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Time For A “Free” iPhone?
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DawnTreader
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With the end of the current exclusive contract with AT&T gradually approaching on the calendar, is it time for Apple and AT&T to offer a “free” 3G iPhone with a two-year deal. For AT&T it would lock new customers into a contract deal that transcends what might be the end of exclusivity while providing possibly a substantial increase in units sold along with households under contract. Perhaps a last gasp of the exclusivity arrangement before it ends and create another disruptive factor for the smartphone market.
Despite perhaps a slight ding to near-term margins on a “free” phone deal with AT&T, it would extend the iPhone eco-system into another demographic strata for sales of apps and ancillary products. It would also force RIM and Palm to consider lowering handset prices while Apple achieves greater economies of scale through volume.
Just a thought posted for discussion. Imagine the volume at Christmas time from a “free” iPhone offer.
[ Edited: 22 August 2009 02:15 PM by DawnTreader ] -
Just wondering when you think the exclusive expires. Most of the rumors said the original deal in 07 was for 5 years and the more recent rumors suggest the current deal runs through the end of 2010 with ATT negotiating for 2011. I am sure Apple wants to shed their exclusives since they are excess baggage at this point. The iphone has proven it can attract customers so any carrier will be willing to give good subsidies . The issue of the CDMA handset does complicate things. As far as year end pricing, I suspect Apple will wait to lower prices into the next model year and use the itouch to capture the Christmas sales. Maybe a one-day sale on Black Friday like they do for all the rest of their Apple gear. To date the Iphone was not in on the discount, but 100 off on the 8G would make it free
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DawnTreader
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In my view AT&T needs to kick into high hear strategies to acquire new customers while the iPhone remains under the exclusive deal and develop strategies to hold customers following the exclusive deal’s expiration. I’m assuming the exclusive deal ends around the end of 2010.
AT&T has invested heavily in iPhone subsidies and that investment will have a much higher return through each iPhone customer that remains with the service.
Let’s assume for discussion the deal ends 12/31/10. Any contract signed now will continue well beyond the expiration of the deal. I could see Apple and AT&T offering a “free” 3G iPhone through the end of this calendar year and offering an 8GB 3GS for $99.
It will be easier for AT&T to attract new customers now than attract them after the exclusive deal expires. I don’t think Apple will hold margins following the expiration of the exclusive deal. There will be too much competitive pressure with multiple makes offered by the same carriers.
In Apple’s case I think there’s a special opportunity to force handset prices lower (while maintaining fat margins) while the iPhone remains exclusive as a competitive maneuver with a much higher impact now than what will be the impact when an inevitable lowering of prices that will occur when the exclusive deal expires.
In other words, grab the market now, feed the eco-system and position for as much handset share as possible while margins are rich. It will be easier now to grab fat margin sales than what it will be later.
Yes. There will be a substantial pick-up in share opportunities when multiple carrier options are added to the mix. But I don’t think those sales will be at the same margins and for now AT&T is willing to pay richly through fat subsidies for each new customer.
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DT, wouldn’t the contract run through June of whatever year. I myself am anxiously waiting for the switch to Verizon. I see there being a huge sucking sound when the deal with AT&T is over, JMO of course.
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DawnTreader
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DT, wouldn’t the contract run through June of whatever year. I myself am anxiously waiting for the switch to Verizon. I see there being a huge sucking sound when the deal with AT&T is over, JMO of course.
I don’t know when the deal ends but I’m using 12/31/10 as an arbitrary date for the sake of discussion. No matter the end date in 2010 or early 2011, we’re most likely within two years of its end and the customers acquired by AT&T now will be in contract beyond the expiration of the exclusive deal, provided it’s not extended.
The question is: How best for AT&T to exploit the exclusive arrangement in winning new customers until it expires? Should a “free” iPhone arrangement be in the offing?
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DT, once it is well known that the deal will come to an end I look for sales at AT&T to dry up. Personally I don’t see it extended. I think Apple wants to move away from exclusive deals. It worked to create the demand, but there are many out there who will not move to T.
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Adversity does not just build character, it reveals it.
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DawnTreader
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DT, once it is well known that the deal will come to an end I look for sales at AT&T to dry up. Personally I don’t see it extended. I think Apple wants to move away from exclusive deals. It worked to create the demand, but there are many out there who will not move to T.
It’s possible as we approach the end of the exclusive deal many potential buyers will wait for the phone to be available from their preferred provider. But that’s also much on my point. How will AT&T use the remaining time to exploit the exclusive deal before it ends?
It’s not to Apple’s benefit for consumers to delay an iPhone purchase. When a contract ends consumers do buy new phones to take advantage of a new subsidy. Some might continue with an existing contract (past expiration) patiently waiting for the iPhone to arrive. However, many others might select a phone from what’s available. I suspect while many might want an iPhone, competing products are becoming “good enough” for people to purchase a competing product. Continuing with a pricing plan past the point of the subsidy’s satisfaction only enriches the carrier and does nothing for the consumer. The allure of a “free” or heavily discounted phone is a potent one.
Anyone who selects a new phone from a carrier for a two-year period puts that consumer out of reach for an iPhone purchase for the duration of the new contract. It does neither Apple nor AT&T a favor to see lost sales opportunities due to the pending expiration of the contract. It’s in both companies interests to sell as many iPhones as possible now.
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Anyone who selects a new phone from a carrier for a two-year period puts that consumer out of reach for an iPhone purchase for the duration of the new contract.
Perhaps not. There might be a huge advantage to move people to a higher revenue voice and data plan and absorb some of the loss on what was a “free” phone. If VZ got the iPhone, I believe they would move quickly to entice their current customers to adapt it.
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“Once we roared like lions for liberty; now we bleat like sheep for security! The solution for America’s problem is not in terms of big government, but it is in big men over whom nobody stands in control but God.” ?Norman Vincent Peale
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DawnTreader
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Anyone who selects a new phone from a carrier for a two-year period puts that consumer out of reach for an iPhone purchase for the duration of the new contract.
Perhaps not. There might be a huge advantage to move people to a higher revenue voice and data plan and absorb some of the loss on what was a “free” phone. If VZ got the iPhone, I believe they would move quickly to entice their current customers to adapt it.
That would be a big financial risk for VZ. It will also bring pressure on Apple to reduce the price of the handset to make such an option financially attractive for VZ. Mindful this is the company that passed on the iPhone though offered on a gem-rimmed platter, do you really think VZ has “found religion” when it comes to the iPhone?
Make no mistake: I’m not singing the praises of AT&T and the exclusive deal necessarily will come to an end. But with the end of that deal will come pressure on handset prices. VZ will do what VZ wants to do with regard to selling handsets and services at prices most advantageous to VZ. They will sell what they want to sell whether it’s an iPhone or any other smartphone.
The iPhone will pique interest among VZ subscribers but whether or not the company pushes iPhones or uses the opportunity to sell the consumer a different smartphone at more advantageous margins remains to be seen.
In other words, VZ could sell any smartphone to in-contract subscribers whether it’s an iPhone or other smartphone offering rich data fees. I don’t see VZ putting itself in a disadvantageous position exclusively to sell iPhones.
In the meantime, before the exclusive contract expires, what will AT&T do to attract new iPhone subscribers? They have every reason to dig just a bit deeper to increase the migration of consumers to their services for a two-year iPhone deal while the exclusive deal is in effect.
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Anyone who selects a new phone from a carrier for a two-year period puts that consumer out of reach for an iPhone purchase for the duration of the new contract.
Perhaps not. There might be a huge advantage to move people to a higher revenue voice and data plan and absorb some of the loss on what was a “free” phone. If VZ got the iPhone, I believe they would move quickly to entice their current customers to adapt it.
That would be a big financial risk for VZ.
Would that risk be any greater than the one that ATT offered to those that were willing to move up to the 3GS from the 3G?
I suspect there are many VZ customers holding out for a VZ iPhone. It would surprise me if VZ offered onerous terms to upgrade to the iPhone. If they did, there might be a greater migration to ATT.Perhaps a related question to be addressed, but not involving Apple, would be, what will ATT do in the attempt to maintain iPhone customers in the event exclusivity ends? Haven’t thought too much about it at this point.
[ Edited: 23 August 2009 04:57 PM by Play Ultimate ]Signature
“Once we roared like lions for liberty; now we bleat like sheep for security! The solution for America’s problem is not in terms of big government, but it is in big men over whom nobody stands in control but God.” ?Norman Vincent Peale
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DawnTreader
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Perhaps a related question to be addressed, but not involving Apple, would be, what will ATT do in the attempt to maintain iPhone customers in the event exclusivity ends? Haven’t thought too much about it at this point.
That’s a constituent issue to the one I raised in this topic. How to keep a customer may be an easier challenge to resolve than acquiring the customer. There’s time for AT&T to work on the issue of retaining customers but the more pressing issue is how to acquire new customers now.
Obviously AT&T will need to make customer retention a priority in a non exclusive environment. The momentum is with AT&T at the moment and that momentum needs to be extended for as long as possible.
Back on the VZ issue: How much would they be willing to invest in bringing back customers once the iPhone is available? Offering in-contract upgrades is a very expensive option and will pressure handset prices because the opportunity to recoup costs will make service plans possibly more expensive.
AT&T could, for example, offer in-contract upgrades to the next version of the iPhone but stiffen the penalties for leaving AT&T before expiration of the new two-year term.
What I think the market needs is an attractive one-year contract option. Pay more for the phone upfront, but have freedom of choice at the end of a one-year term.
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I like the idea of the free phone, but what about stealing a page from RIM and VZ with a ‘Buy one, get one free” offer? What I like about this idea is getting two customers entering the ecosystem at the same time. I think the conversation above has alluded to what RIM’s Balsillie has referred to the “land grab” phase of customer acquisition in the smart phone world. I think RIM wants to get as many people thinking a physical keyboard is imperative as they can before these folks try an iPhone and they’ll support this deal to do it. Why shouldn’t Apple and AT&T try a similar idea? It would seems to have advantages for both of them.
Does anyone know how the subsidy works for RIM’s BOGO deal? It’s also interesting that they brought the deal back after finally ending it. It leads me to think that sales dropped off too much without it. I guess that is a danger with such a deal, I’d think you’d be somewhat forced to end it at strategic times within the product cycle. For example, offer it in the quarter before the next iPhone is released to keep sales going and to drain existing inventory. The pent up demand from the new phone will be more important than the loss of the 2 for 1 deal when that phase of the product cycle begins.
[P.S. After waiting about 8 weeks for Rogers to send me a new 3GS, I could wait no longer and went to the Apple store in Toronto pick one up. I can’t believe they are in that short supply!]
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DawnTreader
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I like buy one, get one free.
Could you imagine a deal like that for the Christmas quarter?
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Does anyone know how the subsidy works for RIM’s BOGO deal?
I have no special knowledge, but it can’t be much different from Smoke and Mirrors accounting lesson #34:
RIM finds it is falling short on selling scheduled production for the quarter and will be high on inventory, short on sales. The carrier commits to a defined duration BOGOF consumer deal on a $100 sticker price, $400 true price, cellphone. The carrier places an irrevocable order for delivery before quarter end at $35 discount, with slightly extended payment terms, for double or more the expected handset sell-through. So the carrier’s cost goes down to $365. If 50% of customers go for the BIGOF deal, the carrier receives $100 less for every 3 handsets, but pays $105 less, so he’s still in profit. Even if there is no increase in sales, it’s a good deal for the carrier.
The primary, guaranteed effect is to take inventory off RIM’s quarter-end books and place it on the carrier’s. Any increase in sell-through is a bonus. Even if it’s presented as a mail in “direct from RIM $100 rebate”, that’s just marketing; it’s not the most advantageous way to do the accounting.
Above all, it’s weak sales technique, and concealment of the true demand for your product from the market, and from yourself.
[ Edited: 24 August 2009 03:42 AM by sleepytoo ] -
DawnTreader
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AT&T will be in a rush to bring as many iPhone customers as possible to its service before the exclusive arrangement ends. As was noted in another topic, the infrastructure costs for AT&T to build out its wireless data capabilities is running into the billions. The more iPhone customers paying for data services the better.
AT&T may be willing to dig just a little deeper to lock new customers into deals before the expiration of the exclusive deal. The original 3G iPhone may be ripe for EOL and might be an attractive promotional item for the holidays.
