This is absolutely untrue. Apple's business model is to sell $650 phones to carriers, who then turn around and sell them to consumers for the same price as $350 dollar phones. This is why they have fantastic margins. If the carrier model ever goes away it would be bad news for Apple, who would have to compete on price to a greater extent than they do today.
Secondly, Apple's profit is uniquely enriched because it has built the platfrom that it has -- again, no other phone manufacturer reaps the direct from consumer benefit Apple does.
Lastly, because Apple sells markets/sells to the consumer, the consumer picks Apple first and then the carrier -- many change carriers but continue to be loyal to Apple as a phone maker. This is definitely the culmination of a major sea change in the mobile industry. Apple may not the only phone maker that has ever had a consumer act this way, but they are the first to have it happen on a widespread basis.
But who can blame them? Of the $650 cost of a new iPhone, the user only pays $200, while the carrier pays $450. Apple knows where their bread is buttered.
IT IS NOT SUBSIDIZED, PEOPLE.
You may say, well I'm paying the same per month whether I take a new phone or not from the carrier, so... it's subsidized right? Nope, they're just gouging you when you're on an old phone. Taking the new phone just slightly reduces your disadvantage. Let's put it this way, if MVNOs can offer you piggybacked network rates at $X while traditional operators rates are $3X aren't you a bit surprised? It's not that the operators are going to sell to MVNOs for a loss, and not that MVNOs are going to sell to you for a loss.
They still front the money, then get it back from you over time. I'd say that qualifies as "subsidized", especially when the "over time" payments are not broken out separately.
Regardless of how it works out afterwards, the fact is that most American buyers prefer to pay $200 up front with a contract versus paying all $650 themselves. If Apple wants the carriers to keep putting up $450 in exchange for locking people into contracts, they have to cooperate at least a bit.
The phone qualifies as "subsidized" only if buying it from your mobile company turns out cheaper than if buying it separately. Generally it isn't.
Yeah, I pay a lot of money. I also get ~$450 back to help pay for my phone. That's a subsidy. The fact that my monthly bill is ~$65/month/person is irrelevant to that.
Interestingly, it seems that the US market is slowly moving toward the way you're saying. T-Mobile, for example, now offers cheaper service by default, and if you want a "subsidized" phone, they treat it as a loan that you pay back over time, and charge that amount separately. The other providers have introduced plans for people who want to upgrade every year rather than the standard every two years, which involves paying an extra monthly charge on top of the regular bill.
The cost of early termination + subsidized price is still quite a bit cheaper than the full price of the phone.
Not really "quite a bit cheaper".
On Tmobile when you bring your own device you can get a $50 everything plan - the equivalent plan is $100 on competing networks. Granted you could argue this isn't all subsidy and that Tmobile is also cheaper because their network is worse, but when you compare to international cell services this doesn't appear to be the case.
It's at least in part because the companies are near monopolies that don't need to compete (http://www.youtube.com/watch?v=7R4xhwy-1oI).
My wife has about £100/month disposable income and pays about £30/month for her handset and contract. When her renewal comes around she can buy the handset for, say £400. Apart from to get that £400 she needs to go without beer and eating out and new shoes for 4 months (never going to happen). Or make do with less for, say, a year (very unlikely given she doesn't really care enough about handsets).
Her alternatives are to take the contract and handset bundle or to buy the handset on credit. Assuming she takes a SIM-only plan like mine (£13/month with limits I've never exceeded) that leaves her with £17/month to pay off the credit on £400. I've not done the figures but I'd say that probably works out at around two years - so it doesn't really give her any advantage beyond avoiding lock-in; which she'll only care about if we change country (remember she's not really bothered about handsets)
Which is all a long way of saying that many people's priorities aren't the same as ours (by which I mean frequenters of Hacker News) - which alters the equation and makes buying off-contract less appealing than getting everything up-front and paying for it over time.
Edit: typos
The contract worked out cheaper. That's a subsidy isn't it?
It could be all sorts of things (cheap credit, loss-leader etc.) but I doubt it ever qualifies as subsidy.
- Tethering
- FaceTime over 3G
- 3G, LTE, toggles to turn 3G or LTE on or off
- APN settings
And unlike on Android, where these features just get disabled on the phones locked to/distibuted by that carrier, even unlocked iPhones bought on another continent will lock these features when they see the carrier's SIM card.
Possibly the funniest part of the "you are the product" meme many Apple fans are fond of is how many of them fail to notice that they are the product that Apple has sold to a carrier.
As others have mentioned, don't for a second think the consumer isn't paying the full cost of the phone. They are and more -- but that subsidy doesn't differentiate any carrier from another. They all do it. So, once again, the consumer fails to see any differentiation based on carrier. As I discuss at length above, consumers are primarily buying the Apple experience and platform -- and the carrier is secondary.