Report: Carriers aren't cashing in on iPhone hype

Before this was article was posted, people should consider whether Strand Consult is biased towards another device? Articles like this are dependent on which platform they are biased towards. Ask- why then does AT&T want to extend their exclusivity.--

Isn't Strand Consult biased towards another device? Articles like this are dependent on which platform they favor. Hmm... AT&T wants to extend their exclusivity agreement.

The difference between 38.5 and 40% margin is negligible. Without the iPhone, AT&T's financial picture would have been pretty grim. The iPhone is directly responsible for bringing in new subs. Competitive carriers would kill to have the Gross Adds and margins the iPhone is delivering to AT&T.

The carriers are simply a network pipe. It's time for them to stop acting like they're are more than that. They missed the boat on enabling financial transactions through the handset, and they're going to botch it big time when they try to implement models based on advertising.

Operators can't expect that having an exclusive for an iconic device brings automatic financial rewards. They need to differentiate at the network and user experience level to truly leverage the uptake of smartphones and the like.

See more discussion at:
https://www.myciscocommunity.com/community/sp/mobility/blog/2009/07/14/mobile-application-stores-what-s-the-operator-play

According to the study, the facts show a different reality...they show that AT&T has 29% market share in 2008, and still had 29% market share in Q209.

They look at 5 operators around the world and show that iphone does not increase subscribers.

Apple is perhaps one of the most secretive companies in the world because they need to create and maintain buzz. Much of their buzz is simply just that - buzz

Why should this be? Well, the introduction of new products and/or technologies designed to stimulate ARPU (average revenue per user) is often accompanied by significant cost that can quickly cancel out subscriber profitability.

There are three main cost areas that impact new product launches in this way.

1. Subscriber Acquisition & Subsidies: Outside of marketing and advertising, a principle cost lies

in subsidizing handsets. Subsidizing handsets is standard practice for many MNOs. It’s a practice that enables them to quickly gain market share, attract customers and seed the market with revenue generating technology at a price-point that the consumer’s can bear. It is, however, a costly strategy and one that puts subscriber profitability in the Red from day-one. No wonder then that many MNOs have increased their standard contract duration to 24 months in an attempt to claw-back this cost.

Sources at AT&T have suggested that without the acquisition costs associated with the iPhone 3GS, which it launched in June, its OIBDA service margin would have been 40 percent rather than the reported 38.3%.

Mobile Broadband services are also suffering in this way. Most USB broadband dongles are supplied free-of-charge and many MNOs even offer free laptops to entice customers.

2. Cost-to-Support: When a new handset and/or technology is launched to the market it’s not uncommon to see a spike in support traffic as end-users grapple with new features and functions or learn to navigate a new OS. Unfortunately, this comes at a cost. The cost of handling customer care and support calls has an immediate bearing on a subscriber’s profitability be­cause, like the cost of subscriber acquisition, handset subsidies and network maintenance, it forms part of the cost of maintain­ing a subscriber on a network.

Technical support calls on smartphones such as the iPhone tend to be longer and more complex in nature than lower-end devices. It’s not unreasonable to assume that a single call to a tier-3 technical support agent has the potential to wipe-out an end-users profitability for that month.

Do Sprint’s actions make a little more sense now?

3. Infrastructure: Data-centric devices place enormous strain on legacy network infrastructure. The industry has undergone something of a transformation in recent years, shifting data billing from time-based to packet-based. The availability of ‘unlimited’ data bundles is prevalent and seen as a key selling point for MNOs keen to fill the gap left by dipping voice revenue. However, in reality unlimited mobile data means 500mb-1GB. An operator will use ‘unlimited’ as a strong advertising statement to attract users, knowing that 99% of them won’t even get near the fair use 500mb-1GB and that margins / network performance are protected. But iPhone users (and their peers) are a different breed. These devices live for data connectivity.

It’s a fact that the rise of mobile broadband and the popularity of smartphones has put significant strain on 3G networks. Estimates suggest that the iPhone and mobile broadband services (amongst other data factors) have caused data traffic on tier-one networks to grow at rates of 10% to 15% per month. AT&T Chief Executive Randall Stephenson told the Wall Street Journal earlier in the year that wireless operators aren't prepared for the onslaught of data traffic coming from smartphones, and that the deluge is beginning to clog their networks.

As such, many MNOs are doing a lot to upgrade their networks as quickly as possible in order to accommodate demand. However, when MNOs see data traffic increasing they sometimes react in a less than favorable manner by capping usage or imposing punitive charges.

What this commentary is not suggesting is that the iPhone (and similar peer devices) are white elephants. We all accept that they are game-changing and have been a positive force in taking mobile data mainstream.

OK, the subsidy that AT&T pays for each iPhone totals about US$300 but their monthly tariff averages at US$70. Over the long-term, such devices can add significant incremental revenue and reinforce subscriber loyalty. The message is that costs can be managed in other areas to allow for any short-term damage imposed by acquisition costs.

For example, it is important that support lines are optimized in advance of new product launches to counter any spikes in traffic. Can subscribers be managed via more cost effective web-based selfcare channels instead of being connected to an expensive support agent?

Of course, as internal systems, processes and knowledge improve around new products so too will the cost-to-support. Significant profitability gains can be realized by mitigating the above-average support requirements of new products and any reduction in post-sale support costs will have an immediate positive uplift in profitability that will enable MNOs to maintain competitive pricing strategies.

More at our blog http://wirelessinformaticsforum.wordpress.com/2009/08/19/are-iphones-damaging-mno-profitability/

When you start talking ARPU for AT&T, versus Verizon, Sprint and other carriers, one thing is definitely being overlooked. AT&T has yet to make BB/PDA plans mandatory at the time of purchase, like its competitors have. That is a difference of $30 ARPU on PDA and Blackberry devices. I know that they are in talks of moving that direction, however, AT&T has done what it can to make monthly costs on rate plans and their features affordable to consumers.

Seeing as how the Blackberry Curve took over the spot of #1 selling handset in the U.S., you can see where AT&T's competition has reaped the benefits of forcing their customers into paying more for a handset that they may have just wanted for texting or calling...

Except that Verizon Wireless profit margins went up to 45% in the same period.