A question I actually get asked quite often is “why are iphones so much cheaper than other phones?” I’m sure you may have noticed when you go in to get an upgrade that the price of some phones even those with a fraction of the capability are significantly more in cost than the iphone. Not only would I like to take quick second to answer this question but to also enlighten some people on how an “upgrade” and phone pricing in general works.

Phone pricing at wireless carriers tends to baffle and even frustrate some people that are likely in an already frustrating situation. Typically we are used to paying the upgrade or new activation prices on cell phones. This involves the signing of a two year contract to agree to stay with that particular carrier or pay an early termination fee of around $150 dollars(more or less). However when the time comes that we maybe need another phone sooner than expected top reasons being dropped in a toliet, lost, stolen, dropped and broken, or ran over by cars. (yes ran over by a car really is a top 5 reason that even surprised me). When we find out that we are not “eligible” for an upgrade we then get the sticker shock of having to pay a price typically in the $200-$700 dollar range to replace out phone. This is likely far less than what we originally paid. So are cell phone companies trying to scam us into paying more? The answer is absolutely not, and many people do not grasp this concept.

When you get an “upgrade” you are signing a two year contract and when that happens your phone is often “subsidized” in cost by the wireless carrier or retailer. Phones are made by manufacturers such as Motorola,Apple,HTC, etc. They sell phones to retail stores which in turn sell them for LESS than what they paid. How can they do this? When you sign that contract the service provider is willing to take a hit on the phone, because they know they will eventually usually several months down the road turn a profit. Getting a new device is often the most important part of the wireless experience to the average consumer so wireless carriers are willing to do what it takes to help you get a new phone and of course use that device to take advantage of new services, features, and subscriptions. Most people would not be able to afford a smart phone if this wasn’t the case.

The reason you have to wait for eligibility to upgrade is, because that carrier has already taken a hit on your first phone purchase and needs to be able to recoup their costs first, and of course profit. This is after all a billion dollar business with extremely high overhead costs. I could go in to a lot more detail, but that is the basic gist of things as far as pricing goes. Not a lot of other service providers do this in other industries, an example being if your cable company sold HD TV’s at a super low cost with activation of service or maybe premium channels.

So why is the iphone upgrade price so much less? Simply put the average cell phone is subsidized about $150 dollars off retail costs (manufacturer price). However AT&T subsidizes the iphone by $400 dollars. How come? The iphone is a top seller and iphone users take advantage of far more features, accessories, and tend to keep these services longer than other phone users affording AT&T to offer an amazingly low price for such a device. So take advantage of the deal and pick one up!

The next time something happens to your cell phone be prepared with this knowledge in mind when looking at the costs of a new phone.