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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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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.
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
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
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!