A new report about Apple possibly allowing carrier subsidies for the iPad 3 was published today by The Daily – an iPad-only news source. According to the sources quoted in the report, Apple is preparing to give carrier partners (such as AT&T and Verizon in the United States) the ability to subsidize the cost of the iPad 3 when a customer agrees to a data contract for the device. This model is similar to the one used to offer mobile phones at discounted rates, and may translate well to tablet devices that operate over the same 3G or 4G data networks.
Currently, carriers like AT&T and Verizon are not permitted by Apple to lower the price point of the iPad or iPad 2 in exchange for a customer agreeing to a data contract. Due to this, carriers have responded with contract-free prepaid data plans that allow customers to cancel without penalty at any time. Since customers can walk away freely, taking their data dollars with them, it’s unlikely that the carriers appreciate or support this model. Also, since iPad 2 models that support 3G data networks cost over $100 more than WiFi-only models, customers have little incentive to buy an iPad directly from a wireless provider.
The Daily report suggests that AT&T and Verizon will offer the iPad 3 at a significantly discounted price as long as customers sign a two-year data contract. By offering this discount, carriers hope to move more iPad devices and help prevent the ‘sticker shock’ that customers get when they see how much an iPad 2 with 3G data costs. With mobile phones, the model works well; Apple retails a 16 GB iPhone 4 handset for $649, but sign a contract with one of the major wireless providers and you can get the same iPhone for as little as $199. It’s a perceived win for the customer, who is saving on the upfront purchase cost, and it’s a win for the carrier who gets a customer that’s locked in to paying fees for a number of years. In reality, customers would probably be better off buying an unlocked iPhone 4 from Apple and refraining from a contract that will cost a couple of thousand dollars over a two-year period, but since this model is entrenched in the minds of North American customers, it’s one that most accept.
Apple has a couple of very good reasons to protect the status quo, and to not allow carriers to subsidize the iPad 3. First, a move such as this could have a negative impact on the iPad brand, which is seen as the premier tablet device in the marketplace. Perception is reality when it comes to consumers, and if they see national marketing campaigns pushing the tablet at $199, it may actually reduce sales. Also, with many iPad users already growing accustomed to buying a new device each year, Apple may see reduced sales figures as users stick with the same iPad they purchased through the entire duration of their two-year contract.
While each of these reasons are realistic, they’ve already been somewhat disproven by the rampant success of the iPhone. A significant percentage of iPhone owners purchase whatever new iPhone handset Apple releases each year, and a good chunk of those actually renew their wireless contract to get a discount. A carrier-subsidized iPad 3 may actually end up driving sales figures even higher, as customers who come in for a new phone walk out with a new phone and a new iPad tablet. Only time will tell if this is actually the case, or if Apple even intends to allow carriers this privilege.
So readers – what do you think? Would you be more likely to purchase an iPad 3 if you got some form of discount from your wireless carrier in exchange for signing a data contract? With a device like the iPad – which sees an updated version released annually – is a two-year contract too long?
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