Jackson Jambalaya

The Wall Street Journal reported last week wireless phone carriers are seeking to reduce the $400 per phone subsidy paid to Apple for the Iphone"

"Wireless carriers are taking their first steps to change the terms of smartphone deals that have mostly benefited phone makers like Apple Inc., AAPL -0.91% in a push that could leave consumers paying more for devices like the iPhone.

Carriers in the U.S. have been raising monthly rates and charging higher fees when customers upgrade to new phones. In Europe, embattled carriers are taking more aggressive measures: Spain's two leading wireless companies are refusing to subsidize devices for new customers.

In the global wireless market, where device manufacturers such as Apple and Samsung Electronics Co. and software makers like Google Inc. GOOG +1.16% continue to hold considerable sway, carriers still typically pay full price for their phones, then sell them at deep discounts to customers who sign two-year contracts.

But the carriers' latest signs of resistance are drawing applause from investors and analysts. They say the carriers could benefit more from the smartphone boom if they succeed in raising prices for service plans and slowing the rate at which customers buy new phones.

"Optimism has increased that we are witnessing the leading edge of a more disciplined, and more profitable, future," Craig Moffett, a telecom analyst at Bernstein Research, wrote in a research note on Tuesday. The question now, he wrote, is how much carriers can increase their profits thanks to "increased discipline and pricing power."

At Sprint Nextel Corp., S -1.20% AT&T Inc. T -0.54% and Verizon Communications Inc., combined revenue from contract customers increased 6.2% from a year earlier in the first quarter of 2012, the fastest growth rate since before the recession, according to Bernstein Research. In the past month, AT&T and Verizon shares have gained more than 5%, while the broader market, as measured by the Standard & Poor's 500-stock index, is down 1%. Verizon Communications co-owns Verizon Wireless with Vodafone Group PLC. VOD -0.20%
[SUBSIDY]

Apple, meanwhile, is in the opposite situation. Its shares are down 12% from their April 10 record of $644, partly because of investor concerns that carriers may be looking to ratchet back the big subsidies that have allowed so many people to own an iPhone.

Apple Chief Executive Tim Cook has played down concerns that changes in subsidy policies could affect iPhone sales. He told analysts last month that carriers will continue supporting the iPhone because it brings them satisfied customers. Carriers "want to provide what their customers want to buy," he said. He argued that the Spanish market, which is reeling from Europe's economic crisis, "shouldn't be viewed as a proxy for the world."

Wireless carriers shell out $400 for every iPhone sold, analysts estimate.

Now, carriers are adding fees to discourage customers from getting new phones. Verizon imposed a $30 upgrade fee for some customers last month, and both AT&T and Sprint have doubled their upgrade fees to $36 in recent months. Customers pay the fees when they get a new phone.

"It will have a meaningful impact on us in managing those handset costs," AT&T Chief Financial Officer John Stephens said on a conference call with analysts last month.

Monthly rates for smartphone service plans have been rising, too. In January, AT&T boosted some monthly data plans by $5, or as much as 33%, while giving consumers more data. In April, pay-as-you-go carrier MetroPCS Communications Corp. PCS -4.16% raised its unlimited high-speed data plan to $70 from $60. Sprint raised smartphone data prices early last year by $10 a month.

Amid the smartphone craze, much of the profits are bypassing wireless carriers, going instead to app developers and Internet companies like Google, which charge for services and sell ads, and hardware companies like Apple, which sold 35 million iPhones in the first three months of this year.

That's why U.S. companies are closely watching the wireless industry's experiment in Spain. There, leading wireless carrierTelefónica SA TEF -5.26% stopped subsidizing phones for new customers in March. The No. 2 carrier, Vodafone, quickly followed suit. The No. 3 carrier, France Télécom SA's FTE -2.37% Orange Group, refused to go along.

As a result, new customers at Vodafone and Telefónica can no longer get an iPhone for a discounted rate with a two-year contract. Instead, they have to pay nearly $800 to buy the phone outright or sign up for an installment plan that, at Telefónica, adds 18 monthly payments of about $45 to their bills.

Telefónica and Vodafone, which have made the decision to shift resources from acquiring customers to retaining them, say they will continue to subsidize new phones for existing customers that upgrade. Still, the policy change will reduce Telefonica's spending on device subsidies by 25%, a spokesman said.

"People didn't know the effort we were making," a Telefónica spokesman said.

Orange's Spanish operations declined to comment.

For Telefónica and Vodafone, the risks is that Orange will seize the opening to try to win over customers with cheaper, subsidized phones. And, in fact, Orange has said it hopes to use its competitors' moves to increase its market share in Spain.

The industry is watching to see how well Vodafone and Telefónica hold on to customers, as a test of whether other carriers around the world might be able to wriggle free of the subsidy model.

Verizon Communications Chief Executive Lowell McAdam mentioned Telefónica's installment-plan experiment in an interview with The Wall Street Journal in late March. Verizon Wireless, he said, may cautiously follow the Spanish carrier's lead.

"We'll probably offer some things like that, and then we'll see what the adoption is like," Mr. McAdam said. "You can't push this on customers before customers are ready for it."

Enjoy the $200 price while it lasts although I suspect an installment plan will be offered. Too many teens are addicted to their iphones. What is interesting is RIM, yes, the much maligned RIM that the media loves to hype as the next corporate train wreck, has been able to hold its own against Apple outside of America as the price of the Iphone is much higher. Is this the Achilles heel in Apple's stock price?