Global Insight Perspective | |
Significance | Apple has synchronised the sale of its 3G iPhone across over 20 markets. |
Implications | Although Apple's latest business model and the capabilities of the 3G device will enhance sales, it also exposes a risk for the device, devaluing its premium effect and making it look like just another phone on the shelf. |
Outlook | The addition of 3G and the relaxation of Apple's strict sales rules will broaden the appeal of the iPhone beyond Apple fans, raising the prospect that sales of the devices can ramp up significantly. |
Apple's 3G iPhone has gone on sale in over 20 countries around the world as die-hard fans, technology enthusiasts, and curious analysts and journalists scramble to get a piece of the action. In a marked departure from the sale of the first iPhone version, Apple scheduled the sale of the 3G version to begin today in all its markets. In several countries, long queues awaited the device while some operators reported running out of supplies or not having enough to satisfy customers who have already signed up for the device.
Outlook and Implications
- Better Phone, Bigger Market: Undoubtedly, Apple has engineered a better phone which will surely appeal to a bigger market. While the 3G version does not incorporate much more difference, its 3G capability ensures it matches its rivals from other manufacturers in the speeds it can support. By equipping the phone with 3G, Apple has paved the way for the device to become a bigger hit across Europe and in Asia, markets which have a far higher appetite for high-speed devices. Sales in the top European markets such as the United Kingdom, Germany, France, Italy and Spain, coupled with sales in Japan will surely ramp up sales of the iPhone beyond Apple's earlier declared expectations.
- Betting Big in the U.S.: As its biggest market, Apple and its U.S. partner, AT&T, will be hoping to make a big hit with the 3G iPhone in the United States. The first iPhone received a firm welcome in the United States where it was first launched. With the United States long regarded as somewhat behind the rest of the world on mobile handset capabilities, a home-grown industry leading device was likely to receive strong support, much as the Razr did particularly well in Motorola's home market. AT&T hoped to use the demand for the device to begin changing the business model largely used across the industry—removing the subsidy it pays on devices to subscribers signing up to contracts. Although AT&T made a large number of sales—Apple launched the iPhone in the United States on 29 June 2007, and sold close to 1.4 million units in just three months—they have backtracked on the 3G version and will subsidise the device, increasing data charges by US$10 per month to account for the shortfall. They will also revert to activating contracts on iPhone as they are sold rather than the home activation process previously used, which will help stem the massive grey market which has emerged for iPhones facilitated by the sales process (see United States: 11 June 2008: AT&T Targets Volume Sales as the Subsidy Returns for the iPhone).
- Tweaking the Business Model: Faced with challenges from its previous business strategy, Apple has opted to allow mobile operators to decide on how they are going to sell the iPhone and is no longer laying claim to a share of the usage revenue. Accordingly, some operators are giving it away for free, or at greatly subsidised prices—in a similar manner as they do for other phones in their portfolio. Apple is understandably irked by the deflation of the iPhone halo quality but is resigned to give up control of the device in return for ramping up sales across the world, and helping it to surpass its 10-million shipment volume target by the end of 2008. For the operators, attracting high-paying customers, the sort who have so-far dominated the iPhone craze, ensures that they can recoup the cost of subsidising the handset while turning a tidy profit. AT&T reported ARPU levels in the mid US$90's per month in the first quarter of 2008 from its iPhone customers. Crucially however, using different business models is open to abuse. For example, Global Insight is aware that some buyers acquire other contract handsets with subsidies attached, re-sell the subsidised handset, and use the revenue to acquire the iPhone on the grey market.
- Canadian Pricing Furore: For Canada, the iPhone has created a furore, triggering heated debate on the pricing plans on offer. Prior to today, the iPhone has yet to launch in Canada, with Rogers, the only viable GSM carrier, not picking up the first 2G version. With Apple making great demands on carriers, such as a cut of monthly fees, it seems likely that this was a sticking point in negotiations with the carrier. With the 3G version now coming to Canada, the announcement of the tariff became a rallying point for a growing perception that Canadians get a poor deal on mobile-phone service in relation to their neighbours in the United States. The decision by Rogers not to opt for unlimited data downloads and the three-year term of the contract on the device were particularly critiqued and when a web site—Ruinediphone.com—attracted nearly 60,000 signatures and a weight of media attention, Rogers relented and produced a promotional offer, allowing subscribers to add a 6GB data package to standard voice tariffs (see Canada: 10 July 2008: Industry Minister Asks Telus, Bell to Explain Incoming Text Charges as Rogers Slashes Data Tariffs, 9 July 2008: Canadian Mobile Tariff Outcry Continues as Carriers Set to Charge for Incoming SMS and 1 July 2008: Rogers Criticised over iPhone Pricing).