iPhone on Bell and Telus: Don’t Expect A Cheaper Device

Bell and Telus will probably start selling the iPhone on Nov. 4th, the same day the second and third-largest service providers in Canada light up part or all of their brand spanking new jointly-built wireless network in the Great White North.

The impending introduction of the iconic device has led to speculation the iPhone 3GS and 3G will be sold for less than the respective C$199 and C$99 price tags Rogers and Apple sell the devices for at the moment.

(Rogers, for those non-Canadian readers, has been the exclusive reseller of the iPhone and Apple carrier partner since July 2008 by virtue of its GSM network. Bell and Telus have operated and will continue to operate networks based on the less used CDMA network standard.)

Some of the iPhone price speculation has undoubtedly arisen because of recent comments by Apple chief operating officer Tim Cook who had the following to say on the topic last week:

“Generally speaking, in markets where we’re already selling, I would not expect to see a wholesale price difference as we bring on other carriers,” he told analysts and investors on a conference call last week. “However, the end user price is set by the carriers themselves, so you may or may not see a street price difference.”

It would be a mistake to believe the iPhone, however, will be sold for anything less than the prices established by Apple and Rogers in Canada.

It’s a matter of finance, not conspiracy theory. In other words, the iPhone is a very expensive device for carriers to acquire, making device price cuts unlikely, given the additional focus on profitability at the carrier level.

Apple’s premium pricing policy, which can lead to consumer sticker shock, extends to carriers as well; companies pay premium prices as well for the iPhone. That cost has to be passed on to someone unfortunately for consumers.

The greater the hardware subsidy, the harder it is for a carriers to make a customer profitable. By most accounts, iPhone customers aren’t profitable until the third year of their contract.

This is a troublesome metric for carriers as customer profitability is of greater concern. Investors have measured carriers, in large part, on an average revenue per user basis. Trying economic times and lower growth prospects however mean investors are increasingly concerned with average margin per user.

The net result for consumers will be an equally, or more expensive, iPhone sticker price on the Bell and Telus networks. Expect the carriers to at least match the advertised prices the iPhone is sold for by Rogers.