Why wireless carriers are discounting Windows Phones

What's going on with discounted prices for Windows Phone 8 smartphones like the recently launched Samsung ATIV S Neo and Nokia's Lumia 1020?

Samsung's ATIV S Neo smartphone will be sold by Sprint.

Carriers won't say much, but they seem to be clearing their shelves of excess smartphone stock that's getting stale by cutting prices for some Windows Phone 8 phones that have been on the market for barely two months.

In one example, AT&T on Thursday said it would begin selling the Samsung ATIV S Neo for $99.99 with a two-year contract starting Nov. 8. The 4.77-in. Neo will be AT&T's first Windows Phone 8 smartphone from Samsung and will run on the carrier's 4G LTE network.

At that price, the Neo has plenty going for it, but Sprint is now offering the same smartphone for half of AT&T's price, $49.99, plus a two-year contract.

What's more, the Neo first went on sale at Sprint on Aug. 16, when Sprint charged $149.99 with a two-year contract and a rebate. Sprint had already been selling the HTC 8XT, also with Windows Phone 8, in July for $99.99 with rebate and a two-year agreement.

Nokia is normally the big name associated with Windows Phone 8, making about 80% of such devices, including the Lumia 1020 with a 41-megapixel camera.

AT&T put the Lumia 1020 on sale exclusively in the U.S. for $299.99 and a two-year agreement in August. But now, AT&T is selling the Nokia Lumia 1020 for just $199.99 online.

AT&T will also be the exclusive U.S. carrier of the coming Nokia Lumia 1520 with its 6-in. display, also on Windows Phone 8, the carrier revealed earlier this week.

So, are the discounted prices really that significant -- possibly a sign of Windows Phone 8 weakness in the U.S.? Or are the discounts part of a wider pattern caused by having so many smartphones on various platforms with an array of new features hitting the market at the same time?

And why would AT&T begin selling the ATIV S Neo, weeks after rival Sprint did, when a phone's shelf life is considered to be so short?

The answers to these questions are somewhat obscure. To be sure, carriers constantly adjust prices for many smartphones -- especially the slower selling ones --as they recognize that new models, such as the iPhone 5S, will capture buyers' attention of buyers for just a few hurried weeks before year-end sales come to a close.

In such a crowded and fast-paced marketplace, Windows Phone 8 will suffer heavily because it has only 3.3% market share, according to research firm Gartner's numbers for the second quarter. Gartner placed Windows Phone 8 third behind phones running the Android mobile operating system and Apple's iOS, but ahead of BlackBerry for the first time.

Analysts theorized that Samsung could be reaching out to AT&T for sales of the ATIV S Neo by offering the carrier some sort of discounted wholesale price to reduce Samsung inventory.

Meanwhile, Sprint's discount on the same phone could be Sprint's way to quickly reduce its own ATIV S Neo inventory. Sprint offered an explanation on Thursday for its Neo discount of 66%, indicating concern for its cost-conscious customers. "Sprint is regularly reviewing our product pricing to be sure our offerings are as accessible as possible for our customers," a spokesman said.

The Nokia Lumia 1020 smartphone has a 41-megapixel camera.

Because AT&T is selling other Nokia phones running Windows Phone 8, the carrier might also want to sell phones on the same platform but from other manufacturers (including the Neo) in a show of support for the platform and, hence, for Microsoft. AT&T might also want to show its customers that it has more variety across device makers than its competitors.

Even if carriers are satisfied with Windows Phone 8 phone sales, there is still demand to sell phones on all platforms to clear the shelves for other newer models. The pace of turnover of models is faster and more aggressive than ever in the six years since the first iPhone appeared.

"I wonder if what's going on with the ATIV S Neo is more a stock-reduction issue to get rid of units," said Gartner analyst Carolina Milanesi. She said it's not necessarily an instance where Samsung or the carriers or even Microsoft are willing to take a financial hit in the long run in order to increase sales.

Device makers try to find the right price that will help them win market share, but that doesn't necessarily explain what Samsung may be doing. Samsung leads the market in smartphone sales, mainly due to its Android devices -- not Windows Phone 8.

What may be most telling about the recent discounts is that even nine weeks on the market, as for the ATIV S Neo and the Nokia Lumia 1020 have been, can be a long time for a smartphone.

Nine weeks on sale "is starting to be a pretty old product in smartphone market terms," Milanesi said. That's nine weeks of actual sales, but the image the public sees of any single phone model can be much older, considering the phones are announced and promoted weeks or months before going on sale.

Patrick Moorhead, an analyst at Moor Insights & Strategy, and others said that discounting prices at the appropriate time for Windows Phone 8 can be critical because of the platform's reputation. Otherwise, they would sit in inventory.

"In the U.S., Windows Phone is not selling well," Moorhead said. "While it has some unique features, Windows Phone is better known as the phone that doesn't have the right apps."

At its current 175,000 apps, the Windows Phone Store has far fewer apps than either the Android or iOS stores. According to reports, Microsoft recently confirmed it is adding pinnable Web Apps to the Windows Phone Store and has added 42 Web Apps for sites such as TMZ, Carmax and PetSmart to encourage independent software makers to publish their own native apps.

Moorhead said Windows Phone also suffers because it has been late to market with new form factors, quad-core processors and high-resolution displays. Indeed, the ATIV S Neo may have an HD display, but still has only a 1.4 GHz dual-core processor, which is relatively slow in today's market.

Buyers might be more interested in the Neo because of its 8-megapixel rear camera, 1.9-megapixel front camera and 16 GB of built-in memory that can be expanded to 64 GB with a micro SD card slot. Samsung provided ATIV beam file transfer capability in the Neo, which means it can be paired with a compatible Android device with beam capability.

Meanwhile, the Lumia 1020 with its 6x zoom, 41-megapixel camera and a 1.5 Ghz dual-core processor would seem to have the hardware features that would sell well. But again, Moorhead lamented the platform's lack of apps, resulting in less market traction.

As for why AT&T got the Neo weeks after Sprint, Moorhead had this theory: "It is likely that Samsung gave Sprint a few months head start over AT&T to be a first-mover in exchange for some preferential treatment [because] AT&T typically has all the latest phones."

Having the latest phone might not be so special if it doesn't sell, however.

The dilemma facing Windows Phone sales in the U.S. might be especially complex for Samsung. The company will holds its first developer conference in San Francisco next week, as it continues its mission to carve out a unique position separate from Android and the Google Play market. Windows Phone gives Samsung another alternative to Android, and analysts such as Milanesi believe that Samsung will want to produce a 6-in. "phablet" smartphone running on Windows Phone.

Larger smartphones, like those Nokia announced this week, are becoming more popular and Samsung already makes phablets running on Android, including the Galaxy Note 3.

"I think a 6-in. Windows Phone from Samsung makes sense as a companion device to the hybrid devices, and would be more for the enterprise side than the consumer side," Milanesi said.

Maybe Samsung can afford to see whether a Windows Phone phablet would sell well or need to be quickly discounted.