iPhone prices to drop on Verizon and AT&T?

It’s basically accepted as fact by now that the iPhone is coming to Verizon. When? Probably this Christmas, or early in 2011. The point is it’s going to happen, and when it does, things are going to get interesting.

AT&T is currently believed to be paying somewhere around $350-$400 in subsidy for each iPhone sold. That’s a nice, healthy chunk of change for Apple. Since AT&T has exclusivity of the iPhone, they have decided that this subsidy is an acceptable cost for the higher monthly service fees they receive from smartphone customers on their 2 year contracts.

Over on Verizon, there are now a bevy of Android based smartphones selling like hotcakes. Something more interesting is happening on the Android side though. Because there are so many handsets to choose from, you can get an Android phone for cheaper. Many Android handsets are priced below $99. The Motorola Droid has been out for only 9 months, and already is priced cheaper than at launch. Part of this is due to the Droid X’s release–only 8 months after the Droid. But the fact that Android handset makers need to be on a moreĀ aggressiveĀ release schedule is evidence of how hard they’re competing against each other.

Compare this to Apple. Their handsets don’t have to compete with other iOS based handsets on AT&T. As a result, Apple can keep their prices higher. Their latest iPhone model released every year in June has had the same price points: $99 and $199, since the iPhone 3G was released. They don’t have to drop their prices, because there’s no alternative iOS handset.

Will this change once the iPhone hits Verizon? I bet it will. How else can Verizon and AT&T compete for iPhone customers, if not on price of the handset? It makes more business sense to give customers a discount on the handset, rather than drop the price of service contracts. Dropping the price of the iPhone another $30-50 is a drop in the bucket compared to losing $10/month over the course of a 2 year contract. Despite the iPhone being available on Verizon and AT&T at that point, it’s not as though customers can jump ship to the other carrier–the cellular radios are incompatible.

When the iPhone comes to Verizon, expect to see the price drop. But this won’t affect Apple, mind you, they’ll get a slightly larger subsidy from the carriers as they compete for iPhone customer’s wallets.