Why is the Apple iPhone ASP so high?

Earlier today, I asked if the iPhone ASP (average sale price) is sustainable given how much more it is than the entire mobile industry and other smartphones. Even next highest, HTC, is nowhere near Apple.

Apple analyst, Turley Muller, offers his thoughts:

Apple's ASP in this calculation is somewhat overstated for comparison purposes. Apple's ASP is $300 higher than HTC, but it's actually less for specific device comparisons. 

Apple stopped breaking out the device ASP and reports iPhone accessories, services, and carrier payments lumped together in iPhone revenue. That probably adds $40 - $50 to ASP carrying huge margins. No other vendor offers higher memory models at higher price points.

Less than a handful of other smartphones cost more than $200 subsidized, and Apple has $300 & $400 options. But if we try to compare ASP's for similar devices, Apple's wholesale ASP is probably $200 more than similar handsets. Carriers absorb most of the price differential with higher iPhone subsidies, thus iPhone retail prices (with contract) are roughly inline for similar handsets. Some argue that carriers will stop paying such high subsidies relative to competing devices. Originally, it was impossible to sell data plans for devices other than iPhone. Web experience on RIM & MSFT was inexcusable. Hard to sell data when you can't even use it. iPhone propelled the average customer into a data user.

iPhone ARPU's were about double AT&T's average. Thus, it makes sense to shell out higher subsidies.Now that Android has copied iPhone experience, carriers can sell data plans with lower subsidies.

People now argue why should carriers pay more for iPhone is the revenue generated is the same. What they don't consider is the higher costs associated with non-iPhone devices. Apple handles advertising, distribution, tech support/warranty replacement

Plus, Apple is selling providers' service through its own retail stores & online, which generates some of the highest traffic. How much does it cost carriers to handle support for the dozen new Android devices that come out each week? For training/support ? Setting up display & promotional materials? Android version updates on numerous devices? Heavy discounting needed to clear inventory of couple month old Android devices? Other handset vendors, especially HTC & Samsung do nothing more than sell devices to the carriers. That is their customer.

Carriers take on the responsibility & risk of selling the devices. To the carriers, handsets are just a tool to sell you their service, hence the upfront subsidies. Apple changed the paradigm. Wireless service is just a tool for selling iPhones. People prefer to buy device and service plan at the same time & at one place. It's also imperative for receiving discounted hardware prices. Before the iPhone, nobody chose wireless service based on what phones were available. First, the offerings were nearly ubitiqous across all carriers, and second, no phone was that much better or captivating for the actual device to matter. Service quality/coverage & price were all that mattered. Carriers gained significant leverage over handset vendors because they were the gatekeeper to end users and had many vendors to choose from. To gain access to VZ & AT&T 100M subs, hardware vendors have only one option.

The iPhone demonstrated its powerful effect on carriers. Non-iPhone carriers saw many subs defect to AT&T for iPhone. AT&T sub additions increased and churn decreased.

The power of the iPhone to attract & retain customers is indisputable. AT&T gained a huge advantage being the exclusive iPhone provider. Other carriers witnessed the disadvantage placed on them. While iPhone provides less of an advantage to a specific carrier as more of its competitors offer it, the disadvantage of not having iPhone increases. Carriers have no choice but to carry it. If they don't agree to Apple's terms & pricing, then no iPhone. That means that carrier has nearly zero chance to attract the 30M+ current US iPhone users and millions more potential future iPhone users. In addition, customer defections will be higher.