How will a cheaper iPhone 5C affect pricing for older iPhones?

In this edition of Ask Maggie, CNET's Marguerite Reardon offers some advice about buying an older iPhone in light of a new, less-expensive iPhone 5C potentially hitting the market.

As rumors heat up that Apple will likely introduce not one, but two new iPhones in September, consumers wonder what it means for the company's traditional product discounting conventions.

While Apple has generally kept tight-lipped about the launch of its new iPhones, there are a few things that most Apple fans have been able to count on each year. One is that the company will introduce one new smartphone a year. And the second is that last year's model will sell at a $100 discount and its 2-year-old version will be $200 less expensive than the new one -- or it will be free with a two-year carrier contract.

But with the rumor that Apple will be introducing a high-end flagship iPhone, called the iPhone 5S , along with a lower-cost option called the iPhone 5C , consumers aren't sure what to expect. Apple as usual has been mum. In this edition of Ask Maggie, I offer some advice to a wireless consumer wondering if he should buy the iPhone 4S now or wait. I also answer another reader's question about buying insurance for her son's new iPhone.

Will the iPhone 5C replace the iPhone 4S?

Dear Maggie,
My wife is wanting to get an iPhone 4s, and up until recently we were going to wait until the announcement for the next iPhone. In previous announcements, the latest device retails at $199, the prior year model (in this case would be iPhone 5) would be priced at $99, and the two-year prior would retail at $0. Of course, I'm referring to the two-year contract prices.

My wife wants the iPhone 4S, mainly because we don't want to replace all of our accessories with the new connector that is on the iPhone 5 and will likely be on the new devices. Recently, there has been a rumor that a low-cost iPhone, the iPhone 5C, will be introduced along with a new high-end iPhone. I've heard that the iPhone 5C will replace the iPhone 4S, and that one would not be able to buy a 4S upon release of the new devices. Does this rumor hold any water? Should we eat the $99 that it costs right now to get the device that she wants?

Thanks,
Alex

Dear Alex,
As with any iPhone rumor, I have to be clear that at this point, there is far more speculation out there than factual information about what Apple will or will not announce in September.

That said, when the rumors reach their current intensity, it is more likely than not that at least some of the things you've heard are true. For instance, it's pretty clear at this point that Apple will hold an event in California on September 10. And it's also pretty clear that the company is preparing to launch not one but two new devices in September. One is a high-end smartphone, using top-of-the-line components dubbed the iPhone 5S. And the other is a less-expensive model you mentioned in your question called the iPhone 5C.

Beyond the actual existence of this "second" device, it's hard to say exactly how the new phone will be sold and what Apple will do about its older models. I have speculated in the past that the low-cost model of the new iPhone may not be available in the US market. Instead, I predicted that the device would be available only to consumers in developing markets, such as China, much like other phone manufacturers have done with other low-cost devices. A few of my CNET colleagues and analysts, who follow Apple, have made similar predictions about this possible strategy.

But others, such as CNET's own Apple expert Josh Lowensohn, think limiting the iPhone 5C to developing markets veers too far from Apple's traditional product playbook.

"Apple doesn't do specific devices for specific regions," Josh told me. "They do something that's mass market, and as mass market as possible. A cheaper, plastic, colorful iPhone addresses a ton of consumers here."

This is very true. If you look historically at Apple's strategy in the mobile market, as well as in the consumer electronics market in general, the company has not kowtowed to the demands of certain regional retailers or wireless operators. The company makes one device it sells throughout the world. And it doesn't worry about cannibalizing its current product line. (It is true that Apple has had to slightly modify this strategy for 4GLTE devices, but only because it wasn't cost-effective to put all the necessary radios to support all the different radio frequency bands in a single device.)

With this argument in mind, my opinion has been swayed. And I'd say it's likely that the iPhone 5C will be offered in the US. Whether it hits store shelves when the iPhone 5S does and it's available on every US carrier at the same time, who knows? But I'm willing to concede that if this device exists, Apple will likely sell it in the US.

So for the sake of this conversation, let's assume that the cheaper iPhone 5C will be coming to the US market. The next big question is how much will it cost?

In an FAQ he posted earlier this week , Josh cites a Morgan Stanley report from June that suggests the new iPhone 5C could cost between $349 and $399 unsubsidized, which is about $50 to $100 less than what Apple is currently charging for the iPhone 4.

As for the subsidized price tag, Josh thinks the phone could be less than $100 or even free with a two-year carrier contract. That's not bad considering, as you noted in your question, that Apple's previous strategy would likely have dropped the cost of the 2-year-old iPhone 4S to free with a contract.

Now to answer your real question: Do I think Apple will continue to sell the iPhone 4S in light of this new low-cost device also hitting the market?

Accessory makers, such as case manufacturers, are getting ready for the new iPhone 5C. SonnyDickson

The short answer to this question is that it's still really unclear what Apple will do with its product line if it introduces two new phones in September. Some analysts speculate the company will ditch the 4S, and the new iPhone 5C will replace the iPhone 4S as the least-expensive iPhone available from Apple.

But other analysts have said that Apple may replace the iPhone 5 with the new iPhone 5C. So instead of being the cheapest iPhone offered by Apple, the iPhone 5C could be the midrange model. And it will offer the iPhone 4S as the low-cost option.

It's hard at this point to say definitively what the pricing strategy will be. But in my opinion, I don't think it should matter much to you.

It's time to ditch the 30-pin connector
I understand your temptation to hang onto the old 30-pin accessories. As a consumer, I'm annoyed for you that Apple has not made the new connector backward compatible with older accessories. But to be honest, this is nothing new from Apple. I remember a few years back being incensed by the fact that the waterproof Otterbox case I had bought for my original iPod would not fit into a later generation iPod that I felt compelled to buy after my original iPod died a year and a day after I had bought it. (Yes, that was the day after my warranty had expired. I did not have Apple Care at the time.)

But the truth is that the new Lightning connector is a part of Apple's future. And you probably shouldn't fight it if you plan on continuing to buy Apple products. Besides, the newer connector is sturdier than the older 30-pin connector. And it's reversible, so you don't have to worry about which side is the top or bottom when you connect.

The reality is that many of the accessories you already own may still be able to connect to a new iPhone via some other mechanism, such as Bluetooth. This is likely the case in newer cars, which may or may not have an iPhone or iPod dock, but may also pair with Bluetooth devices.

Of course, there may be a few older accessories that are not Bluetooth enabled, and only have the 30-pin connector. Again, I understand your reluctance to make the switch, considering the investment you've already made in other accessories and gadgets that have the 30-pin connection. But going forward, all your new accessories will have the Lightning connector rather than the 30-pin connector. And as I mentioned, many will use Bluetooth for short-range connectivity. What's more, Apple sells a 30-pin connector-to-Lightning adapter for $29 that can be used to keep some of these accessories alive, at least for a little while longer.

Josh agrees with me that you shouldn't make your purchase decision based on the old connector.

"The sooner people get rid of their 30-pin device, the better," he said.

Simply put, he believes the trade-off between going with newer technology versus protecting your investment in older accessories is too high on the new tech side.

Don't be tempted by the iPhone 4S's cheap price tag
The main reason I don't think you should buy the iPhone 4S now or in the future is because it's old. The iPhone 4S was introduced in 2011. It is now 2013. If you buy the device with a two-year contract so that you pay the $99 price tag today, or if you buy it later and the price is free, you will still have an outdated device that is already 2 years old and you'll have to own it for another two years. By the time your new contract ends, the technology used in that phone will be 4 years old.

This may not be an issue now, but keep in mind that some of the nifty things that will be introduced in iOS 7 software updates and in future iOS updates over the next two years will be optimized for a device using newer components. Developers will be creating applications for the new specs more than they will for the older ones. Again, this might not be a big deal initially with iOS 7, but by next year when the next version of iOS comes out, the iPhone 4S could look a bit long in the tooth.

Even though the iPhone 5C is going to be a less expensive and less robust device than the flagship iPhone 5S, it's still likely to have faster processors and more advanced components than the 2-year-old iPhone 4S. So it just seems like a smarter investment to go with a device with newer technology that can last longer than one that uses older tech.

I know the cheaper price tags on the older iPhones are attractive. And sometimes buying last year's model is a smart move. But I almost always recommend not buying a device that is two generations old. It just isn't worth it considering the investment you still must make in your wireless plan and the two-year contract you're forced to sign as part of the deal to get such a cheap device. This is especially an issue with Apple products, since the company to date, has only released one new smartphone per year. And in the smartphone world, a lot of technology innovation can occur in a single year.

The bottom line
I still think you should wait for the iPhone announcements. And if your wife wants a lower-cost option then go for the iPhone 5C. But if by some chance Josh and I are both wrong and the iPhone 5C is not available in the US, or it's only limited to certain carriers, I would recommend getting the iPhone 5, which came out a year ago. This device will likely be discounted, and it's only a year old as opposed to the iPhone 4S which is 2 years old. And as I argued above, it's better to bite the bullet now and make the switch to the new Lightning adapter than to wait any longer.

I hope this advice was helpful. And good luck!

Insurance for a new iPhone?

Dear Maggie,
Dear Maggie, My son is going to be a freshman in high school this year. And we are thinking of getting him one of the new iPhones for back-to-school. My biggest concern is that someone is going to steal his phone. (He will be going to a school a few towns away and will have to ride the commuter rail from our home to his school.) Do you think it's worth it to get some extra insurance on the phone? Will the Apple Care service cover loss or theft?

Thanks,
Beth

Dear Beth,
This is a question that I get often, mostly from worried parents. Whether or not to get insurance for a smartphone depends on several factors, including how careful you think your son will be with his device. But given the fact that he is 14 or 15 years old, my guess is that no matter how responsible and careful he is, there's still a pretty good chance that something may happen to this phone.

Many people choose to insure iPhones and Samsung Galaxy S smartphones. CNET

So in your case, insurance may be a good idea.

The main reason I'd suggest insurance for you, as you mentioned in your question, is because of the risk of theft. About 1.6 million Americans had their smartphones stolen last year, according to George Gascon, the district attorney for San Francisco, who spoke earlier this year during an event where he encouraged mobile device companies to promote technology to protect smartphones.

And according to the Federal Communications Commission, about 40 percent of robberies in major cities now involve mobile devices. Many of these crimes involve iPhones and other Apple products, because these devices are often more recognizable than other high-end smartphones. And they typically sell well in the secondary markets.

"iPhones really stand out from other smartphones," said David Anderson, director of product for device insurance company ProtectYourBubble. "I always tell people that an iPhone is worth more than a thief is likely to get out of your wallet. So you must protect it."

While all smartphones and portable gadgets are vulnerable to theft, Anderson said his company sees many more claims for stolen iPhones than any other smartphone on the market.

Given the fact that your son is going to be traveling on public transportation every day to and from school. And the fact that he is a 14- or 15-year-old boy, who may not be as careful as you might think, it's probably a good idea to spend the extra $7 or $8 a month to insure the phone. Otherwise, you could be stuck paying $600 or $700 to replace the device.

Depending on which carrier you go with, you can either enroll in a carrier insurance plan or buy one from a company such as ProtectYourBubble.com. For more information on plans, you can check out an Ask Maggie column I wrote on this topic in December .

If you live in an area where you get good T-Mobile coverage and you're considering that service for your son, you can subscribe to the new Jump program for $10 a month . This program would not only allow your son to upgrade his new phone for any reason up to two times per year, but it also includes device insurance. It might be a good deal worth consideration if you are planning to sign up for T-Mobile service anyway.

As for Apple Care, that program, which costs $99 when you purchase your device, is an extended warranty program and not an insurance policy. All this does is extend the one-year warranty of the device another year, which is when your wireless contract is likely to end for that phone. While iPhone screens can crack and break and other things can happen to your device, Anderson actually said that people with devices that have bigger screens are more vulnerable to cracked screens and other damage than those with the iPhones that are available today. Of course, that may change if Apple changes the design of the new devices.

At any rate, if you subscribe to an insurance policy, cracked screens and other damage will be covered as well. So you will not need Apple Care in addition to an insurance policy.

I hope this advice was helpful. And good luck!

Ask Maggie is an advice column that answers readers' wireless and broadband questions. The column now appears twice a week on CNET offering readers a double dosage of Ask Maggie's advice. If you have a question, I'd love to hear from you. Please send me an e-mail at maggie dot reardon at cbs dot com. And please put "Ask Maggie" in the subject header. You can also follow me on Facebook on my Ask Maggie page.

 

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