Tuesday, June 10, 2008

Apple embraces subsidies in iPhone U-turn

Apple looks set to embark on a sweeping change to its business model for the iPhone by scrapping its revenue sharing arrangements with mobile phone operators.
The US computer company has agreed that the new iPhone should be subsidised by the mobile operators that sell it to consumers, according to people familiar with the situation.
Apple and the other groups involved declined to comment.
The subsidy plans should reduce the retail price of the iPhone. Analysts said the new iPhone could go on sale to US consumers for $200 or less, compared with $399 for the mark one.
Steve Jobs, Apple chief executive, is expected to unveil the iPhone using third-generation mobile technology on Monday. The 3G iPhone will offer faster web surfing speeds than the mark one.
Mobile operators will incur costs by subsidising the 3G iPhone, which explains why they have pushed for the revenue sharing arrangements with Apple to be dropped.
Last year Apple struck exclusive network deals for the iPhone with AT&T in the US, O2 in the UK, France Telecom and Deutsche Telekom.
Under the deals, the operators reluctantly agreed to hand over a portion of the monthly revenue paid by their iPhone customers. As much as 25 per cent of the revenue might have gone to Apple.
Such arrangements are rare, but it underlined how Apple's negotiating power was strong given that the iPhone set standards in mobile phone innovation with its touch screen and web browser.
While Apple may have been reticent about giving up the revenue sharing arrangements, the company looks to have found common cause with the operators on the subsidy plans.
It should enable Apple to drive up iPhone sales and turn it into a handset for the masses.
The operators will bear the subsidy costs given that the iPhone has brought the mobile internet to life and opened up revenue opportunities, such as advertising.
Apple has a target of selling 10m iPhones in 2008, and has reported sales of 1.7m between January and March.
Assuming a further 1.7m are sold between April and June, Apple would need to nearly double the sales rate in the second half.
Sales should be boosted by how Apple is expanding the number of operators selling the iPhone from four to 13.
But hitting the 10m target should also be facilitated by the subsidy plans, particularly given that the economic downturn is hitting sales.
The 8Gb iPhone had an initial retail price of $599 in the US, £269 in the UK and €399 in France and Germany, which put some consumers off. The price was later cut.
Sales of the iPhone in western Europe have been disappointing compared with the US.

No comments: