Search Our Blog

Saturday, November 13, 2010

How much does a Smartphone really cost?

The price that we'd normally refer to when comparing Smartphones is the RRP (recommended retail price). Retail shops might offer a further 3% to 5% discount occasionally. Carriers (mobile network operators) usually offer discount to customers for committing to a one or two year contract. Depending on the mobile service plan, customers might be able to get the phone for "free". Carriers sometimes claim that these handsets are heavily subsidized, are they?  

How much does a Smartphone really cost your carrier or retail channels?

Most of us would accept the fact that carriers (mobile network operators) need to make profits as they would need cash to invest in developing, operating and improving their cellular network. The competition in the cellphone industry in most countries is fierce, hence "network upgrade" is a constant exercise. It is however not the goal of (most) carriers to make significant profit gains from selling devices. Carriers would rather attract more smartphone subscribers to their network and increase the ARPU (average revenue per user). 

Depending on the region that you are in, manufacturers would usually sell Smartphones to carriers directly or via a distribution channels. Manufacturers would sometimes offer their products to retail channels via wholesalers at a slightly different price (depends on the order quantity and relationship). However, the RRP would usually be the same.  The question is, how much does a Smartphone really cost your carrier or the retail channel?

For high tier smartphones (eg. phones with 1GHz processors, 3.7 to 4.1 inches AMOLED screens, made with robust materials), the price that manufacturers offer to carriers is around US$300+ per unit. For mid tier smartphones, the price ranges from US$200 to $250. For lower tier smartphones (eg. phones with lower specifications, 528MHz processor, small screens, standard materials), it would usually cost carriers US$150. Wait before you do your maths, there's more!

Manufacturers would often offer rebates to carriers for purchasing a certain quantity (eg. from US$5 to $15 per unit). On top on the rebates, carriers would often ask for a marketing fund from the manufacturer (a once-off payment). In other words, a US$150 smartphone might end up costing your carrier US$100 to $110 only. It is not surprising that carriers are keen to promote "entry level" or "budget" smartphones as they are good ARPU generators. More importantly, they can offer these handsets to customers at a cheap price and still make some margins! Their view is, customers who purchase "entry level" smartphones do not care about user experience.

How much are you paying for your smartphone? Is it worth it?

You might also be interested in:

The Past Decade of Mobile Phones

(Read about other technologies that makes life simple under the Lifestyle tab.)