Loading ...
Value Remapping of the Carriers’ Handset Portfolio
Roger Entner, SVP, Head of Research and Insights, Telecom Practice
As widely expected, Apple announced the new iPhone 3GS at its Worldwide Developers Conference in San Francisco. This latest iPhone offers incremental improvements over the iPhone 3G at the existing $199/$299 price points. The bigger news that few, if any, expected was that the older iPhone 3G was going to continue to be sold, but at the new $99 price point. It is self-evident that this price cut will drive sales. According to Nielsen’s Mobile Insights survey, which asks 25,000 Americans every month about their wireless attitudes and behaviors, the second most important factor-noted by 20% of respondents-as to why people did not pick the iPhone was its price.
What has been largely overlooked is the impact of the iPhone 3G price cut on the industry as a whole. It is hard to overestimate the impact that a $99 iPhone has on the wireless carriers and handset manufacturers in the US. The new $99 price point for the iPhone 3G completely changes the value proposition of every handset at every carrier in the US. Some observers have commented that the $99 price point “kneecaps the Palm Pre,” but the kneecapping does not stop there. The dozen or more Google Android handsets that are being launched in the second half of the year will have prices that either make them look non-competitive or extremely margin-challenged. Actually, any device over $49 looks outright overpriced, and the feature phones in general have become a commodity. As a result, the relative value proposition and price matrix of every carrier’s handset portfolio has to be remapped. This has massive repercussions for the entire handset business model. Handset subsidies have to go up while the price to consumers has to go down to maintain a relative value proposition. Carriers will share the pain of lower handset prices with device manufactures whose margins will be further compressed, adding to the pressure they feel with the slowdown in the global economy. Carriers also have to think about if they can or want to shift the up-front cost of owning a device to the monthly recurring charge. It remains to be seen how much price elasticity exists in an economy that is still struggling and will shed jobs for a long time. AT&T could scorch the earth for its competitors by introducing a lower cost data plan that brings the minimum monthly cost of carrying an iPhone below $70, addressing the number one reason people passed on the iPhone. The competitive reaction to such a move would demand would be as value destructive as Verizon Wireless’ introduction of the $99 unlimited plan, which was simply matched by the competition without a meaningful realignment of market share — it would be another example of how industry players have acted diametric to Pareto-optimality.
The implied point of view and resulting strategy is that voice has been commoditized and has become table stakes. Defendable differentiation will come from devices and data. Now that might be true in the longer run, and especially as long as one has the iPhone exclusively. While the exclusive Apple relationship is a pillar of strength for AT&T and a large factor in its continued and future success, AT&T has to be painfully aware that its fortunes are tied to that exclusivity. More than 80% of AT&T’s net adds in Q1 2009 came from the iPhone. While the other carriers have to plan on how to compete in the next few quarters, AT&T has to figure out what success will look like after the Apple exclusivity runs out and it has to live in the world it delivered.
[...] kill it Roger Entner, Head of Nielsen’s Telecom Research and Insights, does a nice job highlighting implications of the $99 iPhone 3G. The new $99 price point for the iPhone 3G completely changes the value proposition of every [...]
This assumes much which has not beared out as RIM has had several devices at $99 or lower and even free.
There is a large group of people that simpley will not pay the monthly fees for voice and data. Add the fact iPhone is still locked to at&t and you have a smaller group of people due to not being available cross carrier.
Now $99 and cheaper data plan options would drive smartphones sales across all devices. Apple is not the delfacto choose of everyone and as NPD sales the last 3 months have shown Blackberry in 3 of the top 5.
I generally agree.
It appears to me that AT&T is using it’s ‘Apple Engine’ to both fund it through the recession and build out it’s 3g, 3.5g and coming 4g infrastructure. When they inevitably lose iPhone exclusivity, they will have built a wireless network that will dwarf the capabilities of Verizon. Verizon’s network functions well but most of the data use in the US is generated by iPhones – not Blackberrys or Windows Mobile devices. Not even close. If Verizon were to attempt to support high speed access to 20 million iPhones right now their network would probably collapse.
I suspect AT&T has their eyes open and see a way to come out of this on top.
[...] you guys think this will effect the industry? How will this effect Windows Mobile? Check out the Nielsen Article [Via Electronista] __________________ Be water, [...]
[...] magical buying points where something starts to look really affordable to people. In fact, in a recent study done by Neilsen prior to the announcement, they noted, “…the second most important factor-noted by 20% [...]
[...] piece of analysis regarding the iPhone 3G that was published by Nielsen about a week ago. The Impact Of The iPhone 3G Price Cut outlines how Apple’s reduced pricing on its second generation iPhone completely redefines the [...]
my iPhone was actually a gift from my girlfriend. i really love this phone and i think that this is the best phone that money can buy. i like the features and the design.
“Handset subsidies have to go up while the price to consumers has to go down to maintain a relative value proposition. Carriers will share the pain of lower handset prices with device manufactures whose margins will be further compressed…” Mr. Entner suggests that these handsets will need to be subsidized further by the carrier but there is doubt that could be the case since voice has already been commoditized and there would be little incentive for the carrier to offer further subsidy to these lower end handsets. For US carriers, subscriber growth is flattening and only trading from each other in churn. Future growth is expected to come from data (& services that use data) primarily with a smartphone or other data connected device. The feature phone is dead for the masses but will still serve a niche of users. Connected devices being considered by carriers to add to this new growth may have lower data demand but will require a very low monthly payment to remain attractive to a user who may already be paying $60 to $100 per month for plan with data with his smartphone. That said most consumers are unlikely to be happy paying for 2 or more data plans. The carriers may need to create one data plan that will work for multiple devices. It may look something similar to what is currently being offered from a Japanese WiMax Carrier, UQ, where a base price data plan is offered and connecting an additional device to a plan costs $2.
Leave your response!
Top Rated Stories
Recent Stories
Monthly Archive
Top Ads
Most Commented
Nielsen Company Blogs