. (IIRC, EVDO was much earlier to market itself.)

EVDO was just an card change on the existing base station hardware, it meant in many cases no additional backhaul even on sprint the issue is excessively full backhaul - not Radio Access Network issues.

So what's really different with their new plans? Just that they are trying to educate people that phones' subsidies are included in the 2 year contract price?

If they are trying to do that to get people to buy phones at full cost upfront instead, I guess that's fine, if that's indeed their strategy. But if they are just going to promote their $99 phones with 2 year "installments" - then nothing has changed, and their "un-carrier" marketing is invalid.

There's not a whole lot new here - T-Mobile has long given discounts for off-contract plans without a phone subsidy. They've just figured out that it can set them apart in the mobile space, and are pushing it as a result. I think it's a brilliant move, but it's going to hinge on whether people can get past the increased initial cost of the phone.

For the past several years, I've been buying my phones outright (Nexus devices) and using them on T-Mobile for $20/month less than I'd pay on-contract. It ends up being a better deal financially, and I have the freedom to upgrade my device any time I want. They're going all-in on that now and reworking all their service towards that model.

Right now, I pay $40/mo for 750 minutes/unlimited text/unlimited data, and am using a Nexus 4 ($350 from Google) with the plan. Compare to something like a Verizon prepaid plan with unlimited minutes/text and 2GB of data for $70/month. Even with a "free" Verizon phone, at the 12-month mark, the T-Mobile plan is less expensive, and continues to be so thereafter.

You can come in with your own phone and not pay anything. That means you could buy a used phone online or bring an old phone from another carrier. Or, after the two years is up, your monthly price drops by $20 so you're saving money by keeping your old phone instead of upgrading.

I think there are a lot of advantages to this.

If T-Mobile is successful, this will have far-reaching effects on the industry.

Given the choice between a $20 price drop and a new phone, how many people will insist on that new phone?

Given a $40 gap between T-Mobile and ($20 price differential + $20 subsidy differential), what will happen to T-Mobile's churn rates vis-a-vis the subsidized-plan carriers?

If they can force the other carriers to respond, then this will have benefits for everyone in the US who has a cellphone.

In all honesty, I don't know why people are "so much" hate contracts? You know, I need the service anyway and in all likely hood I stay on the same carrier for two years, why "so much" hate?

It's the fact that "subsidized phone + 2 year contract" ends up costing you more money than "full price phone + no contract". Yes, you are in all likelihood going to be paying for some phone service or another for the next two years. Would you rather be paying $130 a month or $50 a month?

Rationally they work out in your interest anyways - such shenanigans as price hikes and whatnot are disallowed under contract. If they change the rate or the service, you get out of your contract for free.

As a result, most carriers don't mess with their contracted customers. The fact I'm on contract with Verizon right now is the only reason I still have unlimited data.

(Though with their prices, you can bet I'm jumping to Ting or similar the freaking nanosecond it expires).

I understand that, freedom is always better, but what I see is the dislike of contracts is not proportional to the reality of contracts discomfort. You can always buy yourself out of the contract.

> The iPhone 4S and iPhone 4 will obviously not work on LTE, but they will function on T-Mobile's "4G" HSPA+ network.

I've been using my unlocked European iPhone 4 for 2 years at T-mobile now because it's the only GSM carrier that has reasonable plans. But while my plan includes unlimited data (awesome) I have a slow EDGE connection 90% of the time (not so awesome). There are some spots (Concord, San Jose) where I magically can get 3G but never in SF or any of the other areas I frequently am. So, I'm wondering if this statement is accurate and something's going to change in their coverage.

T-Mobile has been upgrading their network to provide "4G" in the 1900 Mhz band which makes their 4G compatible with any 3G capable AT&T smartphone.

Oddly, San Francisco appears to have been upgraded already (http://blog.t-mobile.com/2012/11/20/t-mobile-enhances-covera...)

I have an android phone just switched to T-mobile here in DFW, I get 3G and HSPA speeds at work, but EDGE at home.

I get good coverage in most parts of SF, I've seen speeds around 15mbit, usually at least 5-6. But then you hit areas where it just sucks and you get basically no coverage at all, like my apartment. :(

This crowsourced site shows where T-Mobile has high speed 4G on the band you need.

http://www.airportal.de/

Reference point: I get fantastic coverage in Denver on t-mobiles HSPA+ network.

Good news for Android users too, they no longer have to subsidize the $400 that Apple demanded from carriers.

Didn't they get a phone in return ?

> Didn't they get a phone in return ?

They got a $400 Android phone. They could've gotten a $600 iPhone without paying any more money.

But T-Mobile is not subsidizing the iPhone. If you want an iPhone, then you have to pay more than people who buy Androids phones.

If T-Mobile succeeds, this will be a serious setback for Apple. The other carriers will have to respond if they start seeing defections. I'm surprised that Apple is even allowing this. T-Mobile is the smallest of the four national US carriers. The additional customers from T-Mobile can't be worth the risk of losing an advantageous market structure ...

But all this will end up being the same thing right? I paid $199 for the iphone with Verizon. T-mobile will charge $99. I looked at the plans and it is better to go with verizon because they have a better tethering plan and better coverage and service. T-mobile's unlimited plan allows 250MB ~ 500MB or tethering only.

The difference here is that the subsidy is explicit and optional and limited in time.

In the plan the article outlines, you pay T-Mobile $20 a month for 24 months to pay off the phone. On one hand it is better because because you can leave anytime and the cots are clear, but on the other, it looks a lot like a two year subsidized plan.

As long as they un-bundle the price of the phone from the price of the plans, consumers win.

But wouldn't you say they are just un-bundling it into a separate line item on your bill? You still pay $20 a month for 2 years. I really do appreciate the transparency, but I'd still make a choice based on overall cost.

That's the glass is half empty view.

The other view is your're saving money by being given an interest-free loan to purchase the phone.

But isn't it the same with a two-year subsidized phone plan? You pay a little up front, and a little extra each month. Again, kudos to T-Mobile for making the costs transparent, but I don't see how it is substantially different.

Well, after the two years, you're T-Mobile bill goes down by ~$20/line a month while your bill on the other carriers stay the same.

This assumes, of course, that you don't buy a new phone and start the process all over again.

Yeah, there's not much saving for me either. It'll cost $200 less over the course of two years if I go with 2 lines and T-Mobile's unlimited data plan (compared to the 2 lines and 6GB share everything plan I have from Verizon).

But, as you say, the Verizon plan lets tethering be as much as that xGB as you want. And for me, T-Mobile only offers very slow 2G service in my area while I get LTE from Verizon.

After those first two years, you do start to save real money ($40 every month, in my case), but that assumes you don't then upgrade to the latest iPhone or whatever and start all over again.

I'm currently with T-mobile. They started charging for tethering recently and this is making me want to switch. Their tethering charges seem insane since I plan to tether once a month or so.

I use a Galaxy Nexus on T-Mobile; I don't pay for tethering, and they only kick you back on HTTP connections if you're not paying for it (DPI/Layer 7). I just use HTTPS for everything when I tether my MBAir to my phone.

Thats legal for a mobile carrier in the US? Can the USPS open letters and charge for lewd content?

Letters have laws that special-case them.

That may be the case today, but I hardly doubt it was the original intent. They just protected letters because it was the only means of long-distance or written communication back then.

Or use a ssh tunnel/VPN.

Install a user-agent switcher extension/plugin and tell your browser to identify as an Android mobile or some other phone. T-Mobile only throws up the "please pay for hotspot" paywall if they detect a desktop browser.

Downside: You get mobile-oriented websites from apps that do user agent detection.

I think this will be my next phone, but I don't understand why I can't just pay for the phone up front. I like my transactions to be over and done as soon as possible. If that makes it cheaper as well, that's a nice bonus.

Actually, with these new plans, T-Mobile allows you to pay the whole cost upfront if you want.[1] But with time value of money and all that, I don't see why you would want to, especially considering they're giving you a loan at 0% APR.

That also means, though, that it's not any cheaper for you to pay upfront. They just take that full price, subtract out your down payment, and divide by 24 months. Also, what they're not telling you is that you need to have good credit to get those super-low down payments. For those with mediocre credit, they might charge up to 50% of the cost of the phone for money down.[2]

[1] http://www.t-mobile.com/shop/phones/?features=371e5c4a-3dc6-... ("or pay in full today at checkout")

[2] Same link as above: "0% APR On Approved Credit for well-qualified buyer."

You could also just buy the unlocked phone directly from Apple.

It’s $70 more but it’s unlocked immediately – instead of after you paid it off – meaning you can switch plans at any time. (Though currently that doesn’t make all that much sense in the US.)

Wait, what? This iphone is locked for two years? How is that "no contract"? It's seems you are right [1], and I guess it makes sense, otherwise there would be no reason not to get your unlocked iphone from t-mobile.

I actually just wanted an iphone with a t-mobile plan but without a contract. T-mobile's pages are surprisingly hard to navigate, so I could find a way to just get a plan. Maybe I should look further.

[1] http://thenextweb.com/apple/2013/03/26/t-mobile-gets-iphone-...

I’m not sure, but I think you can pay it off immediately and unlock the phone that way.

This is getting too complicated. :( Does anyone have a good link for which iPhone/iPad models work on each technology (HSPA+/LTE) in each tmobile market?

This is a pricing model where Android devices will start gaining serious ground. When the average consumer compares a Nexus 4 ($309) to an iPhone5 ($600) and starts looking at closely at the specs, the brand loyalty will quickly start eroding. Competition will be based less on marketing and more on the devices specs and pricing.

It would be more realistic to compare the iPhone with the Galaxy, which is also sold for profit.

The Nexus 4 is sold at a loss or barely break even, following the same model as Amazon's Kindle line. It's a class of devices sold using a different business model, regardless of Android.

It remains to be seen whether these can be manufactured at scale--it costs to commit to large scale production, which can be seen in LG's inability to deliver Nexus 4 devices at launch. And it is also doubtful that they can remain competitive over time. Other loss making devices such as game consoles don't see frequent hardware revisions.

"This is an important day for people who love their iPhone but can’t stand the pain other carriers put them through to own one,"

Buy an unlocked one, then, and be completely free to do whatever you want?

Completely free to pay off the phone subsidy that you aren't even using. It's like buying your phone twice.

Reply on news.ycombinator.com