iPhone and Cell Phone Market Dynamics

[MacRumors]

CNN Money offers a good breakdown of the current dynamics between cell phone carriers and cell phone manufacturers. It also discusses the options Apple may have in introducing a cell phone to the U.S. market, and how it may upset the current balance of power:

Today, phone companies heavily subsidize handsets in exchange for long-term commitments from customers. That Nokia phone you got for free from Cingular obviously cost the phone company something - probably hundreds of dollars - to buy from Nokia. Cingular, in the meantime, can make all kinds of demands of Nokia: It can ask for special packaging, prominent logo placement, etc.

Device manufacturers reportedly don't like this system in that it devalues their phone, and gives them less control on how to market its phone and accessories. The author feels that Apple's entry into the market could convince consumers to pay a premium for their cell phone.

As well, Apple has a retail presence already in place which could serve as a distribution channel for the mobile phones should they decide to offer their own mobile virtual network operator (MVNO) by reselling airtime from another carrier. While this concept of Apple as an MVNO has been primarily speculative, one UBS analyst reported last week that they "believe Apple could launch a branded wireless service in 1Q, purchasing wholesale network service from Cingular."

Finally, another option is one that was hinted at by Kevin Rose. The concept of an "unlocked" phone is more popular in Europe and Asia, but customers can buy a phone independent of service and buy service in the form of SIM cards from Cingular or T-Mobile. This concept, however, is less familiar in the U.S. and could introduce some confusion to the consumers.

[Grimace]

unlocked phones would cause confusion? How? It's a pretty simple concept to me. Buying chunks of airtime seems to be the big hurdle. Who would provide support for problems other than with hardware?

[applerocks]

I like the unlocked solution the best. Support would be an issue though, but I'm sure Apple would offer something in that regard (and the 90 days garbage isn't it).

applerocks

[arn]

Originally Posted by carletonmusic

unlocked phones would cause confusion? How? It's a pretty simple concept to me.

I think it could cause a lot of confusion for consumers who don't care to know about the details of cell phone service.

"I want this phone".
"That'll be $300."
"ok, how many weekend minutes do I get?"
"Oh, this is just the phone, you have to pick a cell phone carrier somewhere else and tell them you want a SIM card for your unlocked phone. If the sales person doesn't know what you are talking about, ask to speak to customer service, they'll know how to get it done."

Depending on the dynamics w/ cell carries, I suppose Apple could bundle service with sale of the phone, letting the customer decide at the time of buying.

arn

[sososowhat]

There's nothing to stop a carrier from offering a discount on the plan itself instead of the phone:

Bring an iPhone & Cingular (or Verizon or whomever) will give you a $200 discount on a 2-year plan commitment.

Isn't that a more rational plan than hiding the cost of the hardware? It's just like discounting the plan for comitting to more minutes in advance of using them.

[bigandy]

[QUOTEmacrumors]wholesale network network service[/quote]

interesting

i think the manufacturers would jump at this if Apple headed in to the market doing this. over here we have the same situation, heavily customised and branded phones, but Apple really could - and would - change all that.

while i didn't initially like the idea of an unsubsidised phone, i think it could work for Apple.

but they better do it 'unlocked' too. that's the best way, in my opinion.

i'm also glad it's not locked to a US network by being CDMA - and to be honest, 3G hasn't gained enough acceptance (here anyway) to be a big selling point - probably why Apple are perhaps not bothering with it...

[Cinch]

Originally Posted by arn

I think it could cause a lot of confusion for consumers who don't care to know about the details of cell phone service.

"I want this phone".
"That'll be $300."
"ok, how many weekend minutes do I get?"
"Oh, this is just the phone, you have to pick a cell phone carrier somewhere else and tell them you want a SIM card for your unlocked phone. If the sales person doesn't know what you are talking about, ask to speak to customer service, they'll know how to get it done."

arn

Another way to think of this general issue is:

"Ohhh, I like this phone!"
"Will it work with my existing service?"

[CommodityFetish]

Didn't Steve say at some point that his goal was to control all of the technology in anything apple was involved in? (as w/iPod-iTunes, Hardware-OSX, etc...)

Not that apple would buy or build their own wireless phone co. but MVNO does sound more in line with this philosophy. Gives them more control (and it would go nicely with their retail).

I wouldn't be surprised...

...and if they do do an MVNO - watch them bundle it with .mac subscriptions

[Flowbee]

Wow... if Apple is really planning to sell their phone unlocked, and at full retail, they're under enormous pressure to hit a home run with the hardware. No wonder there have been so many purported delays... it gotta be just right, or it could bomb spectacularly.

[miketcool]

Makes sense to me.

You can buy an iPod and are expected to take care of it. You buy a cellphone and can lose it/damage it because your carrier has an insurance policy.

If you pay more on the phone, and it's also an iPod, you would probably take better care of it. Because you bought the iPhone independent of a contract, you cannot trade it in for a free update everytime your renegotiate.

Cell companies also replace your phone (in an emergency) next day because they make all their money off of their contract, not from the hardware. Apple trying to make money from hardware, and reselling minutes as an MVNO should be interesting.

But, this isnt going to be like courting record labels to a store, this is going to be creating your own network, or somehow taking control of the existing networks by promising the phone of a lifetime. Perhaps the wait is so long because Apple is teasing service providers to cave to their demands.

I still honestly, could care less what features are in the device. I am more curious about how Apple is maneuvering this as a business adventure.

[j763]

In Europe and Asia, it's common for providers to sell unlocked phones with a contract plan at a reduced rate. When you sign the contract, you obviously lock yourself in... but your device remains unlocked. The whole locking technology is utterly infuriating to me.

For the record, I've got an unlocked SonyEricsson phone that I purchased in Australia on a 12 month contract, which I now use in the US with a T-Mobile PrePaid SIM Card. It works great and the phone wasn't expensive up-front because of the 12 month contract which I signed with the provider.

At the end of the day, you pay for the phone, regardless of how the plans are organized. But yes, I do agree that the initial outlay of cash can deter consumers. Hopefully, Apple can create a revolution in the cell phone market: the SIM locking technology is ridiculous (if you buy a household phone, you can use it with any provider... why not with cell phones?). What doesn't seem to be acknowledged in much of the press coverage is the fact that network providers can still subsidize the handset by selling the phone bundled with a service contract.

[codo]

Unlocked phones are not confusing in the slightest. Buy a mobile, stick a bit of plastic from your old phone under the battery, or buy a new SIM for like £1 from your chosen network, and forget about it. Honestly - consumers aren't stupid.

[Philsy]

Originally Posted by codo

Honestly - consumers aren't stupid.

Or, at least British ones aren't

[jabooth]

Just speculating, but I recon the iphone and video ipod will be one device.

This one device will totally replace the existing top end ipod. It will be sold on apple's website or in a local dixons, just like the current ipod is - only difference being that the back slides off and you can pop a SIM card in.

No fannying around with carriers, completely universal. Many will buy the device regardless of phone features, yet it just adds another string to the ipods bow.

Whats anyone think?

[shunpike]

would they have a UK network 2 if they went down that route?

[gloss]

Originally Posted by Philsy

Or, at least British ones aren't

This is about right.

[MonaLisa]

I think selling unlocked phones in the U.S. is coming. Nokia is already selling unlocked phones to the public at its U.S. website (nokiausa.com). I picked one up recently, popped in my T-Mobile SIM card and did not have to commit to another 2 years, but it cost me $99 for the phone. That's okay with me.

The iPhone really needs to be a worldwide product, not just something for U.S. consumers, so selling one unlocked quad-band GSM phone seems like the best strategy. This leaves Verizon and Sprint out of the picture, since they are not GSM, but so what? Practically the rest of the world is GSM.

I really just don't get how these "analysts" seem to think Apple needs to partner with Cingular or whoever; it's just a mobile phone, a device. Just sell an unlocked GSM ipod/phone and thousands of U.S. Cingular and T-Mobile customers will beat Apple's door down to buy it for $300 (or whatever price it is). I think most will be pleasantly surprised that they do not have to commit to another 2 years to the carrier, with the option to plop in the SIM card of their choice anywhere in the world.

[Doctor Q]

Shopping separately for hardware are service should benefit consumers in the long run, even if it makes it more complicated at first.

It's hard to imagine that a newcomer (Apple) could change the way this well-established market operates, but we'll soon see.

[DanielK]

I can't imagine Apple introducing a phone unless they can sell it in their own stores and have it work right out of the store. That means that I expect them either to operate as their own MVNO or to have some agreement with another carrier to sell its services from their store. To me, the MVNO seems like the most attractive option for them. It would allow them not only to simplify buying a phone, but also to simplify the billing--I imagine that, unlike most carriers, Apple would not have all sorts of optional add-on services, nickel and diming the user.

[Koadoc]

I am tired of being held hostage to the Cell Carries about which phone I can use. I have T-Mobile and I want to use the Palm Treo and they don't support it. I have to shell out 400 plus dollars to get a unlocked and unsupported phone. But I am willing to do it to get the phone I want and keep the carrier that I have. Tell apple to Bring on the Unlocked Phone, I will be one of the first in line if it sync's like I think it will as with all of apple products.

[dashiel]

Originally Posted by CommodityFetish

...and if they do do an MVNO - watch them bundle it with .mac subscriptions

i've thought the same for some time, or at least similar. i think could actually be a good thing. instead of forking over $100, apple's mvno could offer services like the other carriers do ($5 for unlimited texting, $20 for internet access, etc...)

ideally apple will just bundle it in the service -- i think they almost have to -- but if not you'll pay X amount for your cell service and Y amount for your connectivity.

if .mac offered unlimited ichat texting, video chat, photo upload to .mac and internet access through safari lite at $10-$15 a month over the phone service... that's a ton cheaper than similar services from cingular/tmobile/verizon/etc... and they'd make 20-50% more than they do on current .mac subscriptions.

[hob]

I love the idea that American consumers won't understand SIM-free deals.

Yes it's probably a new thing to most American consumers, but are American's that frightened of change? Perhaps so... they do seem to be holding the world back in a lot of things (look at the carbon emission requirements for their cars for example...)

Sorry, I didn't mean to say all that, but it's there now.

I would love it if I could get an iPhone for free of somewhere under £100 when I renew my contract, but I do want a new iPod at some point. So I would happily buy the iPhone...

Thing is, most of my phones look pretty beat up after a years use, and my iPod looks even worse after 3 years, so they better build this thing to last!!

[manu chao]

Originally Posted by j763

In Europe and Asia, it's common for providers to sell unlocked phones with a contract plan at a reduced rate. When you sign the contract, you obviously lock yourself in... but your device remains unlocked.

I find the whole "free minutes" concept much more confusing. When I get a phone, I want to the know the price of the hardware, the monthly subscription cost, and the price per minute for a call. Then I can compare these prices and choose the combination of montly fee and cost per minute which fits best my usage.

I find the subsidizing of handsets a somewhat shady business model. If I get a new phone every five years, I am in practice subsidizing other people who get a new phone every single or second year by paying higher charges. It is not possibly for me to say after two years when my contract has run out, to say I want a lower monthly rate or a lower rates for calls instead of a (subsidy for a) new phone.

[Loge]

Originally Posted by jabooth

Just speculating, but I recon the iphone and video ipod will be one device.

I don't think so. A video iPod requires a larger screen than the current iPod plus say 80GB drive, as well as the data entry mechanics required for a phone. That's going to be a physically larger device than I want to be using as a phone.

[AppliedVisual]

Originally Posted by Doctor Q

It's hard to imagine that a newcomer (Apple) could change the way this well-established market operates, but we'll soon see.

It only takes one to do it and then a couple to follow. I think if Apple does this and has an initial sales run that looks promising, you can bet that some other hardware vendors like LG and Kyocera could follow. OTOH, some hardware vendors (especially Motorola) have huge investments into some of the worlds larger wireless networks and the companies that own/run them so they could be a little slow to follow such a paradigm shift.

I can definitely see the iPhone (if indeed it ever happens and it actually is what so many think it will be), being sold as MVNO. People should be able to walk right into an Apple Store or buy online and just acquire the phone. Apple may partner with a provider (Cingular being the most likely, IMO) to offer immediate and convenient service for purchases right there in the store.

But if phone manufacturers started to offer more products with this business model in mind, then we will start to see carriers opening up their services as well. Verizon will have to make VCast more competitive in both price and offerings, or they will have to take it another direction to make it worth while and profitable... If they leave it as is and try to discourage, or not even allow phones like the iPhone to be activated on one of their plans, then they will begin to lose customers.