Smartphones have now been around for more than 10 years since the dawn of the iPhone in 2007 and with the market growing saturated, mainly at the high-end, sales growth has all but disappeared. And that’s prompting everyone from phone makers to wireless carriers towards a new strategy: higher prices.
AT&T, Verizon, and Sprint were the latest to partake of the higher price phone strategy over the weekend when Samsung unveiled its new flagship Galaxy S9 and S9+ models. Samsung will sell the smaller 5.8-inch screened S9 model for $720 and the larger 6.2-inch screen S9+ model for $840. That’s roughly the same as last year’s S8 and S8+, as Samsung did not follow Apple and raise prices on its two biggest sellers this year. Customers who trade in a recent model smartphone can get up to $350 off.
But in a surprising move, wireless carriers AT&T, Sprint, and Verizon will charge their customers a premium price if the new phones are bought directly at one of their stores or online sites. AT&T (T) is charging $790 and $915, markups of 10% and 9%, respectively. Verizon (VZ) is charging $800 for the S9 and $930 for the S9+, an 11% premium on each. And Sprint (S) is charging $792, a 10% increase, and $912, a 9% increase, via its 18-month lease plan. As they have in the past, Verizon and Sprint (but not AT&T yet) also have discount offers that require a trade-in.
Coins2Day asked the three carriers for comment and will update this story if responses are received. In theory, a customer should be able to buy a new phone directly from Samsung and use it on the carriers’ networks. UPDATE: AT&T confirmed that phone purchased from Samsung can be used on its network.
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It’s worth noting that T-Mobile (TMUS) and Comcast’s (CMCSA) Xfinity Mobile service are selling the new Samsung phones for the same price as Samsung.
Apple (AAPL) last year raised the price of its newest line, with the with a 4.7-inch iPhone 8 starting at $700 ($50, or 8%, more than last year) and the larger 5.5-inch 8 Plus model starting $800 (a $30 or 4% price hike). The company also introduced the new $1,000 iPhone X at the top of the range. The strategy worked like a charm, as iPhone sales in the holiday quarter of 2017 actually declined 1% to 77.3 million devices but the amount of revenue brought in rose 13% to $61.6 billion thanks to the higher prices.
The carriers have been trying to recover from the popularity of smartphones for years. They have nearly completely phased out the subsidies they used to offer (which allowed customers to pick ups a new flagship phone for only $199 on a two-year contract). Now the higher prices could turn what was a money-loser into a new source of profits.
But consumers have already stopped upgrading phones as regularly as they did back when the devices were heavily subsidized. Higher prices could prompt them to stretch out their purchases for even longer.