One million customers bought iPhones in the first 79 days; analysts project 4.5m units sold in the first year. And because iPhones are offered exclusively through AT&T, iPhone users have to sign up for AT&T wireless. If you were being careful you would note that the 4.5m could be existing AT&T customers, but then why would AT&T pay so much for the exclusivity. Apple reputedly keeps all handset revenues and $10 a month per subscriber. Judging from the stock price reactions, Apple is getting most of the gains from trade.
Apple's market capitalisation surged $20bn on iPhone profits buzz, AT&T's shares barely budged.Thomas Hazlett notes that this kind of exclusive contract may be illegal in Europe (exclusives, especially when offered by dominant firms, are often challenged as anticompetitive). Exclusives are also under attack in the US by the "open access" movement (Google, making the rules so its rivals won't). But exclusives are typically pro-competitive.
Apple could have offered its device as an "open" platform [to all wireless customers], but instead chose (as with iTunes, iPods and Apple computers) to control how it builds, and how buyers use, its product. It aims for competitive superiority. Quashing its model bops the innovator on the head.Now that the SIM lock on the iPhone has been broken by a hacker so that the iPhone can be used on rival networks, will AT&T will try to renegotiate its contract with Apple? Not likely as it takes 2 hours and a soldering gun to modify the iPhone, and you lose some of its features.
In the U.S., a SIM-unlocked iPhone isn't as significant a threat because there's only one other GSM mobile provider that the unlocked phone can work with (T-Mobile). Verizon and Sprint/Nextel use different (and incompatible) cellular technology. Still, it sounds like Apple is taking pretty aggressive steps to make life difficult for the unlocked phones. (There's a software update expected very shortly, which the company says may make those modified phones unusable - not that they would do that that intentionally, of course, certainly not...)
ReplyDeleteEurope is a different story - GSM is used everywhere, and Apple just announced its first three carrier agreements there (oddly, the exclusive operator in Germany will be T-Mobile). I imagine the European Commission will be watching very closely.
Small correction - in the U.S., T-Mobile is the only other major operator using GSM. (There are smaller regional operators that use GSM as well.)
ReplyDeleteIf anyone's interested here's one of many links to the story of the iphone hack - http://www.msnbc.msn.com/id/20424880
ReplyDeleteI think he was ultimately offered a new Nissan 350Z and a job to turn his phone in.
While the stock price and recent legislation regarding the ability to switch carriers while keeping your phone number suggest that consumer switching costs are low, I would submit that they are not. US service providers still most frequently tie their users into a one year contract that can only be broken for a substantial fee. Combine this with the network effects of cell phones. Most providers offer "free" calling to other members of the same network by not charging for minutes (or deducting from your minutes account). Given that the cost of prepurchased minutes is still relatively high (in opportunity cost terms), most individuals seek these "free" opportunities. Finally, consider the attraction cost to AT&T for a new subscriber. This could be done by dividing the company's marketing spend by the subscriber growth for the year. My guess is that the cost per subscriber is at least $1,000 given AT&T's NASCAR sponsorship. While it could be argued they made a bad decision because they have a poor marketing strategy, playing the numbers suggests that $10 per phone is a cheap way to get people in the door.
ReplyDelete1. iPhones that have been "pre-hacked" are available in abundance on eBay for (about) a $100 premium.
ReplyDelete2. Sure, some want to use the iPhone on a carrier other than at&t ... but the larger movement is towards a hacked device that's not used as a phone at all. Again, check out eBay.
3. Why? Very few features are lost, and there is fairly significant additional functionality in the iPhone as compared to the iPod Touch. (The bluetooth stereo headset profile, camera, email, for example.)
4. If you don't upgrade your firmware, the hack doesn't become un-hacked. Anyway, a hack for the anti-hack (new firmware) will exist soon enough.
5. Yes, the iPhone is certainly driving some customer's towards at&t, but an additional $10 cost of customer aquisition is pretty steep ... the antithesis of cheap. And don't forget, there are some that bet recurring fees are being paid to Apple. This is a pretty big deal.
6. Kudos to Apple for their proprietary technology ... their devices set new industry standards in most cases. Higher standards are good for consumers.
7. Open access open schmacksess. Do you REALLY want advertisement on your cellphone? In the world of LBS, isn't the idea of driving by a Starbucks and getting an electronic coupon for THAT store just a tad creepy? (And yes, the technology exists, though it's not commercially deployed.)
8. Remember that AT&T is actually "at&t" now. Did somebody get a book of e.e. cummings poetry for their birthday or what?