Apple's iPhone 5C misses the low-cost mark

Apple just expanded its smartphone line with the lower cost iPhone 5C, but don't expect throngs of budget-conscious consumers to line up for the device, at least not in places like China.

That's because the supposedly cheap iPhone 5C is, well, not really cheap. The 16GB model retails for $99 with a two-year service contract, and $549 without a subsidy. Tack on an additional $100 for the 32GB model.
The rationale for the iPhone 5C is that the more affordable model would better compete in markets where consumers don't sign contracts and pay an unsubsidized rate for their smartphones. It's in these markets where the flagship iPhone struggles, and where Apple has to try harder to win over consumers. While Apple still sells a truckload of iPhones, the fate of its continued growth is a little less certain. The Cupertino, Calif., company may have invented the modern generation of touchscreen smartphones, but it faces stiff competition from companies unafraid to offer dirt-cheap, but functional, phones. While the iPhone remains king in the US, it has since ceded its leadership position elsewhere around the world. Globally, Apple has been losing market share to Android devices, particularly from Samsung.

As if that weren't enough, sales are slowing in its core high-end smartphone market, which means both it and Samsung have to find new areas for growth. An obvious source is China, which has millions of consumers who already covet the Apple brand. But in China and other regions, such as India, a vast majority of the people can't afford an $800 smartphone.
That's close to what they're getting even with the supposedly more affordable iPhone 5C. According to Apple's Chinese site, a 16GB unsubsidized iPhone 5C costs RMB 4,488, or $733, while the 32GB version sells for RMB 5,288, or $864. A 4S will set a buyer back RMB 3,288 or $537. The iPhone 5S starts at RMB 5,288, or $864, for 16GB.At that pricing, the iPhone 5C isn't exactly cheap, particularly in a country where the majority of smartphone users don't have contracts. Apple needs the China market, but it may find it tough to compete with devices from Chinese companies or even some of the cheaper phones from Samsung, which currently is China's biggest smartphone vendor.

So rather than help Apple attract the mainstream or low-end customer, the 5C instead helps it better build its position at the high end. It might even help the company nibble away at Samsung's market share with mainstream buyers. But it's not going to completely turn around Apple's position in China.
"Anyone expecting Apple to come truly down market with the iPhone 5C was fooling themselves," Ovum analyst Tony Cripps said. "The day that happens is the day the company signals that it has run out of headroom for expansion. It's far from ready to concede that yet as its greater interest in Japan and China show."
When Apple hosts its event in China in a few hours, all eyes will be on the company to see if it says anything different about the devices in that region. What could give the company a boost is the expected plan to offer its phone through China Mobile, the world's biggest wireless carrier with nearly 750 million subscribers. But unless the two reached some deal to offer iPhones at better prices, Apple won't sell nearly as many devices as it could with an unsubsidized phone that costs $400.