Verizon and Sprint can thank Apple and the new iPhone that they are now being challenged by a new type of competition they were not expecting and had not previously experienced
|A great deal has been said and written about the iPhone since it originally launched in 2007. Almost all the press attention the iPhone has received has focused on what customers think. There has been very little media attention about how the iPhone has influenced the mobile operators’ business cases. Back in 2009, Strand Consult published our report about the iPhone market scene from an operator’s viewpoint: http://www.strandreports.com/sw3896.asp |
Our report documented that the subsidies most operators were giving to iPhones, together with their general sales and marketing costs were resulting in operators seldom being able to get a return on investment on their iPhone sales during the minimum subscription period. Basically the only way an individual customer could develop into a healthy business case, was by the customer staying with the operator for a far longer period of time than their original minimal subscription period.
So operators could only hope that customers did not switch to a competing operator or MVNO that were offering a SIM-only product or new iPhone model after their minimum subscription period expired. In the USA, both Verizon and Sprint had a long period where they could not offer their customers the iPhone. When Apple launched a model that featured both CDMA and WCDMA/GSM, Verizon and Sprint saw an opportunity to attract back some of the customers they had lost along the way to AT&T, who had up till then been enjoying exclusive sales rights to the iPhone.
CDMA operators such as Verizon and Sprint have, on one hand had a disadvantage compared to WCDMA/GSM operators, as CDMA mobile phones were significantly more expensive than WCDMA/GSM mobile phones. On the other hand they had an advantage, as their customers could not simply insert a new SIM card into an old/unlocked mobile phone and thereby switch to a competing operator offering cheaper mobile traffic using a SIM-only product. This however all changed with the new iPhone 4.
Verizon activated 3,2 million iPhones in Q1 2012 (down from 4,2 million in the previous quarter). But Verizon also faces the risk that they will lose the advantage they had on the CDMA market, as they now face the risk that their customers will leave them when their minimum subscription periods expire.
Verizon and Sprint can only hope that their iPhone customers are more loyal to them than they are to Apple and that they will not choose to purchase a SIM-only product from one of their US competitors when their minimum subscription period expires.
Across the world there is a huge market for unlocked iPhones. People purchase an iPhone that has been marketed, sold and subsidized by an operator who subsequently does not receive any data traffic or 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 their competitors such as Verizon and Sprint 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 subsidizing, marketing and selling iPhones.
We believe there is a large risk that some of the iPhone customers that Verizon and Sprint have spent money on acquiring in the USA, will be potential SIM-only customers that could easily be attracted to their US competitors who are targeting iPhone customers that already own an iPhone.
This is not a new business model. MVNOs in Denmark, Norway, Germany, Holland and a number of other countries have been very successful using this business model. A number of mobile operators have also used this business model to attract customers from competing operators. So far we have only seen one defense against this business model and that has been to significantly reduce mobile subscription prices as soon as the minimum subscription period expires. The operators that have been successful with this defense strategy have offered price decreases of between 30-40% to keep their customers.
Strand Consult believes that many operators are still struggling to find and optimise the best possible strategy on how to handle the many challenges they are facing from the smartphone market. Mobile operators in Denmark and Norway are already experiencing significant decreases in their SMS business areas, but that is just the beginning of how smartphones will influence many different operator business areas.
Based on our extensive research and experience, Strand Consult has created a workshop concept where we help mobile operators structure and optimize their smartphone business strategy, in order to best tackle some of the chllenges they are currently facing in the smartphone business area.
If you would like to learn more about our workshop concept How to get success on the smartphone market please do not hesitate to Contact Us . We will then send you an outline that further describes how we view these upcoming challenges together with our iPhone market report from 2009 – our iPhone market report is still very relevant reading.
Strand Consults Strategic Smartphone Workshops
How MVNO´s can get success in the Mobile Broadband market
Strand Consults Strategic Workshops
Successful Strategies for the Mobile Broadband Market
Show me the money – The future Business models for mobile Broadband Services
How MVNO´s can get success in the Mobile Broadband market
How media companies can get success on the mobile broadband market
How to get success with Value added services on the Mobile Broadband market
How can a Wimax operator survive in a world full of WCDMA