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."

While I would love an iPhone

[MyNameIsEarl]

I don't see myself leaving T-Mobile which I am perfectly happy with and switching to Cingular/AT&T. I have 5 lines on a family plan with T-Mobile. No one wants the freebie phones so the cost to switch is even greater than just the iPhone price which is a big obstacle already. And imagine if others on my plan wanted iPhones as well. Just not gonna happen.

About time

[sinij]

I never wanted/needed video camera, mp3 player or camera on my phone but I always wanted cheaper service and shorter term contract. I realize that iPhone has all of these things, but I'm hoping that service-discounted business model will succeed and move to other offerings, so we finally can get affordable no-frills phone and basic service for cheap.

Hopefully the 2 year contract will go away too

[LaughingCoder]

Since the phone is not subsidized, there *should* be no 2 year contract requirement. That would really spur competition among the mobile carriers if people weren't forced to stick around for 2 years under penalty of paying full price for their phone. Of course the fact that some use CDMA and others use GSM complicates this a bit - we need phones that support both for true service portability. In fact, a *smart* carrier would offer either non-subsidized phones at a monthly service price of X, or subsidized phones at a monthly service price of X + Y (where Y basically recaptures the phone discount over the life of the contract).

If there's no subsidy, why require the contract?

[ahg]

If Cingular cannot subsidize the phone, then why did Apple give them the exclusive and require that all customers sign two year contracts? Usually the two year contract requirement is to pay back the subsidy... without the subsidy, there's usually no incentive to sign a contract. If that's the case, I think Apple botched this one for the customer.

Re:I much prefer...

[MysticOne]

Because it's more or less guaranteed that somebody is going to be listening to your QSO on the radio, but less likely (not impossible) for them to listen to the cell phone conversation. Plus, 70cm (with typical power) is going to transmit a bit farther than a cell phone at a higher frequency and tens or hundreds of milliwatts.

I think phone patches are cool, though I've never used one (I am a ham). But I don't see them as any sort of replacement for mobile phones. Plus, you can't use amateur frequencies to run your business, so any type of commercial communication is right out. No profanity (on both sides), no commercial communications, absolutely no privacy whatsoever, half duplex, and you're still going to need a phone line at the other end to communicate on the PSTN. No, not a replacement.

Interesting, since unit price is the hurdle

[jratcliffe]

The barrier to getting people to sign up for wireless service (or a lot of other subscription services) has always been equipment cost. Even though a customer is likely to pay $1k or more in service fees over the course of a 24-month contract, consumers focus on the $300 upfront for the phone, not the monthly fee. Cut the phone price, and more people sign up.

BTW, for you folks who don't want to sign up for a contract, you don't have to. Get your own phone (paying retail price), and Cingular or Verizon or Sprint will put you on a month-to-month contract, no problem. There's no way the economics work, though, to have free RAZRs and no contract.

Re:Snowball's chance.....

[trcooper]

Just like they *could* not tie users into contracts because they aren't subsidizing a device.

The real new business model is now instead of getting cheaper equipment for agreeing to a contract with a provider, now you must be tied into a contract with a provider for the privilege of owning a particular phone, this one a very expensive one. That's awesome!

I find the idea that Cingular is suddenly going to become the nicest company in the world, and start offering people great discounts and probably free puppies because they buy an iPhone amusing.

I can see it now:
"Your phone doesn't get a signal at your home? Oh, that's totally our problem, and we'll refund your money and let you out of the contract even though it's past the grace period, and take this cuddly puppy for your trouble!! His name is Sebastian and actually has been genetically engineered to poop milk chocolate, here try some!"

Re:I much prefer...

[Anonymous Coward]

Use steganography. Who'd know the difference? Just record some of your normal conversations and turn them into digital info. Then you would basically do the digital equivalent of modulation of the recorded conversation and send the real conversation hidden within the fake one. No one could tell.

I'm always surprised at the US's cell prices

[Hektor_Troy]

You live in a non-regulated market with regards to cell phones (as I understand it at least).
I live in a fairly heavily regulated market (Denmark).

Here, with the most expensive plan being prepaid phones, I pay about 4.3 cents/SMS including a 25% sales tax. About 14 cents/minute to make phone calls I think (I don't make that many - others call me)
Sure, we may not get as "awesome" a phoneplan as you guys do, and thus we probably don't get the phones as cheaply as you do.
But we don't pay for incomming calls or SMS' at all, which is rather nice - especially on a prepaid phone.

Also, when we go shopping for a phone, the sellers are required by law to tell us exactly the minimum price of purchace including the minimum price of any required plans (which can't go beyond 6 months btw).

Example:
Sony Ericsson W810i
Cheapest I can find is US$ 247 (minimum price during the 6 months)
This is 104$ for the phone, 17$ for the start-up fee, 125$ for a 6 month plan (and a bit of rounding).

Those 125$ (20.84$ a month) are simply the minimum cost - if you call, SMS/MMS etc for less than that per month, they'll just charge you the full monthly price.

Long live the free and unburdened market.

Re:While I would love an iPhone

[electrosoccertux]

I'd stay away from Cingular if I were you. I switched to T-Mobile, tried the new SIM on my old phone, and noticed that there was a noticeably better sounding voice on the other end when using T-Mobile.

Dropped calls means nothing if the conversation sounds worse than an AM radio. I've had two dropped calls in the last five months that I've had T-Mobile, one of which I suspect was my friend's phone (it sucks). When I was on Cingular I was using a particular word rather frequently..."What?"...I think I'll take a dropped call every five months over not being able to hear what the other person is saying.

Already the case in Europe

[guruevi]

In Europe this is 'standard' since most countries (I know for sure in Belgium and I think it's a European directive) banned giving away free phones with a x-year signup contract on cell phones. So you usually pay full price for your phone (maybe $10-50 rebate) but you can't get the phone for free. You can step in-and-out of a contract at any time though (no early-termination fee, just pay whatever you started that month) although if you stay longer, you'll save up rebates and freebies. The phones (GSM) aren't locked so you can keep your phone in whatever provider you go (provided that the frequencies are all supported, but the newer phones don't have that issue).

I think that's also why Apple went with Cingular/GSM technology. 1) there is only one phone they have to develop for both Europe and US since CDMA is nearly unexistant in Europe, and 2) you can just switch your SIM cards to get another provider, no lock-in possible.

Unlocking Your Phone

[Kozar_The_Malignant]

T-Mobile will unlock your phone for free:

1. If you bought it from them
2. If you have a T-Mobile phone number.
3. If you have a contact name and email address
4. If your account has been active for 90 days or you have canceled your T-Mobile service less than 90 days ago.
5. They will provide one unlock code per active line every 90 days

They provided the unlock code for my Razr V3 and were polite and friendly while doing it.

Re:Snowball's chance.....

[LoudMusic]

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.

In a product / service business where the supply is virtually unlimited the demand factor is fully taken advantage of. Look at video game costs. Each console generation drives the game cost up another magical $10. Nearly all games cost the same price when they hit the shelves. They don't cost the same to supply, so why do they cost the same to purchase? Because people will pay it.

I actually had that argument on a Gran Turismo forum a while back. Personally I don't pay more than $30 for a game, and if the majority of the rest of the gamers would stick up for themselves the price of games would come down. And I don't believe it would effect the quality of games because the developers would still be competing with each other to make the best game and get our money, no matter how much or little money there is to get.

In these kinds of markets, where the supply is endless, the growing population should drive the cost of products down, not up. The more copies they sell the more their profit margin goes up. Same as telephone service.

Re:I much prefer...

[digitalchinky]

On a practical level the carriers of GSM make it easy to intercept signals in the clear. Between the handset and the cell station the signal is encrypted. (In most countries, and most of the time) Each handset uses a different key. Making decryption more difficult is that the keys can and do change frequently. In effect, as you state, it's usually too expensive to bother with man in the middle attacks at that point in the system. http://www.gsm-security.net/ [gsm-security.net] has a good FAQ

The cell site is where the decryption takes place. From here the signal is (in the very vast majority of instances) microwaved either directly to the exchange, or via other cell sites. These signals are sometimes transmitted over a series of standard E1, or T1's. Usually this happens between 1 and 4 GHz. Telco's do get rather creative with their multiplexers though.

Equipment needed is not cheap, but is definitely available off the shelf. Spectrum Analyser. Downconverter. Modem. Antenna. Computer, and a digital capture card. From this point onward there isn't much software available to break out the mux so you might hear Joe Six Pack talking to his mother. If you get this far, you would likely have enough cash left over for programmers though.

Re:Wow, I'm enlightened

[MysticOne]

I see you chose to respond to this person's post, but ignored mine. The licenses are to separate those who are operating legally from those who are not. Your callsign is registered to a specific address, you have to pass a test to receive a license, and there are rules and regulations you must follow while operating your station. A lot of the requirements also change depending on the type of license.

So, on to the next part. Why is encryption illegal? That's simple. Because encryption hides what you're doing. When using amateur radio frequencies (or any frequencies, for that matter), you're utilizing a public resource. While utilizing this particular segment of the radio spectrum, there are rules on the content of your messages. If it's encrypted, it can't be determined whether or not you're following those rules. The FCC has been given the authority by the government to manage this public resource since the usable radio spectrum is finite. Radio stations, telivision stations, amateur radio operators, maritime radio operators, pilots, airports, companies that operate satellite equipment, cell phone companies, and more are all required to have licenses (whether via testing, purchasing, whatever) to operate on the public airwaves.

There are a few exceptions to the licensing rule such as part 15 devices, being a cell phone user, CB and FRS radio, etc., where a license for the end-user is not required. But, there are still rules you must follow when operating those devices as well, and they are much more strict.

Does it mean that people can't use the spectrum illegally? Nope. But laws don't ensure that people don't break them either. That's doesn't invalidate the reasons for having them, though.

Low cost data plan

[Aqua OS X]

Well, consider the monthly bill for a smart phone. A decent talk plan, a data plan, SMS, and whatever additional fees they tack on, can run you $100 to $150 a month. Although this might not bug certain enterprise users, for consumers who just now considering a smart phone, that monthly bill is going to be a shock.

If Apple can workout a deal to lower that ridiculous monthly bill, I would consider a nice phone that didn't sodomize my wallet once a month for 2 years. If they can't lower that talk + data plan price, well, you can count me out of the early adopter club.

All in all, if the gadget is cool enough, you can probably get away with charging more up front and less down the line. Heck, people were willing to pay a premium for the iPod when that first hit the market.

Re:I'd LOVE to see phones separated from service.

[nagarjun]

India is one of the few countries where this is the norm. The result? Some of the cheapest phones (Basic Motorola: $35) and services ($0.02 to make local calls, $0.02 to send SMS', all incoming calls and SMS' free) in the world.

Re:Why the iPhone won't matter

[Serious Callers Only]

It doesn't need to plug in - they could design a bluetooth keyboard. I'd be astounded if Apple doesn't already have a portable bluetooth keyboard in the works - all it needs is software on the iPhone to link up to it. Unfortunately you'd need to be able to load arbitrary software for that (or for your plug-in keyboard).

Re:While I would love an iPhone

[Anonymous Coward]

I just have to ask: do your cell phones/networks/whatever actually still drop calls in the US (where I presume your from)? In the year 2007? Is this in large cities or in rural areas?

I live in Finland, and I've had a mobile phone for 11 years now or so. I honestly do not remember the last time that I've had a call drop here (I'd wager it was sometime in the last millennium maybe). I'm not trying to sound all high and mighty here - I really don't - but I just find this talk of dropped calls and bad signals etc. a bit confusing at this point.