Apple’s iPhone had a huge fan base, already before its launch, and there have been some who were willing to put up a tent in front of AT&T Wireless stores to be one of the first who get the handset with the apple logo. This huge hype is completely unintelligible for many people, as there is an elegant phone based on a huge touchscreen and large internal memory, but due to other technical parameters it wouldn’t have much chance even in the mid-range, but it’s still expensive, it provides only some selected services and only for a large monthly fee, and it doesn’t even have its menu translated to much languages. The reason for the whole thing is Apple’s huge PR machine, as the handset, called the “Paris Hilton” of mobile phones by Strand Consult, does indeed look good, but what are its internal values and what does this handset mean to network operators?
John Strand, CEO of Strand Consult, had lots of conferences during this year with network operator leaders about the future of telecommunication and the direction of evolution and the question of what does Apple iPhone mean for the market in the short-, mid- and long term has been asked many times. No matter what we say Apple has only one phone on the market, which doesn’t even have a share of 1% on a market worth 1.2 billions, although they have managed to have a share above this ratio in some areas, even with this single model. The reason for this is evidently the aggressive ad campaign, as the networks have been advertising such a handset that will attract at most 5 percent of the customers. This aggressive marketing campaign made lots of people to feel a strong aversion and the analyst has also pointed out that there are users who don’t want to belong to a network where everything is about the iPhone.
According to Strand Consult networks distributing the iPhone frequently emphasize how much data transfer do iPhone owners generate, but they rarely add that thanks to the flat-rate packages this doesn’t mean such a large increase of profit in reality, as most iPhone owners already had a data package subscription. Those who have been using Apple iPhone’s Safari browsers have a positive opinion of it, since besides Flash support it has everything and it’s really comfortable. That’s why iPhone users generally download full-size web pages instead of the mobile versions, which applies a load of eight-ten times larger on the operator’s network, without a serious profit increase, but there are graver limitations that have to be accepted by an operator distributing the iPhone.
Operators provide value-added services to most “conventional” phones, which usually promise a serious profit. Such services are MMS messaging, video calls or downloadable games and ringtones. In the case of Apple iPhone there’s no chance of offering such things, as the phone doesn’t support MMS or video calls, but besides these it can’t run Java applications either. So Apple won’t stop at keeping the profit of their own online store, but network operators also have to share their profit resulting from data transfer with them, due to the profit-sharing model in use.
According to CNN Money’s report from October 22 iPhone had really detrimental effects on American AT&T’s profit, as due to the huge marketing and additional costs obtaining an iPhone users costs the company 375 dollars, so in Q3 2008 they spent a total of 900 million dollars on obtaining iPhone customers. This huge expense was unexpected by company investors. According to Randall Stephenson, leader of AT&T, this expense might decrease in the next quarter, but in spite of this the quotation of the company’s share has dropped by nearly 7 percent, as an effect of the announcement. Still, AT&T is not the only network operator who draws attention to a profit decrease due to the launch of iPhone. In November Singtel from Singapore has also reported that the iPhone campaign of Australian Optus has decreased the company’s income by 44 million dollars, although 55% of the 1.7 million iPhone subscribers were new customers of the company.
Strand Consult has also drawn attention to the fact that a significant part of the SIM-free iPhone models, available on the secondary market, practically means a handset financed by a network operator, the subscription agreement of which has to be cancelled on some conditions. These handsets are usually used on a non-Apple partner network, who don’t have to pay huge sums for advertising the handset, they just have to launch an attractive tariff package. According to the market analyst, being connected to 140 network operators of the world and operating since 14 years ago, Apple’s partners and its investors are not fortunate in the short- and mid-term with launching iPhone, as the only real winner of the process is Apple, secondary winners are participants of the grey market and those network operators who don’t distribute the handset that requires huge investments.
Additional details and the text of the analysis used for this article are available on the Strand Consult website.
Translated by Szaszati
