Apple set to slash iPhone prices to lift sales

Apple set to slash iPhone prices to lift sales
By FT Reporters
Published: June 9 2008 20:01 Last updated: June 9 2008 23:58
Apple on Monday sought to boost the limited appeal of its acclaimed, but modestly selling, iPhone as it announced that new models would sell for as little as half the price of the first version.
The drastic cuts, which will bring the price of an 8-gigabyte model down to $199 and a 16GB version to $299, largely reflect subsidies from mobile operators who hope to make money from selling data services with the handsets, according to people familiar with the arrangements.
Operator subsidies could reduce prices in some countries below the prices set on Monday by Apple. In the UK, 02, the only British mobile operator selling the iPhone, is expected to offer the 3G version free to customers who sign up to its most expensive monthly tariff.
For Apple, the move signals a reversal in tactics compared to the iPhone’s arrival a year ago. In an attempt to overturn the normal economics of the mobile communications industry, Apple originally sold the 8GB handset for $599 and persuaded mobile operators to give it a share of revenues from data services.
On Monday, Steve Jobs, chief executive of Apple, conceded that the iPhone needed to be “more affordable” to reach a wider audience. He said Apple had sold 6m of the phones since they went on sale at the end of last June, implying that sales had reached little more than 2m so far this year. A long way short of the 10m target he had set for 2008.
The lower prices should bring the iPhone into more direct competition with smartphones from Nokia and Research in Motion, maker of the BlackBerry, analysts said.
“They have made a bid to eventually become the number one cellphone maker at some point,” said Ken Dulaney, an analyst at Gartner.
Apple has partly financed the price cuts by allowing mobile operators to subsidise the handsets, in return eliminating or reducing the share of data service revenues it receives, according to people familiar with the arrangements.
Executives of AT&T, which is the exclusive distributor in the US, acknowledged on Monday that the switch from the revenue- sharing model with Apple to what they described as “a more traditional” subsidy model would impact on earnings this year and next and reduce earnings per share by between 10 and 12 cents a share in both years.
While AT&T is expected to account for the bulk of global iPhone sales, the shift to the subsidy model is also expected to hit other carriers including Spain’s Telefónica, Deutsche Telekom’s T-Mobile, Vodafone Group, France Telecom’s Orange and Japan’s Softbank.