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Wireless carriers’ new problem: How to sell a $1,300 iPhone

Tim Cook, chief executive officer of Apple Inc., speaks about the iPhone X during an event at the Steve Jobs Theater in Cupertino, California, U.S., on Tuesday, Sept. 12, 2017.

David Paul Morris/Bloomberg

The iPhone X's edge-to-edge screen, infrared camera and facial recognition capabilities stole the show at Apple Inc.'s annual event in Cupertino, Calif., on Tuesday.

But for Canadian wireless carriers and consumers, it's another feature that may hold the spotlight longer: the price point.

The iPhone X is the most expensive iPhone ever, with a starting price in Canada of $1,319. By comparison, the iPhone 7, unveiled a year ago, started at $899. Apple will also sell an intermediate model dubbed the iPhone 8, and even that starts at $929.

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This could make the new iPhones a tough sell for BCE Inc., Rogers Communications Inc. and Telus Corp. The national Canadian carriers operate on an up-front subsidy model, where they shoulder some but not all of the initial cost of the newest smartphones and customers pay off the balance of the device price over the course of their contract.

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But even after a subsidy, customers will pay more than ever for the newest iPhones. In some cases carriers may offer the option to pay more on a monthly basis in exchange for a lower up-front price.

"At price points above $1,000, you can assume that it will have a mitigating impact on demand, in particular because the functionality is not improving at the same pace as it was historically," said Macquarie Capital Markets analyst Greg MacDonald.

Canadian iPhone users less concerned about the newest features are likely to consider older-generation models as they come down in price, said Kaan Yigit, president of Solutions Research Group Consultants Inc.

With two or more smartphones in the average Canadian household, he said individuals and families are taking stock of their overall budget for wireless services, including the monthly cost of service, before making a call on which device to purchase.

"People are trading down the phones to leave more room for data and other ongoing costs," Mr. Yigit said. "So, if you have an offer that's $399 [up front] for the newest phone versus something that's $99 or $0 down, they may look at it and consider snipping the budget on the device and reinvest that money into a slightly higher data plan."

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Even BCE's chief executive officer, George Cope, acknowledged Tuesday that the high cost of the device would be a factor in demand this time around.

"I think the challenge obviously will just be, based on the product price we're all hearing ... that will be the test to what the upgrade pace is," Mr. Cope said at an investor conference hosted by Bank of Montreal on Tuesday morning, before Apple released the exact details on pricing on the new iPhones.

Still, Blaik Kirby, president of BCE Bell Mobility division, who was in Cupertino for the Apple event Tuesday, said he's confident it will be a "pretty robust upgrade cycle."

"We have a lot of customers who buy the larger memory-size devices and actually want the best iPhone. We refer to them as 'fanatics' and they tend to upgrade pretty aggressively in the first 30 to 90 days of a new device," he said in an interview. "Apple has incredible loyalty. Not a lot of customers switch from iOS to Android. I think with the enhancements they announced [on Tuesday], that loyalty will continue."

Bell is not yet certain what price Apple will charge it or other Canadian carriers for the iPhone X but Mr. Kirby said the recent strength of the Canadian dollar should be a positive factor. That price will in turn affect how much the carriers can offer to customers as an up-front subsidy.

Over the past year or so, Bell and other carriers have started offering a new premium tier of plan that costs about $10 a month over a two-year contract but gives customers an extra $200 or so off the initial price of the device, something meant to help defray soaring smartphone costs.

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Mr. Kirby also noted that the prices do come down eventually and within a year, the cost of an iPhone 8 or X will be considerably less. More frequent and reliable software upgrades also make it more appealing to buy an older-generation device.

Other carriers were also unable to offer immediate details around pricing or subsidies on Tuesday.

The iPhone 8 models are available starting Sept. 22 while the iPhone X is slated for Nov. 3.

"Some consumers are always interested in getting the latest smartphones," Raj Doshi, executive vice-president of wireless at Rogers, said in a statement, adding that the company's subsidy model helps it offer a range of options to customers.

Bell will be the first Canadian carrier to support the new Apple Watch, which was also unveiled Tuesday and will allow users to access cellular data services such as voice calls, texting and streaming, without also having their iPhone on hand. Mr. Kirby said Bell had to make a number of technical improvements to its network to support the new functions for the wearable device. It will charge customers $5 per month to add support for an Apple Watch.

Telus spokeswoman Erin Dermer said Tuesday: "We look forward to launching the Apple Watch 3 as soon as the systems technology is in place."

Video: Apple unveils iPhone 8, iPhone X (The Associated Press)
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About the Author
Telecom Reporter

Christine Dobby covers the Canadian telecom industry for The Globe and Mail. Before joining the Globe in May 2014 she reported for the Financial Post for three years, most recently writing about telecom and media. She has also reported for the Toronto Star and New Brunswick Telegraph-Journal. More

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