dw2

21 December 2008

Operators and the iPhone

Filed under: iPhone, operators, Strand Consult — David Wood @ 9:05 pm

John Strand, independent-minded CEO of Strand Consult, has reached some provocative iconoclastic conclusions about the iPhone.

An edition of “Strand Report” earlier this month was entitled “iPhone: an operator’s worst friend“. In short, although end-users frequently enjoy using an iPhone, the operators who spend money supporting iPhones on their networks enjoy the experience considerably less.

Since Strand Consult have spent 14 years building up an extensive network of connections among operators worldwide, it’s worth taking the time to listen to their opinion on this matter.

Here are a few extracts from the Strand analysis:

Having iPhone customers using large data volumes sounds good, but when data is being sold at a flat rate, a high data consumption results in high production costs without the corresponding increased revenue. You could compare the operators’ attitude towards the iPhone’s data consumption with a restaurant owner that has a “all you can eat for 10 Euro” buffet and that is proudest of the customers that eat the most!…

When you examine the iPhone data consumption, you will see that iPhone customers use their browser to view ordinary websites and that they often choose not to view the websites in XHTML – optimised for low bandwidth and mobile phone sized screens. In practice this results in that when an iPhone user browses a typical news site, an ordinary web page will be around 1 MB, while the mobile version of the same page will often be less than 100 Kb. It is significantly cheaper for an operator to produce 100 Kb data than it is to produce 1 MB data and it is much more fun to deliver 100 KB rather than 1 MB when you are selling data at a flat rate…

There are already a number of operators that have issued profit warnings related to their iPhone ventures and our research shows that there is not one single Apple partner in the world among the mobile operators that has increased their overall profit and market share due to the iPhone…

Across the world there is a huge market for unlocked iPhone’s. People purchase a phone that has been marketed, sold and subsidised by an operator who thereafter does not receive the data traffic and revenue from that handset. These phones are most often used on other non-Apple partner networks, resulting in the Apple iPhone partner operator ending up with a high SAC, while another non-Apple partner only needs to sell a SIM-only product with a low SAC and attractive voice and data prices…

We know of a great many operators and MVNOs that have done good business on NOT being an Apple and iPhone partner. These operators let other operators subsidise handsets and instead sell SIM cards with inexpensive data traffic at competitive prices. Their low SAC gives them a positive cash flow on the customer far earlier than the Apple partner operators that are subsidising, marketing and selling iPhones…

The conclusion is simple. This is not good business for shareholders of operators that are Apple and iPhone partners – on the contrary it is far better business not to be an Apple and iPhone partner. Operators that choose not to carry iPhone products have an increased probability of serving their shareholders interests over those that move their management’s focus, subsidies, marketing and distribution power on a product that is as beautiful as Paris Hilton, but increases production costs…

Strand Consult return to these themes in their year-end article containing predictions for 2009, “2009 will be the Moment of Truth for many players in the telecoms sector“:

Our analyses during 2008 have shown that there is not one operator that has increased their turnover, revenue or improved their market share due to the iPhone. In our latest iPhone analysis LINK we document that a number of operators have issued profit warnings based on the iPhone. We have documented that the closer partnership you have with Apple, the worst business case the iPhone becomes from an operator’s point of view.

I’ve spent a bit of time searching for substantive rebuttals to this analysis:

  • Some people have said that operators have indeed generated additional revenues from the iPhone – but that’s not the same thing as additional profits;
  • Some have commented that the iPhone gives great pleasure to end-users, but that misses the point of the analysis;
  • It’s also true that many third party developers have benefited from selling their applications on the iPhone, but, again, that misses the point of the analysis.

I see three possible interpretations:

  1. There are network operators who generate significant additional profits from their support of the iPhone, but they’re keeping relatively quiet about this;
  2. The iPhone is indeed better news for developers and end-users than it is for the operators who support it;
  3. We’re still in a transitional phase.

I think the third interpretation is the most likely. The mobile industry is in a time of very considerable flux. The iPhone has played an important role of opening people’s eyes to the possibilities of smarter mobile devices, but that doesn’t mean that operators will continue to be keen to actively support the iPhone. Instead, what I hear is that they’re looking for phone platforms that are both complete and highly customisable.

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4 Comments »

  1. There can be different perspective of same issue. I believe lack of innovation is the root cause of revenue generation not uncapped data plan.
    iPhone really changed the market dynamics because of their innovation and everyone just trying to follow them. Similarly infrastructure innovation is required for additional revenue stream that operators can add keeping uncapped data plans.

    I appreciate AlcLu CEO Ben Veraaayen’s vision (http://www.lightreading.com/document.asp?doc_id=169293) for getting QoS in single click of mouse or may be single tap on your mobile and handling billing with operator’s infrastructure.

    Uncapped data plan make a user addicted to net from mobile and operator should use that addiction to generate additional revenue by providing additional functionality that will only come from innovation.

    Anyway I will go for 2nd (slightly modified) interpretation:)

    The iPhone is indeed better news for developers and end-users and could be for operators if they are ready to innovate.

    Every phase is a transitional phase for the one who constantly look what he could bring new to market. Mobile industry was in transitional phase for several year and will remain for another several years.

    Comment by Vipin — 22 December 2008 @ 12:47 pm

  2. Instead, what I hear is that they’re looking for phone platforms that are both complete and highly customisable

    Yeah, but that’s not what the customers are looking for!

    Comment by Alexander Marktl — 22 December 2008 @ 2:55 pm

  3. Hi Alexander,

    >[dw2-0] "Instead, what I hear is that they're looking for phone platforms that are both complete and highly customisable"

    >[Alexander] Yeah, but that's not what the customers are looking for!

    I want to search for a solution that allows all key elements of the value chain (including the end customers and the network operators) to meet their reasonable requirements.

    However, if it turns out there’s no way to fully satisfy both the network operators and the end customers, it’s likely that disruptive new value chains will come into existence, by-passing the interests of the traditional network operators, in order to satisfy the interests of the people who ultimately pay the bills.

    Hi Vipin,

    >"Uncapped data plan make a user addicted to net from mobile and operator should use that addiction to generate additional revenue by providing additional functionality that will only come from innovation…

    >"The iPhone is indeed better news for developers and end-users and could be for operators if they are ready to innovate."

    I completely agree!

    // dw2-0

    Comment by David Wood — 25 December 2008 @ 11:23 am

  4. > iPhone customers use their browser to view
    > ordinary websites and that they often choose
    > not to view the websites in XHTML

    For the very simple reason that mobile websites are invariably terrible compared to the non-mobile versions of the same site. So the argument boils down to complaining that the customer wants a good experience and doesn't want to pay extra. From a carrier's point of view, this is indeed a problem.

    I don't _disagree_ with anything in the article, but it seems important to note that it presents only one side of the argument, the carrier's. Yes, it is obviously true that it is less expensive to deliver less data than more data, but if they don't like their users using more data, the way to fix that is to charge more, not to make the experience of using what they have a poor one. Sadly, they chose the later.

    Carriers look at their customers as walking dollar (or Euro 🙂 signs. They don't give one hoot about what they actually want to do with their handsets, only whether or not they'll pay for it month over month. So perhaps a new handset has MMS and they see a way to monetize that – off it goes, regardless of whether or not the feature is usable. I'm sure we're all aware of the many bad implementations plaguing the handset world.

    Given the choice of carrier-pain for customer-pleasure, I vote for the customer. They tend to win in the end anyway.

    Maury

    Comment by Maury — 19 January 2009 @ 5:44 pm


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