Wednesday, July 9, 2008

iPhone Issues @ AT&T? Or Just Issues With Yager?

This guy has got some things right, and others ... less right. He says here that Apple's unique revenue-sharing agreement with carriers is dead (true) and predicts panic at Apple if AT&T sells unsubsidized and unlocked phones it might buy from Apple, that Apple assumed AT&T would sell discounted with service plan bundles.

Which AT&T might do, I suppose. AT&T might have, say, large corporate customers with some very particular requirements and longstanding service contracts that would require contract-free hardware sales in order for the hardware to join the existing contract without mucking up the much larger and more longstanding arrangement with the carrier. But let's face it: why would AT&T sell phones unlocked if, as Yager states, AT&T's current practice is to push AT&T-locked devices to corporate customers? Doesn't AT&T prefer customers to carry and depend on devices that are tied to its networks?

Yager hypothesizes that AT&T's threat to sell unlocked, unsubsidized phones might create leverage to negotiate with Apple over iPhones.

Let's parse that. Yager spends the first couple of paragraphs explaining why Apple is making more on the new subsidy structure than it did on the revenue-sharing structure, and because Apple is paid all its money up front we can tell Apple is making this money faster under the new deal. And we recognize that iPhone users will have the same incentive to subscribe to Apple's MobileMe services that they might have if they used any different carrier. And there's no reason to suspect users' appetite for iPhone applications will differ materially based on carrier preference. It follows that Apple is happy as a clam allowing any willing buyer to get into this scheme, and would love to be able to reach customers whose only reason not to buy iPhones is a deep loathing of AT&T.

Given that iPhones have been on sale in Germany and France unlocked and unsubsidized for some time, and will be for sale unlocked at unsubsidized prices in other jurisdictions where mandatory service bundling is unlawful, there's no reason to think AT&T would be in a unique position to offer an ultimatum to Apple. Moreover, Apple can't be pressured with "threats" that will only increase its sales.

Now that Apple isn't expecting any shared carrier revenue, Yager is going to have to work harder to explain why Apple should care at what price or with what service AT&T sells iPhones. I can think of one factor only that matters to Apple: Apple may prefer carrier service rate structures that won't punish its customers for using iPhones' data capabilities, or Apple might get the criticism rather than the carrier (because other phones on the same network might not get used enough that the data plan rate matters much). Other than that -- which isn't an issue if customers rather than Apple pick the carrier -- what's the difference to Apple?

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