A report by technology news and commentary website The Register claims that it is not just owners of Apple’s iPhones who are paying huge sums of money for these highly-sought after gadgets. Those consumers who decide the ‘iHype’ is not for them and opt for other makes of smartphone such as Androids and Blackberry are paying for Apple’s products too. They are even paying for unsold iPhone 5Cs gathering dust in mobile network carriers’ warehouses, according to the Register’s special report published today.
In the United States, Apple has been accused of ‘cosying up’ to mobile network operators with firm handshakes and secret deals. As a result many smaller smartphone manufacturers are effectively being squeezed out of the market, according to information gathered from industry sources by The Register.
The sources claim that Apple and its network partners sign confidential contracts, which are iron-clad in Apple’s favour. The terms of the contracts include non-negotiable and strict purchase commitments requiring the network operator to buy a set number of handsets from the Cupertino-based technology company. The operator in turn must make a pre-determined number of sales of Apple’s handsets, even without being allowed a preview of the new models first. There are allegedly no return policies or even options for refunds, which means that if a released model does not succeed on the market, the carrier is left with handsets it cannot sell to customers nor return to Apple. The contracts are top-secret and not meant for public knowledge, yet the aftermath means higher bills for the public, whether or not they buy Apple’s products.
Operators who cannot make the contracted number of sales required by Apple are legally expected to pay for the difference out of their own coffers. It is also alleged that Apple will not allow rival phone manufacturers to exceed their own subsidies with the carrier, so even if the carrier cannot make the sales target, it has no way of recouping its losses by promoting a rival brand of handset to customers. The operator sinks into debt with no room to manoeuvre.
While many smaller mobile phone operators steering clear of the contracts and unable to capitalise on the popularity of the iPhone, even large and dominant carriers in the U.S., such as Verizon, are suffering the ill-effects. In turn, they are passing on the pain to customers through higher bills and more cold-calling and unwanted marketing. An industry analyst who warned Verizon that it was haemorrhaging money from its own contracts with Apple found that the operator had signed up for contracts expecting USD $23 billion total sales, but despite the recent launch of Apple’s latest 5C and 5S models, sales have been less than satisfactory. So far, $12-14 billion has been made by Verizon from its handset-only and phone-inclusive contract sales to the American public.
Apple’s tough contracts are affecting the market beyond tipping the playing field against smaller U.S. carriers. Firstly mobile subscribers, even those who do not own any model of the iPhone, pay indirectly for the carrier’s stockpiles of unsold sets. This results in a form of ‘Apple Tax’ on mobile phone bills. On the industry side, other handset manufacturers are themselves unable to sell further supplies of their products to carriers trapped by the insurmountable demands of a weighty Apple contract, so they are starved of revenues. Even manufacturers like Samsung, whose handset sales are outstripping Apple’s in many countries, cannot squeeze past Apple’s tight grip on the American cellphone network market. This has been more noticeable in recent months as the latest iPhones have failed to stir customers’ passions.
Worryingly, other handset manufacturers are cottoning on to Apple’s game, and are trying out their own restrictive agreements. Samsung had rolled out carrier contracts for its Galaxy S4 which are said to be as nearly demanding as Apple’s. Unlike Apple’s limited range of handsets however, Samsung has more to pick from by carriers and they have more choice in what they promote to the consumer at the other end of the line.
As the Christmas sales pick up pace, mobile operators in the United States are feeling the pressure to capitalise on the festive footfall to reverse their lagging Apple targets. Ironically the contracts have not saved Apple’s 5C/5S range from failure to live up to the media hype sales wise, and the company has allegedly scaled back production. Apple’s heavy-handed manipulation of the market is bound to add to industry fears that Apple is abusing its dominant position in the phone market. As Apple’s Mac computers still play second string to Microsoft, the technological giant is more than prepared to turn the vice on both the supplier and the customer to make sure it stays on top. Customers are increasingly chafing against Apple’s omnipresent marketing hype and other handsets are challenging the iPhone’s dominance. Unless there is a serious change in Apple’s attitude towards its carrier partners, the contracts and their trickle-down effect on every consumer’s mobile bill may turn out to be the worms that will bring the rot to Apple’s core.
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