The Apple iPhone rumors are starting all over again. Let’s not go there.
We are still two months out from Apple’s Worldwide Developers Conference in San Francisco, where CEO Steve Jobs is expected show off his new iPhone, and already the rumors are swirling.
A story in Business Week strongly suggests that AT&T is not convinced that the new features expected from the Apple clan will be sizzling enough for customers to shell out that same $400-$500. The general expectation from Apple iPhone 2.0 is that it will make use of AT&T’s high-speed network and that it will add business tools for enterprises.
As Business Week put it, “After a year of charting a new wireless business model by selling the vaunted iPhone at premium prices, the nation’s biggest phone company may resort to the oldest trick in the cellular book: big discounts.”
Although AT&T and Apple declined to comment on the matter, business Websites are all abuzz with suggestions that AT&T would subsidize the device by as much as $200 for customers signing a 2-year contract.
I admit it makes for good copy to write about companies that have seemingly done an about-face on their previous successful strategies. However, without verification from the two key players, in the end, they are merely rumors and potshots. In fact, all of the stories, blogs and chatroom discussions offered more drama than a bad soap opera. What I offer you here isn’t as sexy, but it is a version of the story worth consideration.
Although the AT&T-Apple full-price strategy worked in Phase 1, who said that the two companies are obligated to stick with the same retail sticker price. According to U.S. estimates, the companies sold some 5.4 million devices at the higher, unsubsidized price. Good for them.
If nothing else, the initial effort superbly illustrated that these devices, while seemingly provided for free thanks to wireless operator subsidies, do in fact have a cost. If Apple charged $400, then maybe the next customer who purchases a similar device with touchscreen, music and e-mail capabilities from LG, Samsung, or some other handset maker will better appreciate the true value of the device – that it probably could retail for $300 vs. $99.
Second, what if AT&T is considering the subsidy ploy because of the economic jitters we all are feeling? It is entirely possible that the operator and handset maker set sales goals and looked at the real-world landscape and determined that the average consumer just doesn’t have that kind of spendable income floating around. After all, most analysts suggest that citizens are now looking to use their economic stimulus package checks from the U.S. government to pay bills or sock away in their dwindling savings accounts rather than blow on consumer electronics. If that is indeed the case, might AT&T’s subsidy actually be considered a shrewd or compassionate move?
And consider this for the enterprise angle: How many U.S. companies these days would actually approve a $400-$500 price tag on a new mobile device? Not many. Maybe the subsidy will encourage device sales for enterprises.
If AT&T kicks in $200 and it encourages more sales, it’s still a winner. Analysts suggest that the average iPhone user brings in roughly $90 a month for the operator. You do the math.
Finally, it’s the perogative of AT&T to do whatever it likes. Sure, subsidies bump up the subscriber acquisition cost and time before payback. In the voice days as wireless became more commoditized that time usually ran about 12 months. But if payback is only 2.5 months, heck, AT&T could even subsidize the entire device and still come out ahead.
Many of the stories and rumors I have read recently suggest everything from a crumbling relationship between the two powerhouses to unimpressive hardware/software additions for enterprise users.
Until we see the device, until we hear AT&T tell us that the 5-year contractual agreement is over, this is all merely conjecture.
Granted, my thoughts here aren’t as controversial as rumors, but they are all within the realm of reason. In fact, they could even be truer than not.
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