Apple as your next network carrier in 2017?
- Summary:
- Has Apple set in motion a strategy that will see it act as carrier? The clues are there.
Now lets move to iPhone 7
No sim slot?
Why would there be, Apple bring the same model as the iPad 2, now in reality no phone can ever be unlocked as there is no need to unlock it, you can have any carrier you like on it, well any carrier in the world who pays to be listed in the Apple carrier store.
Its not a big leap to paying for service though iTunes is it? moving carriers on a monthly basis for the best deal? and of course the absolute kicker, with its balance sheet could “Apple finance” advance you the money to buy the phone which you pay monthly though iTunes, their balance sheet certainly says so plus you don't pay and its bricked, never to be used again.
Whats new?
Last week, Apple launched an upgrade and care service that allows customers to have a new iPhone every year at a starting cost of $388 pa. Compare that to the cost of the iPhone 6s which starts at $649 to which you need to add Apple Care and suddenly, the upgrade program looks like a no brainer.
Of course nothing is quite that simple and a comprehensive analysis of the various costs associated with different carriers under these arrangements. Pegoraro's argument includes the impact of the increasingly important topic of international roaming costs. There's also the small print on the upgrade plan which limits users to the four main networks in the US. But only for two years. Hold that thought.
of USA Today providesLast weekend, Phelan revisited and expanded upon his 2014 prediction in the context of this new offer.
Where are the carriers in this? Why would I [as consumer] now lease from the carrier? I really don't need to and the carriers don’t want the cost of handsets on their balance sheet anymore but how do they convince us to sign a contract? I really can’t see this as being a positive solution for the carriers. With voice practically over for the average subscriber you are now going to see OTT voice being really pushed, why do I need to know your number anymore plus I definitely see no requirement for a sim slot in iPhone 7, virtualization of the sim card must be around the corner and of course Apple has the patent for that.
I really don’t get the long play for the carriers, who is going to fund the network upgrades to 5G if average bill is $20? maybe Apple, its certainly going to be an interesting cycle for the lifetime of this model.
One final thought, imagine if Apple could lease me the phone based on usage, last year I used 90gb, now if they were providing service and added say $4 a gig based on a declining scale, the more I use the less I pay, that's far less than the carriers sell wholesale access at.
The upgrade impact
Let's draw breath and pick this apart because if Phelan is correct, then the implications for both consumers and enterprise are huge.
- The upgrade package is still profitable for Apple. Deferring part of the margin for the resale market is not a huge ask. Think this way: Buyer 1 gets iPhone 6s for $388, trades for iPhone 7, Buyer 2 gets iPhone 6s for $300+ less some refurbishment costs.
- Profitability is a function of volume and price. The upgrade package now puts the aspirational iPhone 6s within the reach of pretty much anyone. As a side effect, that creates pressure for Android based phones and Samsung which is trying to compete head to head with Apple.
- Suddenly, the iPhone has gone from being a luxury good at a premium price to a luxury good that (more or less) anyone can afford. I don't believe that detracts from its luxury status. More likely it attracts fresh fans.
- From what I can gather, iPhone users are fanatical. Once they're hooked, they're all in. This package is like icing on the cake to the Apple faithful.
- Apple is all about simplicity in form and function. The carrier option Phelan describes is a logical extension of that thinking.
Will Apple take that step? Telecommunications is largely a regional business but one that is increasingly global in nature. As we have seen in Europe, large players like Vodafone and Movistar have no problem in expanding their franchise to other countries and other continents. But for Apple, the degree to which they can exert control over the owners of the copper and fiber networks will be key to their ability to execute on Phelan's proposed strategy. That's a complex problem requiring multiple negotiations but the payoff for Apple will be huge because in this scenario, Apple has full control over the whole phone experience.
I am less convinced about the voice aspect of Phelan's argument. I've found that voice usage is culture specific. For example. I make way more voice calls in the US than I do in the UK or other European countries.
From an enterprise perspective, business gets immediate operational cost savings by making Apple the corporate standard. That will still leave open the ever thorny topic of device security but I don't see that as an impediment to adoption. It also solves BYOD nightmares.
My take
These thoughts may seem breathless and audacious but are they really that crazy? Let's be clear. The Apple upgrade offering is currently restricted to the US. Such an offer will need to go global before Apple moves forward with SIM-less devices that are open to any network.
While still insanely profitable, iPhone has lost market share to Android. The upgrade plan needs to overcome competitive pressures first. Apple is placing big bets on the new iPad Pro, an untested yet substantial investment that has products like the Surface Pro 3 as a credible alternative.
Apple's aspirations as carriers are a matter of juicy speculation today. The specter of Apple having total control over my communications might be a tad scary but I rather like this idea. It's simple, it's easy, it will be better value. Oh - and I'll still have the kudos of hefting the coolest device on the planet.
Finally, why did I put 2017 in the title? Remember that small print thing in the upgrade program terms? Two years only today. Watch for what happens when iPhone 7 comes out.