Industry Voices — Baker: Apple and mobile operators tango together on 5G iPhone 12

The iPhone 12 costs more outside the U.S., and in China there was a lot of moaning about the cost. (Getty Images)
Industry Voices Simon Baker

Apple has made a big play on 5G with its new iPhone 12 range. Not only are all the models 5G, but those in the U.S. will be work on mmWave.

Without the coronavirus crisis, Android 5G would probably be further ahead in many markets than it is and Apple's 5G launch would be more of its customary move one step after the competition.

Although Apple appears to be making a more audacious bet than usual, arguably it is all going to come right. 

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First of all, Apple had to add something significant to the iPhone this year. None of the other improvements on the previous series are really eye catching except perhaps the better screens. 

Secondly, and most important, Apple's move is just what a whole lot of mobile operators want, faced with lukewarm consumer interest in 5G, to give the technology a boost.

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All reports in the U.S. are that they are going to play ball and offer lots of promotions around the iPhone 12 to get subscribers signed up to their 5G services. With trade-ins of certain old models, Verizon and particularly AT&T will minimize the incremental cost of switching to the iPhone 12.

Already overdue in China

Thirdly, Apple needed a 5G phone in China. 5G is already on a roll there, with consumers showing a big interest in buying a 5G device. Apple could not expect to hold onto the top of the local market if it did not have a 5G phone, when the Android 5G ASP there has already dropped in price to two-thirds of the iPhone ASP. In unit share Apple only had in Q2 8% of the Chinese smartphone market, but as the world's biggest market it still accounts for around a sixth of iPhone shipments and continues to be Apple's single biggest export market.

Some doubt can be cast on Apple's pricing. The new phones are competitive in the U.S. where mmWave will be incorporated in all iPhone 12 models. The standard iPhone 12 will cost from $799 in the U.S., a hundred bucks more than its iPhone 11 equivalent last year. Adding mmWave into the U.S. phones will add a significant cost increment to the phone, so the higher price is understandable. 

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Outside the U.S. the deal looks much less attractive. All iPhone 12 models for export markets are reported as going to be Sub 6 GHz only, but nevertheless, as usual, they will cost substantially more than in the U.S. The Chinese launch price of 6,299 yuan for the standard iPhone 12 is at $940, 18% higher than in the U.S., for a less capable version of the phone, and also above the $850 threshold at which the Chinese market thins out. 5G networks in China are Sub 6GHz only, and the average price of big screen 5G models is falling fast. So it's not surprising that among all the online chat in China about the new iPhone there was a lot of moaning about the cost. 

Meanwhile the cheapest iPhone 12, the Mini, is quoted at £699 in the U.K., a lot of money for a phone with a now considered very modest 5.4 inch screen, and for which the consumer can buy it 23% cheaper in the U.S.

A vacuum at top of the smartphone market

Conversely though, in many richer countries Apple may be right about consumer acceptance of higher prices. The iPhone SE II was heralded earlier in the year as being the right product for a new time of crisis frugality. But as the coronavirus drags on, one of the trends that is emerging is that while many people have lost their jobs and many more are expected to do so, among the lucky majority who have kept theirs, savings rates have risen and there is disposable income available for such discretionary purchases as more expensive phones.

Furthermore, there is a gulf emerging at the top of the smartphone market as Huawei retreats and its sales skew increasingly to cheaper phones. With other brands that once had a range of premium phones, Sony being a prime example, already much diminished, Samsung is left as the only big Android brand really continuing to promote top-end phones. The other new Chinese brands, Oppo, vivo, and Xiaomi, are not yet ready to join them at the premium end. So a lot of the top of the market is open to Apple to claim. 

Older models still there for 4G markets

The year's new model is always very important to Apple in its big main markets: taking the four quarters from Q3 2019, in North America the iPhone 11 series contributed nearly three-fourths of Apple's retail iPhone sales value before tax, according to IDC data.

But outside the richest regions of the world, the value share drops to around 60% over these four quarters. Apple keeps some older iPhone models in production and limits the price drops for their first two years, which maintains their profitability and restricts cannibalization of the newer models. With these older phones Apple will stay relevant in countries where 5G is not really on the agenda yet, which is most of the world in population terms. 

Getting operators on its side

The biggest issue with the iPhone 12 for Apple remains getting consumers to want 5G. Hence the importance of the support of the big mobile operators in swapping out older iPhones and bundling 5G tariffs. Despite starting in the PC industry and independent distribution, Apple has always liked to work through the mobile operators for phones. 

This time around Apple really needs these operators not only in the U.S., but in other markets such as Western Europe. The degree to which they bundle the new iPhones with 5G tariffs will not only determine just how well the iPhone 12 series does globally, but outside China and South Korea how much impetus there will be behind consumer 5G uptake in the next few months. 

Simon Baker is program director for mobile phones and consumer devices at IDC EMEA and a coordinator of IDC global forecasting for the 5G smartphone market. He is a long-time analyst in the mobile phone arena. Please contact him at [email protected]

Industry Voices are opinion columns written by outside contributors—often industry experts or analysts—who are invited to the conversation by FierceWireless staff. They do not represent the opinions of FierceWireless.

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