Apple Inc. broke a psychological barrier for consumers when its iPhone X made its debut at US$1,000 in September, 2017.
At the time, it was the most expensive iPhone ever made and had slick new features such as a bigger screen and facial recognition. The sticker shock was worse for Canadians; the device’s starting price here was $1,319. Although most folks winced, the Harvard Business Review said Apple’s premium pricing “set an expectation of excellence in consumers’ minds.”
These days, however, new smartphones don’t leap far beyond their most-recent iterations. The latest models largely offer tweaks to existing capabilities such as the camera or battery life. Yet the four-digit price tag has become the norm. Top-tier devices now fetch upward of $2,000 with taxes. That’s roughly the same price as a one ounce bar of gold. It’s impossible to believe that incremental improvements to the technology justify the huge price increases for smartphones.
What’s more, the pressure on consumers to purchase newfangled devices will only increase with the rollout of 5G wireless networks, which is why Ottawa must tackle rising smartphone prices if it’s serious about lowering monthly wireless bills for consumers.
The Trudeau government is promising to cut the average cost of wireless services by 25 per cent over the next two years. As part of that mission, Minister of Innovation, Science and Industry Navdeep Bains was instructed to expand “mobile virtual network operators” in the Canadian market.
MVNOs lease space on existing wireless networks and then resell wireless services to consumers under their own brands at cheaper prices. Ottawa wants wireless resellers to put more downward pressure on prices for wireless services, but MVNOs won’t curb rising smartphone prices. Paying off a device over a two-year term comprises a huge chunk of consumers’ monthly wireless bills.
“Cellphone and wireless bills are putting too much pressure on Canadian household budgets,” Innovation, Science and Economic Development Canada said in an e-mailed statement.
But it’s unclear whether Ottawa’s pledge to reduce monthly wireless bills includes the cost of smartphones.
When asked if the CRTC will examine rising smartphone prices at hearings scheduled for next month, spokeswoman Anne Brodeur was non-specific: "The wireless proceeding is looking at the competitiveness of the retail mobile wireless market, and pricing is one component of that.”
Smartphone prices must form part of the analysis on competition. Otherwise, Ottawa risks overlooking a significant factor inflating consumers’ monthly wireless bills.
For the first three quarters of 2019, almost 39 per cent of smartphones shipped to Canada cost more than US$800 and nearly 19 per cent topped the US$1,000 price point, according to Steve Yang, senior analyst with IDC Canada. “5G phones will be more expensive," he said.
It’s no wonder. The device market is a de facto duopoly. In December, 2019, Apple’s Canadian market share was 50.98 per cent, and Samsung’s was 29.6 per cent, according to StatCounter. Consequently, those two manufacturers have enormous pricing power in this country.
Although some wireless carriers still offer device subsidies, those allowances often aren’t as generous as in previous years. Rising smartphone prices have also prompted carriers to move toward device financing to minimize their costs. Those changes mean that smartphone acquisition costs are being passed on to consumers. (The CRTC examined device financing plans in a separate proceeding, but has yet to render a decision.)
While the federal government is right to scrutinize the prices that carriers, such as Bell, Rogers and Telus, charge for talk, text and data plans, they should also consider how costly it’s become for consumers to purchase a new smartphone.
Telecom executives have long complained that Apple, in particular, offers them no flexibility in pricing based on volume and controls carrier marketing and advertising. Apple didn’t respond to a request for comment on its contracts with Canadian carriers.
The Competition Bureau has previously investigated complaints that Apple engaged in “anti‑competitive conduct” through its contracts with Canadian telecoms that sell and market iPhones. But the investigation was scrapped in 2017 because the watchdog didn’t find sufficient evidence to conclude that Apple abused its market dominance.
Given the dramatic price inflation of smartphones in recent years, perhaps it’s time for our federal antitrust authorities to take another look at how handset manufacturers affect wireless competition and inflate the cost of devices and mobile services in Canada.
“As we indicated in our position statement following the discontinuance of our investigation into Apple, the Bureau will not hesitate to take action should new and compelling evidence come to light of harm in the Canadian marketplace,” the Competition Bureau said in an e-mailed statement this week.
“The digital economy is a top priority for the Bureau. In this regard, the Bureau recently published a call-out for information on anti-competitive conduct in the digital economy,” it added.
Canada should follow the example of other countries. U.S. antitrust authorities are focused on big tech companies and whether they’re engaging in anti-competitive conduct for mobile operating systems, apps and online advertising, among other activities.
Italy’s antitrust watchdog, meanwhile, fined Apple and Samsung €5-million ($7.25-million) each in 2018 for allegedly using their software updates to slow down older mobile phones.
With 5G on the way, device manufacturers have more incentive than ever to squeeze Canadian carriers and anesthetize consumers to soaring smartphone prices.
We’re long past the days when cellphones were considered luxury items. When the Motorola DynaTAC 8000X went on sale in 1983, it cost US$3,995. But it was truly revolutionary as the world’s first commercial mobile phone.
These days, smartphones are commodity products for the masses. Connectivity is the backbone of the digital economy. Canadians can’t afford to go back to that overpriced past on cellphone prices.