Sep 16

iphone4When Apple announces the next-gen iPhone later this month, the current iPhone 4  (or a version of it) will continue to be sold as a more affordable alternative. This is a safe assumption as the iPhone 3G continued to be sold alongside the iPhone 3GS, and the 3GS is still available for purchase today – fifteen months after the iPhone 4′s release – as a budget option. 

Accepting that this model will continue, the question is: how will the iPhone 4 change when it shifts from Apple’s flagship product to a lower-priced alternative?

Of course, one option is status quo, minus the premium price.  Carriers could continue to sell the 16GB iPhone 4 as-is for, say, $99 on contract, to offer a more attractive entry price to would-be iPhone owners or legacy iPhone users who haven’t yet upgraded.  This is certainly possible, but given current market realities and Apple’s history of bold action, a more significant change seems warranted.

To accelerate advancement in mobile phone market share, what Apple needs is a cost-of-use game changer.  What if a variant of the iPhone 4 arrives hand-in-hand with the iPhone 5 / 4S, offering more than simply an up-front price reduction? 

 

Apple could build an 8GB iPhone 4 with a lower-end screen (like the one in the current iPod touch) and other cost-cutting measures throughout, and offer unlocked the device directly – for use on any carrier without a contract – for $229-$299, the same pricing as the two lower-end iPod touch models.  This would be particularly powerful if the handset included a hybrid CDMA-GSM transceiver, though Apple could sell an unlocked GSM-only budget iPhone 4 for use with T-Mobile, AT&T and other GSM services (as it does with the current iPhone 4 models). 

But even more interesting is the idea of a prepaid iPhone 4.  Same hardware changes as above, but sell the phone for use with existing prepaid services.  Not only would this nix the contract requirement, it would also lower the monthly service prices.  GSM prepaid services would require only a prepaid SIM, and CDMA prepaid (if compatible) could be linked with the phone based on unique ID numbers of each handset.  And having a prepaid iPhone compatible with various services would allow users to move from service to service as new plans arrived to keep their bills low. 

As of July 2011, iPhones were used by approximately 9% of mobile users in the U.S.  That number is impressive and has been steadily increasing, but if Apple wants to accelerate their market share, the iPhone needs to appeal to more than premium users who can afford a $200 phone and a $100/month wireless bill.  A $200 phone with a $50 monthly bill would be far more attractive, and would cut the cost of being a proud iPhone user roughly in half – all without being a slave to a wireless carrier for your next two birthdays. 

And before you dismiss this as far-fetched speculation, remember that then-COO Tim Cook, now Apple CEO, said early this year that Apple was “working hard to ‘figure out’ the prepaid market.”  The details are anyone’s guess, and it may be too soon for Apple to take the prepaid-plunge, but whether it happens in October 2011 or October of 2013, you can rest assured that it will happen. 

A prepaid iPhone 4?  It could be a reality by this time next month.  Stay tuned.

Matthew Nichols, Products Editor

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