Earlier this year, we had written about Vodafone's announcement to start selling iPhones in the UK from 2010.
Back then, we had expected a lot of competition to kick in which could possibly end in price wars. This week, Vodafone finally unveiled their pricing plans for the iPhone and no doubt, a lot of Christmas-time shoppers would be disappointed.
Unlike popular perception that Vodafone would try penetrating the market with cheaper pricing plans, the company has actually come up with the most expensive pricing among the lot. A 16GB iPhone 3GS on Vodafone comes at £89 and an 18 month contract at £40 per month. This works out close to £809 over the lifetime of the contract which is much more than the £713.82 over the lifetime of an O2 contract and £712.98 over Orange's.
Ironically, this comes at a time when the French market is seeing massive price cuts in the face of competition. These contrasting scenarios make a great study for how the market will behave here in the US as and when AT&T's exclusivity ends. Will we see another price war like it is happening in France or will fresh competition skim the market with their more expensive plans?
The answer to this depends on a lot of factors – demand, price sensitivity, individual perception of AT&T's network quality, etc. The American market is a lot less price sensitive than other markets like China or parts of Europe. This, coupled with how individual customers perceive the quality of the AT&T network to be will determine whether or not T-Mobile and Verizon come up with competitive pricing plans.
This could also depend on when these new carriers enter the market. In a scenario that they do well before or after the launch of the next generation of iPhone, it is quite possible that the demand has already peaked by then and in such a case, the carriers could well indulge in price wars to induce buying; much similar to what we are seeing in France today.
However, this is not a zero sum game and there are a slew of other factors coming into play as well. For instance, price cuts would also mean increased subsidy on the iPhone which could mean a much longer time for the carrier to make profit – something that the likes of AT&T can no longer afford. This is because reduced margins make it all the more difficult for carriers to invest in building capacity and with lower prices leading to network congestions all the more quicker, it does not make strategic business sense for carriers to indulge in price cuts unless absolutely necessary.
What could all of this mean? With AT&T's network quality perceived to be deteriorating by the day, and with problems that larger subsidies cause, it is pretty unlikely that the American market will see any sort of price wars as and when newer carriers enter the iPhone market. And though that could be disappointing as an iPhone user, it is an eventuality we might have to come to terms with.
What do you think?