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Apple Businesses Technology

Apple Turning Cell Phone Market Upside Down? 320

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."
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Apple Turning Cell Phone Market Upside Down?

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  • by LehiNephi ( 695428 ) on Friday January 26, 2007 @04:05PM (#17774346) Journal
    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.
  • by wiredog ( 43288 ) on Friday January 26, 2007 @04:06PM (#17774350) Journal
    That Apple (and Apple phones) would not be contractually (for Apple, anyway)tied to Cingular.
  • by Creepy Crawler ( 680178 ) on Friday January 26, 2007 @04:07PM (#17774386)
    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.
  • by TodMinuit ( 1026042 ) <.todminuit. .at.> on Friday January 26, 2007 @04:10PM (#17774446)
    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.

  • by MysticOne ( 142751 ) on Friday January 26, 2007 @04:20PM (#17774670) Homepage
    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.
  • by SlashdotOgre ( 739181 ) on Friday January 26, 2007 @04:21PM (#17774682) Journal
    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.
  • by nonsequitor ( 893813 ) on Friday January 26, 2007 @04:21PM (#17774692)
    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.
  • by dpbsmith ( 263124 ) on Friday January 26, 2007 @04:22PM (#17774696) Homepage
    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.
  • by MarkusQ ( 450076 ) on Friday January 26, 2007 @04:23PM (#17774716) Journal

    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."


  • by popo ( 107611 ) on Friday January 26, 2007 @04:29PM (#17774828) Homepage

    First, this is not flamebait. I think the iPhone looks beautiful and I genuinely
    adore everything Apple does from a visual perspective.


    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.

  • by SuperKendall ( 25149 ) on Friday January 26, 2007 @04:32PM (#17774900)
    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.

  • by truthsearch ( 249536 ) on Friday January 26, 2007 @04:35PM (#17774954) Homepage Journal
    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.
  • by Per Abrahamsen ( 1397 ) on Friday January 26, 2007 @04:37PM (#17774994) Homepage
    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.
  • by frovingslosh ( 582462 ) on Friday January 26, 2007 @04:47PM (#17775210)
    Without kicking in $100-$200 against the price of the phone, Cingular can discount the service

    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.

  • by Ungrounded Lightning ( 62228 ) on Friday January 26, 2007 @04:49PM (#17775238) Journal
    Since apple's phone isn't subsidized by the cell companies they have no leverage on how its firmware operates. This means:

      - It's not locked into a carrier. You can switch in a heartbeat and/or put more than one plan on it.
      - It's not locked OUT of using other systems than cellphone - like VoIP over WiFi or WiMax.

    This means that the cellphone carriers are not just in competition with other cellphone and cellphone/data carriers. They're also in competition with Wireless ISPs (WISPs).

    Even between the cellphone carriers the lack of the lock-in means they're in straight competition on price of service. (They had to do the lockin and early termination fee to pay for the handset tie-in.)

    This will produce significant downward market pressure on cellphone companies.

    Market forces don't produce a heavy drive toward marginal cost until there are at least THREE competing providers of the good or service. (For two the strategy is to track each other's prices and split the market about 50/50. For three or more the incentive is for the little guy to try to undercut the two biggest players and steal market from the pair - and for them to retaliate using their economy of scale.)

    While there are several cellphone players now there are typically only two dominant players in most markets. The original bandwidth licensing regime was set up for "competition of two" (the incumbent phone company and ONE competitor) and the early rollout gave two players incumbent status in most markets. They then had an analog of the government-subsidized copper buildout of the wireline phone companies that gave them an advantage in coverage as the upstarts started up - leading to sickly third players and rounds of consolidation.

    This device lets WISPs with significant coverage play in the cellphone space - and use their bandwidth cost advantage to become major players. If Verizon is smart it will try to head this off by dropping prices to where they're just covering network connectivity rather than subsidizing the non-existent "free" crippled phone.
  • by Ungrounded Lightning ( 62228 ) on Friday January 26, 2007 @04:57PM (#17775418) Journal
    If Verizon is smart it will try to head this off by dropping prices to where they're just covering network connectivity rather than subsidizing the non-existent "free" crippled phone.

    Oops! Meant "Cingular".

    And if Cingular/ATT and Verizon are BOTH clueless and leave the plans at regular cellphone rates, watch for users to start migrating to WiFi hotspot operators and WISPs.

    (Watch for that anyhow, once people start hacking. B-) Even if Apple doesn't support it - or doesn't support it well - nobody in their right mind with a VoIP account and a WiFi AP at home is going to chew up cell minutes when at home when they can make the iPhone use their broadband and existing accounts, getting hax from their VoIP providers or third parties to make it work well.)
  • by kimvette ( 919543 ) on Friday January 26, 2007 @05:08PM (#17775636) Homepage Journal

    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)
  • by Geraden ( 15689 ) on Friday January 26, 2007 @05:09PM (#17775658) Homepage
    Nope - if the company can lock you into a contract, they will.

    Ultimately it doesn't MATTER if your phone has been subsidized or not. Even though it should.

    I think this will eventually reveal these companies for the skanky enterprises they really are.
  • by jpellino ( 202698 ) on Friday January 26, 2007 @05:16PM (#17775786)
    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.

  • by leighklotz ( 192300 ) on Friday January 26, 2007 @05:30PM (#17776020) Homepage
    > 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!
  • by theelectron ( 973857 ) on Friday January 26, 2007 @06:20PM (#17776856)

    90% of people will not need the keyboard, so it would be bad design to have it there permanently fixed.
    Think about that a little more. What you probably mean to say is that 90% of people will not need the keyboard 100% of the time. 100% of the people will need an complex input device (keyboard/numpad) a significant amount of time. When was the last time you used your phone without using the keypad on it? Voice recognition (does the iPhone have this?) will only get you so far on limited processing power.
  • by Doc Ruby ( 173196 ) on Friday January 26, 2007 @06:40PM (#17777184) Homepage Journal
    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".
  • by Anonymous Coward on Friday January 26, 2007 @06:55PM (#17777466)
    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".

  • by aralin ( 107264 ) on Friday January 26, 2007 @07:09PM (#17777714)
    Most of the time I actively use the phone, I need pretty much three buttons on it. One to summon the phone book, two to scroll up and down and then I press the first button again to place the call. And sometimes I need one more button to hang up. Most of the time I use the cell phone, I use it passively to accept a call, I need one button for that, one to hang up. And I would not mind if it would be the same button.

    As for the occasional SMS, 75% of them are selection from a template. But, of course, people will need the input device sometimes, but I say they will not need it so much that the touch display keyboard will be a problem. Those who need keyboard so much that would cause a problem for them do not constitute majority and they still do not need the keyboard most of the time anyway. How can you justify it to take 1/3 to 1/2 of space on the cell phone when it is not used even 1/9th of the time?
  • by notyou2 ( 202944 ) on Friday January 26, 2007 @09:25PM (#17779278) Homepage
    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).

A committee takes root and grows, it flowers, wilts and dies, scattering the seed from which other committees will bloom. -- Parkinson