Analyst calls for a cheap iPhone in two years

Piper Jaffray’s resident Apple analyst Gene Munster – you know, one of the iTV fame – is back at it predicting Apple’s gonna launch an inexpensive iPhone model in two years time. Recognizing Apple’s tiny market share in emerging markets like Russia, India, Brazil and China (collectively referred to as BRIC territories), he’s calling for an unsubsidized, sub-$200 iPhone around 2014. Currently, Apple’s handset is a high-end play, with older models selling at reduced price points.

As carriers pay big bucks to subsidy its high cost, users typically must sign on a dotted line. But not everyone is willing to accept contractual commitment in exchange for an iPhone. Meanwhile, competitors are successfully exploiting Apple’s price weaknesses, churning out Android cheapos that have pushed the platform in places like China to as much as an astounding 90 percent smartphone share

Business Insider first highlighted Munster’s observations.

According to independent analyst Horace Dediu, the iPhone is unavailable to half the world’s six billion mobile users because Apple only works with one-third of the world’s 816 mobile phone operators, as opposed to Android handsets selling across virtually every carrier.

The analyst summarizes the iPhone business model around the following question:

Can enough units be shipped in a sufficiently short time frame to allow a limited (but large) subset of operators to create competitive advantage which sustains a generous up-front subsidy.

He put together this list of unaddressed iPhone subscribers:

• India: 658 million
• China: 622 million
• Pakistan: 116 million
• Russia: 102 million
• Nigeria: 89 million
• Japan: 69 million

This is the current iPhone addressable market.

Costly iPhone subsidy is at the heart of the problem.

Carrier T-Mobile USA, for example, said it wouldn’t accept Apple’s terms of business because it didn’t want to jeopardize its margins by spending billions on iPhone subsidy.

Speaking at Morgan Stanley’s Technology, Media & Telecoms Conference this week, T-Mobile COO Jim Alling basically said his firm cannot afford the iPhone:

Make no mistake about it: We would love to carry the iPhone. However, we want the economies to be right for us.

Some people believe Apple will never address the low-end as the company is presumably content with its high-end status.

Quite the contrary.

When the original iPod launched everyone criticized its steep price. But over the years, Apple exploited economies of scale and released numerous iPod models. The iPod family now covers prices from as low as $49 and all the way up to $399.

Granted, MP3 players are hardly comparable to cell phones and it’s not clear whether Apple would ever trade some of the iPhone’s advanced features for low price, risking fragmentation.

But this way or another, the high-end segment will eventually dry up and the Cupertino firm will, in my opinion, feel compelled to work its way down to the mid and low-end.

I also happen to think Apple cannot effectively address the low-end just by heavily discounting older iPhone models. A totally new iPhone model is needed, something tailored for the sub-$200 category, sold contract-free.

Call it the iPhone mini if you like, but I think it’s inevitable despite late Steve Jobs insisting that “we can’t ship junk”.

What’s your take on the inexpensive iPhone meme?