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iPhone 5 Canada: The Dysfunction Of Three-Year Contracts

Posted: 09/13/2012 12:57 pm

Iphone 5 Features

The painful reality of Canadian cellphone service has once again come to the forefront this week. There was, of course, Apple's big iPhone 5 announcement on Wednesday - more on that in a second - but there was also the report out of the Montreal Economic Institute that suggested Canada's wireless market is "functioning well."

According to the Globe and Mail story, the think tank believes that pricing in Canada is actually middle of the pack, contrary to conventionally held wisdom that the country indeed has some of the highest rates in the developed world. The Institute, which has been accused in the past of infusing right-wing ideology into its studies, suggests that wireless services are competitive globally, both in terms of pricing and innovation, so no additional regulation - as some are calling for - is needed.

Numbers and statistics can, of course, be interpreted in a myriad of different ways, so it's somewhat pointless to argue against such conclusions. There is, however, one number that can't be disputed that suggests Canada's wireless market in fact isn't "functioning well." That number is three - as in three-year contracts.

When Apple chief executive officer Tim Cook unveiled the updated pricing for the company's new lineup of iPhones on Wednesday, led by the iPhone 5, he pointed out that the suggested prices were on two-year contracts. The iPhone 5, for example, would cost consumers $199 on such a deal.

That's the norm in most countries, but it's of course not the case in Canada. Consumers here can expect to pay about the same, but on a three-year contract.

That extra year makes a big difference. For one thing, it takes negotiating power away from consumers for an additional 12 months. Many people who have been on contracts know that the only time they have any leverage with their existing provider in getting a better deal is at the end of that agreement. The provider has an incentive in keeping the customer from switching to a rival, so it may offer a better deal. A three-year agreement means this happens less frequently in Canada than in most other countries - exactly 33 per cent less frequently.

Secondly, three-year contracts discourage customers from upgrading phones more often. Most providers offer upgrade options two years in, but this usually ends up costing the consumer extra. Not only does this keep subscribers on older phones longer, but if iPhone sales really can boost the economy - as one analyst has suggested - then three-year contracts are actually hurting Canadian prosperity.

Wireless providers have said they need to have three-year contracts because the amount of subsidy they pay to phone manufacturers is high, and they ultimately sell fewer phones than a larger country like the U.S. That's bunk, of course, because much smaller countries - those in Scandinavia, New Zealand, to name a few - pay the same subsidies and sell even smaller volumes, but don't have three-year contracts.

Canadian carriers have also argued that they offer better monthly value, which again is not true. Studies from the Montreal Economic Institute aside, Canadian wireless providers have some of the highest per-user revenues in the world, in some cases making as much from one customer as some European carriers make from two.

That said, Apple is also at fault. The top-end iPhone 5 with 64 gigabytes of storage is selling for $899 in Canada without a contract. Fortunately, with cloud storage and the fact that the phone isn't the ideal device for watching lots of videos on, not many will need that kind of space. Most buyers can probably settle for the cheaper 16 GB version at $699.

Still, the iPhone is believed to be Apple's most profitable product, with a margin of 49 to 58 per cent, according to documents that came to light in the recent Samsung court case. The iPad, in comparison, has margins of only 23 to 32 per cent.

The iPhone price tag is out of whack with some of Apple's other products, which means the company is extracting a good chunk of money from wireless carriers, who are its primary, direct customers. In Canada, those providers have just been better at passing that pain on to consumers.

Apple's insistence on extracting a huge profit from the iPhone is therefore indirectly nailing consumers via wireless carriers. And it's not just Apple. If anything, the company provides an aspirational example to other manufacturers; if they think their device is as good as the iPhone, they'll charge carriers appropriately.

The question then becomes, who's milking people more: carriers or manufacturers? Either way, the Canadian wireless market is not functioning well because in the end, consumers have none of the power in deciding prices.

Loading Slideshow...
  • An Associated Press reporter holds the Apple EarPods during a product review in San Francisco, Wednesday, Sept. 12, 2012. (AP Photo/Jeff Chiu)

  • The Apple EarPods are shown during a product review in San Francisco, Wednesday, Sept. 12, 2012. (AP Photo/Jeff Chiu)

  • Apple unveils new iPhone model

    Technology giant Apple has unveiled a raft of updated products including the latest model of its new iPhone. The iPhone 5, which weighs in at 112 grammes, has a 4in screen - half an inch bigger than previous models, at Kings Place, Central London.

  • Apple unveils new iPhone model

    Technology giant Apple has unveiled a raft of updated products including the latest model of its new iPhone. The iPhone 5, which weighs in at 112 grammes, has a 4in screen - half an inch bigger than previous models, at Kings Place, Central London.

  • Apple unveils new iPhone model

    Technology giant Apple has unveiled a raft of updated products including the latest model of its new iPhone. The iPhone 5, which weighs in at 112 grammes, has a 4in screen - half an inch bigger than previous models, at Kings Place, Central London.

  • Apple unveils new iPhone model

    Technology giant Apple has unveiled a raft of updated products including the latest model of its new iPhone. The iPhone 5, which weighs in at 112 grammes, has a 4in screen - half an inch bigger than previous models, at Kings Place, Central London.

  • Apple unveils new iPhone model

    Technology giant Apple has unveiled a raft of updated products including the latest model of its new iPhone. The iPhone 5, which weighs in at 112 grammes, has a 4in screen - half an inch bigger than previous models, at Kings Place, Central London.

  • Apple unveils new iPhone model

    Technology giant Apple has unveiled a raft of updated products including the latest model of its new iPhone. The iPhone 5, which weighs in at 112 grammes, has a 4in screen - half an inch bigger than previous models, at Kings Place, Central London.

  • Apple unveils new iPhone model

    Technology giant Apple has unveiled a raft of updated products including the latest model of its new iPhone. The iPhone 5, which weighs in at 112 grammes, has a 4in screen - half an inch bigger than previous models, at Kings Place, Central London.

  • Apple unveils new iPhone model

    Technology giant Apple has unveiled a raft of updated products including the latest model of its new iPhone. The iPhone 5, which weighs in at 112 grammes, has a 4in screen - half an inch bigger than previous models, at Kings Place, Central London.

  • The new Apple iPhone 5 is displayed Wednesday Sept. 12, 2012 following the introduction of new products in San Francisco. The iPhone 5 is a blend of beauty, utility and versatility. (AP Photo/Eric Risberg)

  • Apple unveils new iPhone model

    Technology giant Apple has unveiled a raft of updated products including the latest model of its new iPhone. The iPhone 5, which weighs in at 112 grammes, has a 4in screen - half an inch bigger than previous models, at Kings Place, Central London.

  • Apple unveils new iPhone model

    Technology giant Apple has unveiled a raft of updated products including the latest model of its new iPhone. The iPhone 5, which weighs in at 112 grammes, has a 4in screen - half an inch bigger than previous models, at Kings Place, Central London.

  • Apple unveils new iPhone model

    Technology giant Apple has unveiled a raft of updated products including the latest model of its new iPhone. The iPhone 5, which weighs in at 112 grammes, has a 4in screen - half an inch bigger than previous models, at Kings Place, Central London.

  • Apple unveils new iPhone model

    Technology giant Apple has unveiled a raft of updated products including the latest model of its new iPhone. The iPhone 5, which weighs in at 112 grammes, has a 4in screen - half an inch bigger than previous models, at Kings Place, Central London.

  • Apple unveils new iPhone model

    Technology giant Apple has unveiled a raft of updated products including the latest model of its new iPhone. The iPhone 5, which weighs in at 112 grammes, has a 4in screen - half an inch bigger than previous models, at Kings Place, Central London.

  • Apple Introduces iPhone 5

    SAN FRANCISCO, CA - SEPTEMBER 12: The new iPhone 5 is displayed during an Apple special event at the Yerba Buena Center for the Arts on September 12, 2012 in San Francisco, California. Apple announced the iPhone 5, the latest version of the popular smart phone. (Photo by Justin Sullivan/Getty Images)

  • Apple Introduces iPhone 5

    SAN FRANCISCO, CA - SEPTEMBER 12: Apple Senior Vice President of Worldwide product marketing Phil Schiller announces the new iPhone 5 during an Apple special event at the Yerba Buena Center for the Arts on September 12, 2012 in San Francisco, California. Apple announced the iPhone 5, the latest version of the popular smart phone. (Photo by Justin Sullivan/Getty Images)

  • Apple Introduces iPhone 5

    SAN FRANCISCO, CA - SEPTEMBER 12: The new iPhone 5 is displayed during an Apple special event at the Yerba Buena Center for the Arts on September 12, 2012 in San Francisco, California. Apple announced the iPhone 5, the latest version of the popular smart phone. (Photo by Justin Sullivan/Getty Images)

  • <a href="http://www.engadget.com/2012/09/12/apple-iphone-5-liveblog/" target="_hplink">Courtesy of Engadget.</a>

  • <a href="http://www.engadget.com/2012/09/12/apple-iphone-5-liveblog/" target="_hplink">Courtesy of Engadget.</a>

  • <a href="http://www.engadget.com/2012/09/12/apple-iphone-5-liveblog/" target="_hplink">Courtesy of Engadget.</a>

  • <a href="http://www.engadget.com/2012/09/12/apple-iphone-5-liveblog/" target="_hplink">Courtesy of Engadget.</a>

  • Apple Introduces iPhone 5

    SAN FRANCISCO, CA - SEPTEMBER 12: Apple Senior Vice President of Worldwide product marketing Phil Schiller announces the new iPhone 5 during an Apple special event at the Yerba Buena Center for the Arts on September 12, 2012 in San Francisco, California. Apple announced the iPhone 5, the latest version of the popular smart phone. (Photo by Justin Sullivan/Getty Images)

  • Phil Schiller

    Phil Schiller, Apple's senior vice president of worldwide marketing, speaks on stage during an introduction of the new iPhone 5 at an Apple event in San Francisco, Wednesday Sept. 12, 2012. (AP Photo/Eric Risberg)

  • The iPhone 5 is shown during an Apple event in San Francisco, Wednesday, Sept. 12, 2012. (AP Photo/Jeff Chiu)

  • Phil Schiller

    Phil Schiller, Apple's senior vice president of worldwide marketing, speaks on stage during an introduction of the new iPhone 5 at an Apple event in San Francisco, Wednesday Sept. 12, 2012. (AP Photo/Eric Risberg)

  • Apple Introduces iPhone 5

    SAN FRANCISCO, CA - SEPTEMBER 12: Apple Senior Vice President of Worldwide product marketing Phil Schiller announces the new iPhone 5 during an Apple special event at the Yerba Buena Center for the Arts on September 12, 2012 in San Francisco, California. Apple announced the iPhone 5, the latest version of the popular smart phone. (Photo by Justin Sullivan/Getty Images)

  • Apple Introduces iPhone 5

    SAN FRANCISCO, CA - SEPTEMBER 12: Apple CEO Tim Cook speaks during an Apple special event at the Yerba Buena Center for the Arts on September 12, 2012 in San Francisco, California. Apple announced the iPhone 5, the latest version of the popular smart phone. (Photo by Justin Sullivan/Getty Images)

  • Phil Schiller

    Phil Schiller, Apple's senior vice president of worldwide marketing, speaks about camera quality of the iPhone 5 during an Apple event in San Francisco, Wednesday, Sept. 12, 2012. (AP Photo/Jeff Chiu)

  • Phil Schiller

    Phil Schiller, Apple's senior vice president of worldwide marketing, speaks on stage during an introduction of the new iPhone 5 at an Apple event in San Francisco, Wednesday Sept. 12, 2012. (AP Photo/Eric Risberg)

  • Tim Cook

    Apple CEO Tim Cook talks on stage during the introduction of the new iPhone 5 in San Francisco, Wednesday, Sept. 12, 2012. (AP Photo/Eric Risberg)

  • Phil Schiller

    Phil Schiller, Apple's senior vice president of worldwide marketing, gives prices of the iPhone 5 during an Apple event in San Francisco, Wednesday, Sept. 12, 2012. (AP Photo/Jeff Chiu)

  • The Foo Fighters perform during an Apple event in San Francisco, Wednesday, Sept. 12, 2012. (AP Photo/Jeff Chiu)

  • Phil Schiller

    Phil Schiller, Apple's senior vice president of worldwide marketing, speaks on stage about new connectivity options during an introduction of the new iPhone 5 in San Francisco, Wednesday Sept. 12, 2012. (AP Photo/Eric Risberg)

  • Greg Joswiak

    CORRECTS ID TO GREG JOSWIAK, NOT EDDY CUE - Greg Joswiak, Apple’s vice president of Hardware Product Marketing, speaks about EarPods during an Apple event in San Francisco, Wednesday, Sept. 12, 2012. (AP Photo/Jeff Chiu)

  • Tim Cook

    Apple CEO Tim Cook speaks in front of an image of the iPhone 5 during an Apple event in San Francisco, Wednesday, Sept. 12, 2012. (AP Photo/Jeff Chiu)

  • Tim Cook

    Apple CEO Tim Cook speaks during an Apple event in San Francisco, Wednesday, Sept. 12, 2012. (AP Photo/Jeff Chiu)

  • The Foo Fighters perform during an Apple event in San Francisco, Wednesday, Sept. 12, 2012. (AP Photo/Jeff Chiu)

  • Phil Schiller

    Phil Schiller, Apple's senior vice president of worldwide marketing, gives release dates of the iPhone 5 during an Apple event in San Francisco, Wednesday, Sept. 12, 2012. (AP Photo/Jeff Chiu)

  • Phil Schiller

    Phil Schiller, Apple's senior vice president of worldwide marketing, speaks on stage about the introduction of a new operating system during an introduction of the new iPhone 5 in San Francisco, Wednesday Sept. 12, 2012. (AP Photo/Eric Risberg)

  • Phil Schiller

    Phil Schiller, Apple's senior vice president of worldwide marketing, speaks on stage about new connectivity options during an introduction of the new iPhone 5 in San Francisco, Wednesday Sept. 12, 2012. (AP Photo/Eric Risberg)

  • Phil Schiller

    Phil Schiller, Apple's senior vice president of worldwide marketing, speaks on stage about new connectivity features during an introduction of the new iPhone 5 in San Francisco, Wednesday Sept. 12, 2012. (AP Photo/Eric Risberg)

  • Phil Schiller

    Phil Schiller, Apple's senior vice president of worldwide marketing, talks about the features of the new camera and iSight during an introduction of the new iPhone 5 at an Apple event in San Francisco, Wednesday Sept. 12, 2012. (AP Photo/Eric Risberg)

  • Phil Schiller

    Phil Schiller, Apple's senior vice president of worldwide marketing, speaks about camera quality of the iPhone 5 during an Apple event in San Francisco, Wednesday, Sept. 12, 2012. (AP Photo/Jeff Chiu)

  • Phil Schiller

    Phil Schiller, Apple's senior vice president of worldwide marketing, speaks in front of an image of the iPhone 5 during an Apple event in San Francisco, Wednesday, Sept. 12, 2012. (AP Photo/Jeff Chiu)

  • Phil Schiller

    Phil Schiller, Apple's senior vice president of worldwide marketing, speaks in front of an image of the iPhone 5 during an Apple event in San Francisco, Wednesday, Sept. 12, 2012. (AP Photo/Jeff Chiu)

  • Tim Cook

    Apple CEO Tim Cook speaks in front of an image of an iPad during an Apple event in San Francisco, Wednesday, Sept. 12, 2012. (AP Photo/Jeff Chiu)

  • Phil Schiller

    Phil Schiller, Apple's senior vice president of worldwide marketing, speaks on stage during an introduction of the new iPhone 5 at an Apple event in San Francisco, Wednesday Sept. 12, 2012. (AP Photo/Eric Risberg)

  • Apple iPhone

  • Apple Introduces iPhone 5

    SAN FRANCISCO, CA - SEPTEMBER 12: Apple Senior Vice President of Worldwide product marketing Phil Schiller announces the new iPhone 5 during an Apple special event at the Yerba Buena Center for the Arts on September 12, 2012 in San Francisco, California. Apple announced the iPhone 5, the latest version of the popular smart phone. (Photo by Justin Sullivan/Getty Images)




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  • It Works On 4G LTE Networks

    At last, the iPhone will become a part of the LTE community, which means it will streams videos and downloads content at quicker speeds. <a href="http://www.pcmag.com/article2/0,2817,2409610,00.asp" target="_hplink">According to PC Mag</a>, LTE connectivity for the iPhone will be available through AT&T, Verizon, and Sprint in the United States.

  • It's Slimmer, Taller And Sleeker

    The <a href="http://www.huffingtonpost.com/2011/10/04/new-iphone-4s-unveiled-at-apple-announcement_n_994462.html" target="_hplink">iPhone 4S</a> has a 3.5 inch display (measured diagonally) and weighs approximately 140 grams. The <a href="http://www.huffingtonpost.com/2012/09/12/iphone-5-features_n_1877637.html?utm_hp_ref=apple-september-event" target="_hplink">iPhone 5</a> boats a 4-inch display and, though taller than its predecessor, is 18 percent thinner (measuring 0.3mm) and 20 percent lighter (weighing 3.95 ounces), according to Philip Schiller, Apple's senior VP of worldwide marketing. The Retina display on the iPhone 5 now "offers 326 pixels per inch" and a resolution of 1,136x640, <a href="http://www.pcworld.com/article/262242/apple_announces_iphone_5.html" target="_hplink">according to CNET</a>. The back of the device also looks slightly different than that of the iPhone 4S: "<a href="http://www.apple.com/iphone/design/" target="_hplink">The same [aluminum] used in Apple notebooks</a>" covers much of the back of the iPhone 5. Glass is inlaid above and below the aluminum -- either white "ceramic glass" or black "pigmented glass," depending on which color iPhone you select.

  • It Has Better Camera Features

    The <a href="http://www.huffingtonpost.com/2012/06/21/galaxy-s3-vs-iphone-4s_n_1615824.html" target="_hplink">iPhone 4S</a> had a VGA front-facing camera (which is less than one megapixel) and a eight-megapixel rear-facing camera with LED flash. The iPhone 5 brings some significant improvements to this department. <a href="http://venturebeat.com/2012/09/12/iphone-5-camera/" target="_hplink">According to Venture Beat</a>, Apple claims that the camera will take pictures 40 percent faster and will have the ability shoot in "panorama mode." You'll also be able to take photos while filming video -- there's improved video stabilization, too. But the iPhone 5's main camera will still be <a href="http://www.huffingtonpost.com/2012/09/12/iphone-5-features_n_1877637.html?utm_hp_ref=apple-september-event" target="_hplink">eight megapixels</a>.

  • The Battery Life Is Longer

    Who dosen't want a smartphone with longer battery life? Apple promises the <a href="http://www.huffingtonpost.com/2012/09/12/iphone-5-features_n_1877637.html?utm_hp_ref=apple-september-event" target="_hplink">iPhone 5 </a>will last 225 hours on standby, and eight full hours while talking on the phone or surfing the web through 3G. The <a href="http://www.huffingtonpost.com/2012/06/21/galaxy-s3-vs-iphone-4s_n_1615824.html" target="_hplink">iPhone 4S</a> falls just a bit short of the above estimates, maintaining only 7 hours and 41 minutes of talk time, or 6 hours and 56 minutes of web browsing.

  • Its Innards Are More Powerful

    The <a href="http://www.huffingtonpost.com/2011/10/04/new-iphone-4s-unveiled-at-apple-announcement_n_994462.html" target="_hplink">iPhone 4S</a> was built around Apple's A5 processor, while the <a href="http://www.huffingtonpost.com/2012/09/12/iphone-5-features_n_1877637.html?utm_hp_ref=apple-september-event" target="_hplink">iPhone 5</a> houses a slightly faster A6 processor. Apple claims this upgrade gives its latest device twice the computing power.

  • It Comes With New Accessories

    The iPhone 5 steps away from the classic charger ports that have been in use for Apple products since 2003. Say goodbye to the 30-pin dock and hello to Lighting, a <a href="http://www.huffingtonpost.com/2012/09/12/iphone-connector-iphone-5-dock-charger-lightning_n_1878282.html?utm_hp_ref=technology" target="_hplink">reversible 8-pin connector</a> that's approximately 80 percent smaller than the previous charger port. The new smartphone will also be sold with <a href="http://www.huffingtonpost.com/2012/09/12/earpods-apple-new-earbuds-headphones_n_1878472.html?utm_hp_ref=technology" target="_hplink">EarPods</a>, Apple's latest (and supposedly more comfortable) version of earphones. Without purchasing an iPhone or iPod, these new buds retail for $29.99

  • ...But It's Got A Heaftier Price Tag

    The iPhone 5 is priced on the same scale that the iPhone 4S was when it launched. Purchasing a two-year data contract from a participating wireless carrier will set iPhone 5 buyers back $199 for a 16GB model, $299 for a 32GB model or $399 for a 64GB model. Now that the iPhone 5 is official, the iPhone 4S is getting an attractive price cut. Apple will now sell the 16GB iPhone 4S for $99.

 

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