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Apple iPhone bad for carriers?

by Tarinder Sandhu on 7 September 2009, 11:53

Tags: iPhone 3GS, Apple (NASDAQ:AAPL)

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Tony Smith of Reghardware writes:

The iPhone isn't the cash-cow many operators behave as though they believe it to be, a market watcher claims.

Denmark's Strand Consulting says that operators have fallen over themselves to gain access to the trendy handset - and rather a lot of money has dropped from their pockets as a result.

Operators pay much of their iPhone-related earnings to Apple and carriers also have to subsidise the handset to reach a price point that customers are willing to pay. Together, these two factors leave the networks out of pocket, the company said.

"We have not found one operator which has created shareholder value with iPhone," Strand alleges.

"As one chairman of a multinational operator stated: 'The iPhone effect is the effect that comes from moving our management's focus away from the 99 per cent of our customers that generate the cash flow that pays our bills'."

Undoubtedly, iPhone naysayers will pounce upon Strand's claims as a sign that the handset isn't the success that it so clearly is. Apple has sold tens of millions of the things - many more than rather a lot of rival handsets have managed to - LG's Arena, for example, has notched up sales of just over a million - and done very nicely out of it, especially when you factor in earnings from the exclusive deals it has struck with carriers like O2 and AT&T, and ancillary earnings from the iTunes application and media stores.

Whatever deals the likes of O2 and co. have been offered by Apple, they will have consulted their spreadsheets, pondered the strength - like it or not - of Apple's brand, and made a decision to sign based not only upon anticipated iPhone sales but also upon the impact that Apple's marketing will have more broadly have upon their business.

It's hard to believe that the iPhone hasn't raised O2's profile among mainstream consumers, irrespective of whether those punters go on to buy an iPhone or not. Any impact on O2's finances will, in any case, be amortised across its entire range of handsets, just as is the case with other phones and other operators.

Lots of handsets, especially high-end ones, don't profit operators. What makes them money are the airtime fees.

O2 told the Guardian this weekend that it has benefited from the iPhone. It didn't address the specifics of the handset's direct impact upon its finances, but it clearly thinks it's better off (possibly) losing money on the iPhone and gaining elsewhere.

Does anyone really dislike the iPhone so much that they're willing shed a tear for the poor, hard-done-by network operators? 



HEXUS Forums :: 10 Comments

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Does anyone really dislike the iPhone so much that they're willing shed a tear for the poor, hard-done-by network operators?
No, not one single bit. Exclusivity deals are braindead, and anticompetitive. If none of the networks scrambled over handset exclusivity deals, the manufacturers would be forced to supply them to all the networks, and drive the price down at the same time in response to market pressures.
I don't live in a city and don't have the luxury of choosing an operator based upon which handset they have exclusive. In my area O2 reign supreme when it comes to coverage. However I'd quite like to own a Blackberry Storm which is exclusive to Vodafone and their coverage isn't brilliant…

When choosing a new contract, my golden rule is to pick the best network then choose an available phone. With these exclusives being such desirable objects for the tech savvy (and the fashion conscious) my golden rule is becoming harder to follow.

I hate exclusives. I can get the handset I want but will only sometimes have reception and therefore be of use, or I can get something I want less and will always be of use.

I guess it comes down to priorities.
Animus404
However I'd quite like to own a Blackberry Storm which is exclusive to Vodafone and their coverage isn't brilliant…
Use one and you wouldn't.

But seriously they failed to take into account the brand value.

Apple have a religious like following, which if O2 can leverage, they get a great extra splash down value on the lower end as well.
Surely the iPhone is the quintessential “halo product” it gets the sheep into the O2 stores, whether the sale of the handset makes any money is irrelevant.

They either buy in to the extortionate tariff and “tethering” charges which probably then make O2 a mint, or they will ho-humm about it being expensive but as they are there in the shop already they'll take another handset on O2 rather than shopping around anymore.

I refuse to be i-Conned and sign up for the tariffs no matter how good the phone allegedly is, but other people aren't so savvy, or just don't care so long as they have the shiny gadget… and that's the iPhone's secret sauce.

I worked in a phone shop once before I got a proper job (I was 18, forgive me?), and it's not always the case that the top line phone makes the most for the networks - I used to get commission based on how good the deal was for the network - I got the most for selling cheap phones on high tariffs. In order to sell the expensive phones the subsidy was so great it ate up too much of the profit.
i am a tight git and go for simplicity plans you pay so much on top of a contract to get a phone i just buy the phone i like on payg and then put my sim in it.

i honestly thought they would make money as everyone loves Apple