Is Apple setting up a subsidised TV model?

There have been rumours that Rogers and Bell, the two big telecom providers in Canada, have Apple iTV television sets in their labs for testing. That’s an interesting rumour for a couple of reasons.

Why would Rogers or Bell care about a new television? Why would Apple involve them? If the rumour is true, then there’s more to this device than just being a television set.

When a customer subscribes to television from one of these companies, they need to get a hardware box that acts as a decoder and often as a PVR. This is an expensive box – several hundred dollars typically – and is usually tied to a contract.

So today, you buy whatever TV you like, and you hook it up to a box that you rented from your service provider.

What if.. Apple’s new TV integrates the provider’s box into the TV.

This would mean you’d be buying a TV that’s locked to Bell, or a TV locked to Rogers, the same as happens for cell phones. This would let the service provider subsidise the TV.

The cost of a TV these days isn’t that much different from the cost of an iPhone. An unlocked iPhone 4S costs $649 in Canada. You can get a 50″ TV set for that kind of money.

If the TV can be locked to the provider and tied to a contract, then they can subsidise it. Walk into a Bell or Rogers store, sign up for a 3 year contract, and pick up a new 50″ TV for $199.

What’s the upside for Apple? It’s hard to say at this point. Perhaps Apple uses the iTunes store model a revenue share with the provider – so you rent a movie for $4.99 and the provider gets 70% of that and Apple keeps 30%. This arrangement would also let the TV provider, which is also typically the ISP, exclude their own streaming media from bandwidth caps, something that’s hindering Netflix today.

The 3 year contract model for the TV would also answer one of the questions people have about why Apple would get into the TV business: How to get users to upgrade more frequently, since people typically buy a TV and keep it for many years. If you could get a new TV every 3 years for $199, wouldn’t you?