Why are unlocked phones so expensive?

[Dari]

Why are they so expensive? It can't be hardware costs because a radio chip alone does not cost hundreds of dollars. Neither does the screen. When you compare an iPod Touch to an iPhone, the main difference are the display and radios. You get something similar with a Galaxy Player and Galaxy S or whatever Samsung calls their phones. Therefore, how is it OK to pay $250 retail for an iPod Touch but pay $600 for an iPhone 4S? And this price is the same worldwide. How can those paying that exorbitant difference justify it?

 

[Doboji]

The real question is why locked phones are so cheap... because the carrier builds the real unlocked cost of the phone into your contract over the course of the 2 years or however long it is. On many carriers you actually pay more over the long haul than you would have with an unlocked phone.

 

[alent1234]

iphone 4S BoM is around $188 plus development and licensing costs for all the networking standards it supports. plus it has a better camera than ipod and better antennas.

part of the reason is that smart phones are the current high margin profit drivers. if it wasn't for the galaxy S2 samsung would be in a lot of financial trouble.

i remember the days when Dell used to have the same profit margins as apple

 

[Dari]

iphone 4S BoM is around $188 plus development and licensing costs for all the networking standards it supports. plus it has a better camera than ipod and better antennas.

part of the reason is that smart phones are the current high margin profit drivers. if it wasn't for the galaxy S2 samsung would be in a lot of financial trouble.

i remember the days when Dell used to have the same profit margins as apple

I see your point but the price difference is hundreds of dollars. If there is collusion then it is global and regulators need to crack down.

 

[Deeko]

You've got to remember - a lot more goes into building a smartphone than just the hardware bill of materials. There is an enormous amount of engineering that goes into designing the device, not to mention the software side (which is an ongoing process after the phone is released). These things all cost money. The real question is "why is the iPod Touch so cheap" not "why is the iPhone so expensive".

 

[alent1234]

in the late 1990's when i was in italy i had a cheapo $200 cell phone that i used to buy prepaid cards for. some people used to buy the $700 super thin and cool phones. today the same phones are smart phones and the price is cheaper after inflation

iphone you have to test in the special rooms. then you have to test it on all carriers around the world and certify the OS on each carrier.

financially you have to prepay a lot of money in cash to actually build it before you can start selling it. billions of $$$ in investment that has to be recovered

 

[Dari]

You've got to remember - a lot more goes into building a smartphone than just the hardware bill of materials. There is an enormous amount of engineering that goes into designing the device, not to mention the software side (which is an ongoing process after the phone is released). These things all cost money. The real question is "why is the iPod Touch so cheap" not "why is the iPhone so expensive".

I don't buy that argument. An iPhone's engineering cost is not that much more different from an iPod Touch's engineering cost per unit. A lot of the heavy lifting for cell phones has already been done and is reflected in licensing and component costs. But those costs do not (or should not) add to hundreds of dollars in the price difference.

 

[Red Storm]

I don't buy that argument. An iPhone's engineering cost is not that much more different from an iPod Touch's engineering cost per unit. A lot of the heavy lifting for cell phones has already been done and is reflected in licensing and component costs. But those costs do not (or should not) add to hundreds of dollars in the price difference.

The difference is that one is vastly more useful to the majority of people, and so price reflects that.

 

[Deeko]

I don't buy that argument. An iPhone's engineering cost is not that much more different from an iPod Touch's engineering cost per unit. A lot of the heavy lifting for cell phones has already been done and is reflected in licensing and component costs. But those costs do not (or should not) add to hundreds of dollars in the price difference.

"A lot" of heavy lifting has been done for cell phones, sure - but that doesn't mean these companies don't employee hordes of engineers, both hardware and software, to keep it moving forward. Motorola may have invented the cell phone in the 70s, but do you really think that's the same technology we're using today? Similarly, iOS is built on OS X which is built on BSD - that certainly doesn't mean Apple had an "easy" job writing iOS because the guts were already written.

Lets take HTC for an example. Lets say there are 100 hardware engineers, 50 software engineers, and 50 testers at an average of, oh, 100K total cost to the company. Those people alone would cost the company $20 million / year, not including PR, marketing, support, sales, etc. They need to make that amount on top of the hardware costs just to break even, let alone make a profit. And frankly, that employee count is assuredly low. I'm sure they have more than that.

Like I said...the better question is "why is the iPod Touch so cheap". I'm quite positive that, all things considered, Apple loses money on those...but they do it because A) they make money on music / app sales and B) it gets people roped into the ecosystem so that they might get an iPhone next.

 

[Dari]

The difference is that one is vastly more useful to the majority of people, and so price reflects that.

But competition should kill those heavy margins...

 

[gorcorps]

I see your point but the price difference is hundreds of dollars. If there is collusion then it is global and regulators need to crack down.

Seriously? Nobody is forcing you to buy a state of the art phone. The market dictates what the price is, and if the price stays high then that means people are buying. Thinking the government should step in for a completely unnecessary WANT is asinine. If you don't like the price, get a last gen device or a dumb phone. Just because it doesn't cost a company much to make it on a large scale, doesn't mean they shouldn't charge for it. There should never be a rule that forces companies to only make a certain margin on their products... that destroys the capitalistic backbone that keeps this country going.

 

[Dari]

"A lot" of heavy lifting has been done for cell phones, sure - but that doesn't mean these companies don't employee hordes of engineers, both hardware and software, to keep it moving forward. Motorola may have invented the cell phone in the 70s, but do you really think that's the same technology we're using today? Similarly, iOS is built on OS X which is built on BSD - that certainly doesn't mean Apple had an "easy" job writing iOS because the guts were already written.

Lets take HTC for an example. Lets say there are 100 hardware engineers, 50 software engineers, and 50 testers at an average of, oh, 100K total cost to the company. Those people alone would cost the company $20 million / year, not including PR, marketing, support, sales, etc. They need to make that amount on top of the hardware costs just to break even, let alone make a profit. And frankly, that employee count is assuredly low. I'm sure they have more than that.

Like I said...the better question is "why is the iPod Touch so cheap". I'm quite positive that, all things considered, Apple loses money on those...but they do it because A) they make money on music / app sales and B) it gets people roped into the ecosystem so that they might get an iPhone next.

I also don't buy that argument. This is no different from many other electronics companies but competition killed their margins. I would love to see Apple's books to see how much they're making off of iPod Touch hardware and iPhone Touch hardware.

 

[Dari]

Seriously? Nobody is forcing you to buy a state of the art phone. The market dictates what the price is, and if the price stays high then that means people are buying. Thinking the government should step in for a completely unnecessary WANT is asinine. If you don't like the price, get a last gen device or a dumb phone. Just because it doesn't cost a company much to make it on a large scale, doesn't mean they shouldn't charge for it. There should never be a rule that forces companies to only make a certain margin on their products... that destroys the capitalistic backbone that keeps this country going.

Pay attention. I said "if" there is collusion, regulators shoudl step in. Also cell phone carriers pay those prices (or something similar) and they lower them if you go on contract. Therefore, this isn't just about consumers buying unlocked phones. It's also what the carriers pay and we all know they pass on the cost to their subscribers.

 

[Oyeve]

I also don't buy that argument. This is no different from many other electronics companies but competition killed their margins. I would love to see Apple's books to see how much they're making off of iPod Touch hardware and iPhone Touch hardware.

I bet a shit load. Being that all of their mobile products are basically then same shit in a different box R&D is probably a a minimal now. I would guess they reap 70-80% if not more.

 

[Deeko]

I bet a shit load. Being that all of their mobile products are basically then same shit in a different box R&D is probably a a minimal now. I would guess they reap 70-80% if not more.

I also don't buy that argument. This is no different from many other electronics companies but competition killed their margins. I would love to see Apple's books to see how much they're making off of iPod Touch hardware and iPhone Touch hardware.

I think you two are grossly underestimating the amount of hardware and software engineering that goes into making a new revision of a phone - or a new revision of software - and some companies have both. Just because a new device is in a very similar housing doesn't mean it took no work to build. There's a lot more to a phone than its plastic or glass casing....

 

[shortylickens]

Unlocked phones are not expensive.
CELL PHONES are expensive! Nobody knows that because we are all so used to getting a subsidized price. And if you think phones are expensive, you should see what service costs!
Nobody knows that either, cuz its spread out over two years.
Seriously, get the best phone you can find and dont worry about what it costs. Thats a drop in the bucket compared to 24 months times 65 dollars.

As for the specifics. You are paying for specialized computer to be compressed down in to your pocket. If you dont understand why thats expensive I suggest you do like me and go work in a semiconductor fab for a couple years.

Also, you dont have to spend a lot of money. If cost is really a concern for you, get a basic Nokia for 50-100 bucks. Good quality phone, decent battery life, and they include a lot of stuff as basic features like notepad, music player, etc.

 

[Pliablemoose]

I think they decide on retail costs by adding up the functionality of a devices seperate components like a camera, a cell phone, a media player, etc...

In the US, the subsidized model is the most common, so "locked" prices seem reasonable.

If you don't like the prices, unbundle your device(s) and score a WiFi tablet, and use a traditional cell phone on a pre paid plan. You can even add a personal hotspot to the mix and come out ahead... You'll end up carrying a backpack or messenger bag all the time though...

 

[sgrinavi]

Capitalism 101

Price has nothing to do with cost. 99% of the time cost is based on what the product will sell for and nothing else.

If no one was willing to pay $700 for a new phone then they would sell for $600

 

[shortylickens]

Capitalism 101

Price has nothing to do with cost. 99% of the time cost is based on what the product will sell for and nothing else.

If no one was willing to pay $700 for a new phone then they would sell for $600

This is true. People dont pay based on cost of production they pay based on the utility they think they will get from it.
Having said that, Americans are really stupid about money and cant figure out how much utility they get from something in dollars. Thats why we spend twice as much on phones and service as the rest of the world, and indenture ourselves for 50 grand to get a vehicle that loses 20 percent the second we drive it off the lot (and was never worth that kind of money to begin with).

Its also why PS3's sell for less than they cost to build, cuz people are too cheap to pay a standard Cost + 20% sales price. So they just pay too damn much for the games and get screwed even worse in the long run.

 

[alent1234]

yep, tried to tell my inlaws that an acura is just a honda that costs $6000 more. my mother in law keep going about how it's more luxury but she can't explain what kind of luxury and the specific features

 

[poofyhairguy]

MY SGS2 has more power and ability than my old laptop that I paid over $600 for three years ago. So $550 for the SGS2 seems about right....

 

[theeedude]

Optimus V was 50 bucks on black friday.

 

[hans007]

I don't buy that argument. An iPhone's engineering cost is not that much more different from an iPod Touch's engineering cost per unit. A lot of the heavy lifting for cell phones has already been done and is reflected in licensing and component costs. But those costs do not (or should not) add to hundreds of dollars in the price difference.

you would have to think that the iphone development mostly funds the ipod development anyway.

if you spend all your R&d on the iphone and consider the ipod just a "free r&d" device you get out of it, to maybe lure some non iphone users into slowly crossing over then you dont have to count it the same way.


i mean motorola mobility loses money each year. but the bill of materiaals on a droid razr is probably $200. clearly if they are still losing money, their total overhead is still more than they sell their phones for cumulatively and they are $650.

you cant seperate that the cost of say a razr from the cost of another phone as they will have research overlap, same as the ipod / iphone.

that is like saying if honda develops the acura nsx why does it cost so much when its bill of materials is less than say a civic. but in the end the civic got free research into vtec, electric steering etc, due to the nsx being built at all.

 

[Deeko]

Very good points, hans.

 

[hans007]

Unlocked phones are not expensive.
CELL PHONES are expensive! Nobody knows that because we are all so used to getting a subsidized price. And if you think phones are expensive, you should see what service costs!
Nobody knows that either, cuz its spread out over two years.
Seriously, get the best phone you can find and dont worry about what it costs. Thats a drop in the bucket compared to 24 months times 65 dollars.

As for the specifics. You are paying for specialized computer to be compressed down in to your pocket. If you dont understand why thats expensive I suggest you do like me and go work in a semiconductor fab for a couple years.

Also, you dont have to spend a lot of money. If cost is really a concern for you, get a basic Nokia for 50-100 bucks. Good quality phone, decent battery life, and they include a lot of stuff as basic features like notepad, music player, etc.

exactly.

the cheap phones, the r&d was already paid for since it usually some older design. cutting edge stuff costs more.

look at say a galaxy nexus or a htc rezound. dual cores, 720p screens , more battery life, tons of radios to fcc certify, get legal to make manuals for etc.

I mean if a normal sized laptop costs $300 like say adual core atom, and a phone is much more cutting edge, with everything in a package that is 1/10th the size and weight... of course its going to cost a lot.

a carbon fiber ferrari with a kers engine and direct injection and state of the art DSG gear box, costs a ton more because its new, than a camry which is using research that is already paid for and developed and amortized over the last 20 years . cutting edge = expensive.

old expensive tech that is resurrected into an mp3 player or budget phone = not expensive.