Verizon may be using pricey Android phones to subsidize cheaper iPhones

Whenever I hear about another premier Android device retailing for more than $200 on Verizon, I always wonder why, because usually the specifications are fairly similar to another device that consistently retails at $199, the iPhone. Until now, I thought this was because Android devices simply costs more than the iPhone to make, but it appears that the high prices may actually be related to the low and consistent cost of the iPhone.

Take, for example, the newly released Verizon Galaxy Nexus. It is priced at $300 on contract for the 32GB version, a full $100 more than the 16GB iPhone. At first, it seems that this price difference is the result of the Nexus having better hardware, like a 720p display and 16GB more of storage. However, it turns out that the unsubsidized base price of the Galaxy Nexus is $650, the same as the iPhone 4S. What gives?

Well, if you do some simple math, you will find out that the iPhone is simply being subsidized $100 more than the Nexus by Verizon. This means that Verizon takes an extra $100 hit when selling Apple devices over Android devices, or if you want to think of it another way, makes themselves an extra $100 on the Galaxy Nexus.

In case that is a little confusing, picture this scenario. Verizon buys both an iPhone 4S and Galaxy Nexus from the manufacturers for $650. They subsidize, or partially pay for, the cost of both devices knowing they will make money over the course of the two year contract. The difference is that they pay for $450 of the total price of the iPhone, but only $350 of the cost of the Galaxy Nexus.

In essence, they make the customer pay for a larger portion ($300 vs. $200) of the same original cost when they buy an Android device versus when they buy an iPhone. So, why would they do this for devices that are actually the same price?

Many think the reason is that Apple has imposed strict terms that force Verizon to keep the iPhone 4S at $199, even if that price doesn't allow them to make much money. This leads us to the conclusion that in order to make up that lost money, Verizon could be increasing the cost of other devices like the Galaxy Nexus, Droid RAZR, or Droid Charge.

Of course, this is all a theory, and the price difference could just as easily be the result of a supply chain difference, or an issue with who takes what cut of things. Still, it is interesting to consider, and at least in my book is a good reason to buy your smartphones unlocked instead of dealing with carriers and their contracts.

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Aaron Orquia

Aaron Orquia is an associate editor at Pocketables. He has been using Android and Linux since he bought his first computer years ago, and his interest in technology, software, and tweaking both to work just right has only grown stronger since then. His current gadgets include a OnePlus One, a Pebble smartwatch, and an Acer C720 Chromebook.

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