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Apple Turning Cell Phone Market Upside Down?
joek writes "This MacRumors analysis puts some of the iPhone/Cingular pieces together and suggests that Apple may be turning the the cell phone market upside down. Everyone assumed that Apple's $499/$599 prices for the iPhone was subsidized by Cingular. But, it appears that Apple is not allowing mobile carriers to subsidize the iPhone. Why? Because when Apple comes out with the Touch iPod, they don't want it compared in price to a discounted/subsidized iPhone. Add to that rumors that Cingular may heavily discount service (but according to a Cingular rep, they will not be giving away service, as previously suggested) to attract Verizon customers. Without kicking in $100-$200 against the price of the phone, Cingular can discount the service as an incentive. Other cell phone manufacturers will certainly be interested in the outcome of this new model."
Without kicking in $100-$200 against the price of the phone, Cingular can discount the service as an incentive.
Okay, everyone who thinks this will happen, raise your hand. Nobody? That's what I thought. Cell phone companies do not base the price of their service on how much it costs them to provide it (including the cost of the phone). Rather, they price their plans purely on how much people are willing to pay. As long as people are willing to pay exorbitant amounts to lock themselves into multi-year contracts, the cell phone companies will continue the practice. And if you're willing to pay $500 for the phone, chances are you'll be willing to pay full price on the plan.
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That Apple (and Apple phones) would not be contractually (for Apple, anyway)tied to Cingular.
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What makes you think that Cell Phone conversation is safe as well? We just understand that it all is open, whether the laws prevent "listening" or not. Encryption and obfuscation can be cracked, so whats the point. Just dont say things that are inappropriate.
Do you lock your doors at night? Because I can zip through that lock in 2 seconds, and if I can't, you have some mighty nice windows. Therefore, what's the point? In fact, might as well remove the door altogether.
I wonder if I use bold in my signature, people will notice my posts.
Add to that the cost of a tower on the end with the repeater or phone patch (since it's going to need to be high enough for you to get to it from a reasonable distance), the cost for the phone lines themselves, worrying about it all getting zapped by lightning when a storm is brewing, etc. Is it a cool thing? Sure. But it's hardly a replacement, especially not for the majority of the population.
I think an interesting move may be for Cingular to offer to pay the Early Termination Fee (which happens to be in that $100-200 range) for people who'd consider getting the iPhone but are stuck with another carrier. Obviously they'd need other incentives for customers not in that situation, but I definitely think that would be a big shot against Verizon, etc.
Sadly, PS/2 was yet another victim of USB, which doesn't care what you plug into it, the electrical slut.
There was no subsidy, but there was a considerable amount spent by Cingular updating their software to support things like the visual voicemail and other new and innovative features that you can only get with the iPhone. The 2 yr contracts will help them recoup the development costs for this effort.
The current system essentially amounts to anticompetitive bundling. It frosts me that I cannot take "my" phone with me if I change carriers.
It also makes the overall package so complicated that it's fairly hard to make a cost comparison between competitive carriers.
It also creates an incentive for bloated, overly complex phones since it is in the carrier's interest to be certain that you are capable of using any cost-added services they provide.
Just as Consumer Reports advises that you should always negotiate car price, car financing terms, and tradein as separate deals, what I want to do, and what I think is best for the consumer, is simply buy my phone as a separate transaction from buying service... and be able to change carriers whenever I feel like it, while continuing to use the same instrument.
If the iPhone moves us toward that model, good.
"How to Do Nothing," kids activities, back in print!
If this is true, and the pricing will be based on the actual cost to produce them and the number sold will be determined by how many people are willing to buy them at that price (supply and demand, anyone?) without all sorts of shell game market manipulation, the headline should read:
Apple Turning Cell Phone Market Right Side Up
It's sad that we've gotten to the point that a rational straight forward pricing model, without games, is considered "upside down."
--MarkusQ
First, this is not flamebait. I think the iPhone looks beautiful and I genuinely
adore everything Apple does from a visual perspective.
But...
For all of Apple's design strengths, physical UI is not one of them. I could go into
a million examples but take Apple's history of the mouse for one: Sure, Apple pioneered
the original mouse. But Apple's desire for minimalism ultimately hurt development. The
physically contoured 3 button wheel mouse looks hideously complex compared to all of Apple's
designs which have ranged from the "hockey puck" iMac mouse, to the multiple single-button
ultra symmetrical designs they've come up with. But truth be told -- I use a 3rd party
logitech mouse because its just plain superior in terms of interface.
You can look at the history of Mac keyboards and reach similar conclusions. (Although my
clear acrylic keyboard looks sweet, its just not as usable as the 3rd party, uglier,
keyboard that I use).
So, back to the iPhone: There's no keyboard. Yes, there'll be an onscreen keyboard. Will
this be usable? Will it be as good? No one actually knows yet, but I'm going to have to
guess "no" on both counts. Sleek minimalist, symmetrical design is fantastic (and I've always
been a big fan of it). But the reality is that human beings aren't sleek, minimalist and
symmetrical in their UI needs. We're multi-digited, mono-dextrous creatures with clumsy
fat appendages and pre-wired for physical feedback.
Ultimately I think the iPhone is going to be one hell of a sexy device, but I don't think
its going to have any place in my life because I "live" on my Blackberry, and its a workhorse.
I wish it weren't the case because I'm a sucker for most things Mac in terms of design
and aesthetics. But this is about my fingers and my messaging. And, well... neither of those
things is terribly sexy.
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Okay, everyone who thinks this will happen, raise your hand. Nobody? That's what I thought. Cell phone companies do not base the price of their service on how much it costs them to provide it (including the cost of the phone). Rather, they price their plans purely on how much people are willing to pay. ....
The math doesn't add up though - if they are selling smart phones with a large subsidy today, that subsidy money comes from somewhere. That somewhere is the guarantee of fixed income for a certain period of time, in other words the service cost is not just what people are willing to pay but also builds in the subsidy of the device you are getting for a discount with that service.
There's no reason why it does not make as much sense to say, that they would provide service for a reduced cost for a set period of time as well. All sorts of things already work like this - you pay less per year if you pre-subscribe for a longer period of time.
I think the argument that Cingular might want to use this opportunity to really pull in marketshare away from other carriers to be compelling, and with the iPhone at a fixed price it leaves them no choice but to use service pricing incentives as a tool to obtain that marketshare.
"There is more worth loving than we have strength to love." - Brian Jay Stanley
Along with the specialized features that someone above points out, Apple gets some very targeted marketing out of it. They realize that today no one goes to Apple looking for phone service. But they do go straight to providers. So when Cingular markets this phone with their service they'll target many many more customers than if Apple did all the marketing independantly. I imagine they also expect some people on their current Cingular plans to upgrade to these iPhones once it's marketing by Cingular. So Apple gets more customers through more targeting marketing, and Cingular gets more premium customers.
Developers: We can use your help.
Unless Apple is totally nuts, they will have negotiated the contract terms in advance with Cingular, and threatened to go to one of the other GSM providers if the terms were not as favorable to the customers as possible. They should in fact be able to negotiate terms that makes the iPhone a loss-leader for Cingular, as the iPhone exclusive will be of great promotional value to the company.
If Apple is totally nuts they might have let Cingular in a position to decide the fate of the iPhone. Cingular might then very decide that iPhone is the perfect low volume high margin product, as the most determined Apple fans will buy it at any price.
But wouldn't this lead others to want discounted service if they supply their own non-Apple phones? If an Apple Iphone user gets a discount for supplying his own phone, shouldn't a user who just wants to use a less expensive phone be able to supply it and buy the service at a fair price too? That would ruin the business model of the cel companies. The current business model of all of them, even though they are prohibited by anti-trust laws from all agreeing on how to screw the consumer. Isn't going to happen. Sure, there might be some claims of this, but new ways to screw the consumer will be created at the same time to make up for it.
Come on, the industry knows that the iPhone people are exactly the people who have too much money, they are not going to be giving them a break, at least not a real one.
I'm an American. I love this country and the freedoms that we used to have.
1. Announce incredibly capable device with a rich API and excellent display which would attract even those who despise convergence due to planned obsolescence
2. The day after announcing product and upon garnering huge press coverage and generating buzz on sites such as slashdot and seeing that PocketPC and smartphone users will consider switching to your product and possibly developing for it, announce that third party applications WILL NOT RUN nor will such support be allowed
3. Two weeks later, announce that you will not allow your exclusive distributor to subsidize or otherwise discount your product offering
4. Get passed by, by the open source Linux phone projects
5. ?????????????
6. Profit (for your open-model-supporting competitors)
The Christian Right is Neither (Christian nor right). See: Matthew 23, Matthew 25, Ezekiel 16:48-50
The cell phone service is going to be the 4th commmunications industry to pass thru this ridiculous hoop.
First was the US Mail - who realized the carriers had to walk the route each day and walk past each house each route. They oculd support fixed message cost, and it made them wildly successful. Sears didn't mind it either.
Next was the data networks, which charged per message, and when we all figured out they weren't epoxying together a brand new tube for each message, went to fixed cost per period.
Then we knocked on the telco's door and told them we figured out that they didn't have to run a new wire everytime we called someone, not even for the first time. They 99% went to fixed cost per period, with some sucker plans for people who still didn't get it and thought they could beat the telco out of the 99% plan. Vonage et. al. pretty much dope slapped anyone who still didn't get it.
Now come the cells. They still make us think that they have to send a squadron of pixies, who subsist on gold and caviar, flying out of the hayloft every time we want to place a call or send a message. Apparently the text pixies have never seen a salad, and the 411 pixies are down-right clones of Roseanne.
In the days of tower buiilding, when no one knew we'd all have these glued to our ears constantly, charging by the message unit was the only way anyone was ever going to let you take a risk like that.
That's all changed. The network is in place. The towers, T1s and infrastructure are all on, all the time - their operating cost is known and predictably rising with the cost of energy, inflation etc. The system scales now. Your unit revenue per user should find a point where it supports the scaling. Energy costs marginally less at night than at daytime, but it's always daytime somewhere in the net.
It's all a matter of who blinks first. Nights and weekends is slowly creeping wider, the others will have to follow. They are slowly, inexorably creeping towards flat monthly, but they're still betting some of us will put up with the sucker's bet.
I hope it works that way - in the telco case we had help from non-traditional suppliers who had nothing to lose and could bust the Bell model. In the cell case, there's the big six(?) who may slowly compete to some equilibrium, it won't be the rest that bust it - as MVNOs they just follow what the biggies do.
Here's hoping, anyway. Nice to see that Apple can make them think about dancing, though.
"Win treats sysadmins better than users. Mac treats users better than sysadmins. Linux treats everyone like sysadmins."
> Why do we need a license for that?
> As long as you don't interfere with someone else's communications, there's no need for a license.
> Big Brother is bad enough with not allowing encryption, but requiring a license, well that itself was the foot in the door.
Good point! Why do we even need a license for driving?
As long as you don't run into someone else's car, there's no need for a license.
Of course, with radio, your signal can propagate around the world in 50 milliseconds, so you do have a few billion more potential someone elses to worry about...
But really, what are the chances that an unlicensed person would accidentally transmit on a frequency in use by an aircraft instrument landing system anyway?
Who needs government protection for airplanes anyway? Can't they defend themselves? Give 'em all rockets. An armed society is a polite society. Now, if you knew your jamming transmission of a pizza order to your brother-in-law's delivery service might result in an RPG aimed at your antenna, you'd be sure not to interfere. Very satisfying and much better than a piddly test that requires demonstrating understanding the technology involved and the regulations.
I saw take your idea and run with it!
If the iPhone can break mobile "phones" away from the US carrier lockin to their original network, then it's worth every penny. We need to be able to switch networks dynamically on service price/quality, not this insane AOL monopoly business model. Every step towards opening the "last mile" to multiple access is worth taking.
Apple has been the main driver forcing record labels towards discarding their archaic "scarcity" bizmodel, however limited its own movement along that road. Let's see if Jobs can force the networks open the way Apple forced computing to be "for the rest of us".
--
make install -not war
Correct, digital spread spectrum setups like CDMA are very very tough to listen in on. (I'm not sure about spread spectrum wireless phones though.)
Any how, that is why the FBI and NSA hook directly into the service providers. All cell signals sooner or later have to come back to earth in the form of "land lines".
So a "missing" $200 subsidy translates to $8.33/month on a 2-year contract. Perhaps instead of directly subsidizing the phone itself, Cingular is subsidizing the cost of the data plan for the phone? Seems like this would make good marketing sense, and provide the potential buyer with a perceived savings (since that same data plan at retail might actually cost them $10-20/month).
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