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High carrier subsidies affect iPhone sales in parts of Europe

Apple has a problem with iPhone sales in select European countries, says a recent Wall Street Journal report. The problem isn't with the hardware or even distribution, but pricing and carrier subsidies.

In the US, the iPhone is affordable to many people because the carrier foots the bill for the cost of the phone. On most US carriers, the entry-level 16 GB iPhone 4S model sells for US$199 with a two-year customer agreement. Without a contract, the price of the phone balloons to $649.

That price difference is shouldered by the carrier which hopes to recoup the up-front loss over the course of the contract. Sprint is an excellent example of the subsidy model in action as the carrier supposedly paid around US$15.5 billion for the iPhone and is not expected to make a profit on the handset until 2015.

In Europe, however, many carriers do not subsidize phones and sell them on a prepaid basis. Consequently, the iPhone costs a lot more than its competitors. The Wall Street Journal points to Vodafone Portugal which sells the iPhone 4 for $680, while its low-end Android phones retail for under $200.

This price difference undoubtedly influences sales. When given the choice, only 5 percent of customers in cash-strapped Greece are choosing to buy the iPhone, while the rest are selecting less expensive Symbian and Android smartphones.

Apple is aware of these prepaid markets and hopes the quality and lower-price of its last generation iPhone models will help it compete. Speaking at a recent investors conference, Tim Cook said, "Everyone in every country wants the best product as it turns out. They're not looking for a cheap version of the best product -- they're looking for the best product." Apple believes the iPhone is the best product and people will pay extra for it.

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