Research Notes

iPhone guarantee obligations could be a ticking bomb under mobile operators iPhone sales

Nobody doubts that many iPhones have been sold and that consumers are pleased with their elegant handsets. But what is the situation regarding the guarantees that operators are obliged to give their customers and the guarantee that Apple is giving their operators?

Within the EU there are general rules governing products purchased by end users. Consumer electronics like mobile phones are covered by a two-year guarantee. In Norway a court ruling required that retailers in certain cases give a five-year guarantee, resulting in the customer being able to have their handset repaired at no extra charge for up to 5 years.

Today almost all handset manufacturers offer product guarantees that correspond to the guarantee that the retailer gives the end user, resulting in mobile operators and other market players that sell mobile phones having no risks if phones break during the guarantee period. Simply put, the manufacturers will usually cover the guarantee obligations on their own products.

But that is not the case with the iPhone. Apple only gives their customers a one-year guarantee, resulting in the retailers having to cover any additional repair costs during the second year of the phone’s life – costs that can be potentially very expensive if a certain model turns out to contain many defects.

This has the following consequences for operators focusing on the iPhone:

1.      When operators calculate their SAC on an iPhone customer, they need to take into account the second years guarantee.
2.      When operators calculate their iPhone business cases, it is important that they include possible repair costs during the phone’s second year – costs that they do not have on other handsets.
3.      Operators that can only bind postpaid customers on 12 month contracts should consider how to handle those customers that choose to switch to another operator or MVNO after the contract expires.
4.      Operators should consider the consequences of a series of hardware or software malfunctions that could result in a great number of phones needing servicing 12 to 24 months after they have been sold.
5.      Operators ought to initiate a dialogue with Apple to ensure they receive the same guarantees from their manufacturer that they themselves are obligated to give their customers. In other words that Apple covers their guarantee obligations for the full guarantee period.
6.      If Apple is not interested in helping operators cover their guarantee obligations, operators should examine the possibility of taking out insurance against possible future repair costs to thereby eliminate any larger repair risks.

There are many examples in the consumer electronics market of various electronics manufacturers that have set aside large amounts to cover extraordinary repair costs – costs that are very visible in these companies’ financial statements.

The cases that have received the greatest attention are those where a number of PC manufacturers had to replace batteries on millions of PCs. Despite the fact that part of that bill was forwarded to the battery manufacturers, their contribution only covered a small part of the total costs that the PC manufacturers were required to pay to fulfil their customer obligations.

If you are an operator and have sold hundreds of thousands of Iphones, you only need a simple calculator to work out what it will cost if 5 to 10 % of those Iphones become faulty during their second year of use and what it then would cost an individual operator if an average repair including logistics costs between 35 to 70 euro.

If you would like to learn more about the iPhone and the iPhone market you can receive a free copy of Strand Consult’s report  The moment of truth, a portrait of the iPhone, you are welcome to order your free copy here: .
More information: The moment of truth, a portrait of the iPhone

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