Tim Cook: China phone subscribers are 90%+ prepaid = new unsubsidized iPhone Air?

Poll: Will Apple release a new cheaper iPhone model this year, intended for the PAYG / Unsubsidized market?
Total Votes: 39
Yes!
17
No - the Iphone 3GS is the low end phone
9
No - The volume of sales of cheaper will not make up for lost sales of higher margin premium iPhone
4
No - Not in 2011, but it may happen in 2012
9
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    Posted: 21 April 2011 07:32 AM

    From todays conference call:

    Charles Munster - Piper Jaffray Companies:

    Would you know if China, if more than half of—do you know if more than half of China is prepaid?

    Timothy Cook:

    I think considerably more than half of China’s prepaid, Gene. I think the first digit would start with a 9.

    What does this mean for the iphone? As is, the current unsubsidized price of the iphone 4 & 3GS are unsuitable for the mass chinese market.

    How cheap would a new unsubsidized model of iphone have to be to gain significant traction in China? $399? $299? Less?

    We know apple could release a lower speced iphone for $299 if it wants, but it would be sacrificing a healthy chunk of margin for a large increase in sales (the iPad model).

    What do you think? can apple pull off an iPhone Air (same screen size, same iOS, slimmer thickness, smaller bezel, weaker camera, less storage, lower clocked processor) at a unsubsidized price point of $299/$399? And also keep selling the higher specced (faster CPU, more storage, better camera, LTE/4G) premium iphone 5 at $599/$699, (subsidized to $199/$299)? 

    To me, TC was hinting at a cheaper unsubsidized iPhone in yesterdays conference call.

    One last thing - Apple has finally reached Demand / Supply balance with the iphone, so the time is right to add another model which would not sacrifice potential manufacturing capacity needed.

    [ Edited: 21 April 2011 07:40 AM by Burgess ]

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    Posted: 21 April 2011 12:01 PM #1

    The demand / supply issue should provide the most clues until we get reports about what suppliers are doing.

         
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    Posted: 21 April 2011 12:01 PM #2

    dup

    [ Edited: 21 April 2011 12:08 PM by Tetrachloride ]
         
  • Posted: 21 April 2011 12:02 PM #3

    iOSWeekly - 21 April 2011 10:32 AM

    To me, TC was hinting at a cheaper unsubsidized iPhone in yesterdays conference call.

    I agree that Apple is focused on the prepaid market.

    I disagree that a cheaper phone is the solution Apple is pursuing. I think that Apple is looking at a more disruptive way to attack that market.

         
  • Posted: 21 April 2011 12:42 PM #4

    Cook’s hint was as clear as it gets.  Surely they will do a China-only cheap phone before long.  Will probably disable it so it can’t be grey-marketed elsewhere. China Telecon with their unique version of CDMA would be a perfect test candidate.

         
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    Posted: 21 April 2011 02:02 PM #5

    The trend to me is clear.  iPod as an original concept is fading away - combined into a more powerful convergence device.

    iPods won’t disappear, but an iPod touch scaled up to be a PAYG phone without much increase in cost?  That’s the easiest way forward IMHO.  I don’t think Tim Cook will wait long to really
    go after prepaid markets worldwide.  Whatever form it takes it’s sure to make a splash.

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    Posted: 21 April 2011 02:16 PM #6

    I agree that comment by Cook was an eye opener. The fact that he had that 9X% number on the tip of his tongue suggests the Chinese pre-paid market is not being ignored by Apple.

    I have a family member who refuses to get a cell contract, and was getting killed on Virgin Mobile’s pre-paid rip-off price-per-minute, ~10 cents/min. So I looked on their Website and you can convert an existing phone to a $30/mo plan, no contract, you just get a lump sum of 1500 mins, drops it to 2 cents per minute, and top it off every month with a card at 7-11 or online or via the phone with a CC.

    And of course Metro PCS in SoCal has no-contract deals. Both telcos have graduated plans, the mo’ money, the cheaper the minutes.

    The point is, there isn’t a binary, yes/no difference between contract and pre-paid. There are hybrid deals out there that perhaps Apple can leverage into some kind of subsidy. Sign up for a plan, get a cheaper iPhone Lite™. Or not, and pay full price.

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    Posted: 21 April 2011 02:59 PM #7

    There’s at least 3-4 AT&Ts;/Verizons left of consumer base in China that Apple hasn’t even addressed (cough China Mobile cough).  Maybe add another huge chunk of AT&T for the prepaid market that’s left unaddressed at China Telecom.

    That’s just China.  I expect Apple to hatch a plan to address this big market, A5-style, very soon.  Maybe September? wink

    I agree, there’s plenty of ways for Apple to get into PAYG at a nice upfront price without having to take the full-price approach.  Who buys prepaid phones without the intent to, I dunno, place a call or use data not too far down the line?  All that’s required - vendor cooperation.  That’s not an easy one.

    [ Edited: 21 April 2011 03:02 PM by Mav ]

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    Posted: 21 April 2011 04:09 PM #8

    Unique - 21 April 2011 03:06 PM

    How cheap would a new unsubsidized model of iphone have to be to gain significant traction in China? $399? $299? Less?

    $100 USD.

    No chance Apple wants to compete in the low-end phone market. Prepaid does not equal low-end. Nokia can have the shallow end of the pool. $299 is reasonable. Start with the 3GS and downgrade components. Definitely no Retina display and bare minimum memory.

    It’s not just China that is predominantly prepaid. Even Europe has a higher percentage of prepaid users than the U.S.

    Edited to replace ? with “does not equal”. The does not equal sign showed up on the preview, but not on the final post.

    [ Edited: 21 April 2011 06:05 PM by Drew Bear ]
         
  • Posted: 21 April 2011 10:28 PM #9

    FalKirk - 21 April 2011 03:02 PM

    I agree that Apple is focused on the prepaid market.

    I disagree that a cheaper phone is the solution Apple is pursuing. I think that Apple is looking at a more disruptive way to attack that market.

    I am with Falkirk on this.  Apple is Thinking Different.

    Another thing to keep in mind is that Cook stated that Apple is learning in China and that they will apply what they learn there in other countries.  One possible conclusion from this is that Apple is learning how to innovate and disrupt the pre-paid market in China, but will deploy the innovation world-wide.

    Consider this.  Apple conceived the iPad.  From that came iPhone.  The disruption of iPhone to the provider contract model was non-negotiable; this caused Verizon to say “no” to iPhone until they were forced to go along by market forces.  But the disruption of iPhone is not complete.  SJ thinks big.  This is just opinion, but I believe that Apple will only enter the prepaid market when they can innovate and disrupt.  And if they do both, there will be no need to resort to low prices.

         
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    Posted: 21 April 2011 10:58 PM #10

    Put a few basic telephony elements into the iPod touch, more or less.  I doubt it’d add much cost to the BOM.

    I agree that Apple will most likely have a really novel approach to this market, but to the extent some folks here may be thinking the elements of market disruption aren’t readily at hand, I’d tend to disagree.  Fork the iPod touch’s development just a little bit, and a PAYG phone is born.

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  • Posted: 22 April 2011 01:27 AM #11

    Mav - 22 April 2011 01:58 AM

    Put a few basic telephony elements into the iPod touch, more or less.  I doubt it’d add much cost to the BOM.

    I agree that Apple will most likely have a really novel approach to this market, but to the extent some folks here may be thinking the elements of market disruption aren’t readily at hand, I’d tend to disagree.  Fork the iPod touch’s development just a little bit, and a PAYG phone is born.

    I’m a little lost here.  Doesn’t an iPod touch + telephony elements = iPhone?

    It’s always been my belief that the iPod touch is one of the lowest GM products that Apple makes but is viewed as their loss leader to hook the kids who can’t afford an iPhone just yet.  It’s worth it in that context but when you use it to replace an iPhone it’s merit’s are less obvious to me.  I’m personally very comfortable with an Apple that continues to be an aspirational brand.  Trying to serve all markets is generally the first step to mediocrity.  If they can own a market such as the mp3 market while retaining all that is Apple then so much the better.

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    Posted: 22 April 2011 01:43 AM #12

    While true, the iPod shuffle isn’t aspirational.  And let’s not forget the 3rd-gen model - talk about minimalist.

    It’s just a thought exercise so don’t think of my musings as high-conviction predictions. 

    Does a PAYG iPhone need anything beyond a touch-quality set of cameras?  Does it need anything beyond the current speaker setup?  (Technically, Apple could choose to migrate much of the iPhone PAYG’s functionality to the headphone set, much like the 3G iPod shuffle…after all, iPod people are constantly using their headphones.)  Throw in a cheap 3G chip and an antenna and boom, you’re done.  I’m not saying it’s the best way by any means, I’m just saying it’s _one_ possible way that makes some sense.  Take the iPod touch full circle from an iPhone without the phone to an iPod that happens to also have telephony capabilities.  If that makes iPhone PAYG too expensive at a decent margin, or too low-margin at current iPod touch prices (assuming the phone has no starting data or minutes), toss in a smaller carrier subsidy that bundles some starter data and minutes.  Problem solved. 

    I’m aware that an iPod touch-derived iPhone PAYG could cause consumer confusion.  That’s why I think one bold move Apple could make is turn all or the upper-end iPod touches into iPhone PAYGs.  The competition would be at a complete loss, and the functionality of current iPods would go through the roof.  Of course that does leave the issue of 3G on iPad costing $130 more, which I really think Apple should address next year.

    I can’t see how Apple can attack the prepaid market with either yesterday’s iPhone (ASP too high) or today’s iPhone (ASP way too high, the lower starting price is because of big carrier subsidy).  Anyway, introducing PAYG options to either iPhone creates consumer confusion and has to raise the asking price to likely unpalatable levels.

    [ Edited: 22 April 2011 01:49 AM by Mav ]

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  • Posted: 22 April 2011 02:41 AM #13

    Mav - 22 April 2011 04:43 AM

    While true, the iPod shuffle isn’t aspirational.  And let’s not forget the 3rd-gen model - talk about minimalist.

    It’s just a thought exercise so don’t think of my musings as high-conviction predictions.

    I understand.  I would argue that the shuffle is in fact part of the aspirational package.  A quick look at Amazon and I see this little Sandisk Sansa gem priced at 29.59 complete with a (omg) screen.  You would have to pony up an additional 20 bucks for an authentic Apple device with no screen.  It’s 13th on the popularity scale whereas the shuffle comes in at #3.  I had to chuckle at myself remembering how I use to check Amazon rankings pretty regularly in the early days of all this.  Haven’t done it in at least 2 or 3 years.  We’ve come a long way.

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    Posted: 22 April 2011 10:26 PM #14

    An interesting poll result - healthy for this forum that we have a variety of viewpoints. Below Is from a post I just made in another thread, I would be interested to hear opposing views & reasoning behind it. Thanks.

    My take on apples Air branding:

    I see the Air brand (for MacBooks) as a trade off in specs (slower processor, less storage & connectivity, no optical) for the desirable form factor (very slim & light). We currently have the MacBook, the MacBook air & MacBook pro - I can see the MacBook $999 model disappearing for good this year (I see no one looking at them at the local apple resellers).

    I can see the premise of less specs but more style being applied to the iPhone line, replacing the ugly ?here?s last years model for $100 cheaper? sales model apple currently employs (they stopped doing this for the entry level iPod touch thank god).

    It?s a phsychological thing, if you have a particular Price point you are willing/able to spend for a iPhone, would you feel better about your potential purchase, and consequently more likely to purchase, under which scenario:

    1st scenario (current model): you get to buy out of date technology with a phone that is between 12 - 24 months after it?s launch date. You only get an 8gb model to choose from, and it?s not that much cheaper than the premium iPhone.

    2nd scenario (iPhone Air): you get to buy a newly released phone, which shares the core technology of the premium iPhone - (but not all the bells & whistles), but is thinner & lighter. It?s quite a bit cheaper than the premium iPhone, and you can decide to spend more for increased storage if you choose.

    I know I would be much more likely to purchase the entry level iPhone under scenario 2, especially if I was purchasing unsubsidised as I could/choose not to pay for expensive 2 year contract, or if buying as a gift.

    [ Edited: 22 April 2011 10:28 PM by Burgess ]

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