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Are mobile networks commodities?

Apple has been contemplating a SIM card that would make carrier switching a lot easier. Sounds great, doesn’t it?

“Apple is relenting,” said Rodman Renshaw analyst Ashok Kumar. “They are now completely backing away from their plan to take the carrier out of the equation,” said Kumar,.

via Apple to Kill Carrier-Irking iPhone Plan – TheStreet.

This brings to mind a recent article I wrote that any talk of mobile dominance by platform vendors is bunk.

… no single platform can win a disproportionate share because it would threaten the balance of control the operators require. So talk of “dominance” of one platform or another is hyperbole. The most likely scenario is an even distribution of share between 4 or 5 competitors.

The power of distributors in the mobile phone value chain cannot be ignored. It’s not fair, it’s not convenient and it’s not consumer friendly, but as long as networks are not good enough for mobile computing, mobile computers cannot commoditize the network.

The consequence (for those of us who try to foresee the platform game) is that operators will continue to play platforms off against each other leading to the scenario I suggest above.

  • r.d

    It takes 16 years for a technology to hit the mainstream.
    and another 20 years for the patents to wear off.
    Only then it can be called a commodity.

  • mortjac

    I still hope we get a virtual SIM which we can fill up on iTunes.

    We needs the carriers, but not just that powerfuls ones. Just some well behaving normal business not trying locking us in!

    • dchu220

      Any CEO with that attitude would get fired so fast, he would make Conan's stint on the Tonight Show seem like an eon.

  • FalKirk

    “Apple is relenting,” said Rodman Renshaw analyst Ashok Kumar. “They are now completely backing away from their plan to take the carrier out of the equation,” said Kumar.

    I wouldn't necessarily take the word of Ashok Kumar as gospel. If the rumored Sim card could really take the carrier out of the equation, that is exactly the kind of move that Apple would want to make. Of course the carriers would resist this. But can they really present a united front? If Apple were to introduce the iPhone 5 with such a card inside, would the carriers have the intestinal fortitude to refuse to carry the hottest selling phone on the planet?

    • mortjac

      Not to many of them I think.

    • Joe_Winfield_IL

      My guess is that Apple would have a tough time maintaining ASP if carrier selection suddenly became a free-for-all. This card would likely be effective in unsubsidized markets, but would kill Apple profitability in the geographical areas where discounted phones with contract are the norm.

    • http://twitter.com/TektonikShift @TektonikShift

      with such a SIM, Apple could sell direct to consumers and allow consumers to choose their carrier?
      Its problematic in USA, because everyone expects subsidized phones. ….but this may work in Asia and maybe some in Europe … where a good amount of phones are not subsidized.

      • r00tabega

        Why would subsidies be an issue? In search of high ASPs, Apple will still want Carriers to pay some of that. If carriers still have to contribute subsidies, that can be done directly to Apple, and consumer is still stuck with a contract.

        I don't see the brouhaha here except that Apple may interpose themselves between the consumer and the carrier, the carrier still makes the same amount and gets the contract.

        Perhaps it's the realization that Apple is now potentially strong enough to play the carriers against each other becoming the "microsoft" to the carriers "pc manufacturer"? Tough pill to swallow, I suppose, even if the payoff is the same.

      • kevin

        First, I'd take anything Kumar says with a heaping of salt. He's been wrong so often, you'd almost expect him to get something right sooner than later, but not this.

        Second, I agree with r00tabega that there's really no issue with the operators. If the consumer buys the phone in Apple stores or department stores, or supermarkets, the consumer still needs to buy service. If the consumer paid full price for the phone, he'd just get an upfront discount/rebate from whichever operator they select. If he selected at the same time as buying the phone, it could just come off the phone price. If he selected later, it would come off his operator's service bill. If the consumer bought it at an operator's store, he'd get the discount immediately on the phone price. In either case, the operator is still involved and subsidies can still be provided.

        Apple already doesn't allow the operator to brand the iPhone with the operator's name, so there's no difference there either. All this does is add a common SIM.

    • FalKirk

      I know that the average sales price of the iPhone is just North of $600. And Apple has stated on a couple of occasions that their subsidy is the same whether they have one several or several carriers in any particular country. So is the threat to not subsidize the iPhone a credible one?

      • Joe_Winfield_IL

        Good point Fal. I actually weighed Tim Cook's comments before posting my reply though. Maybe I'm wrong, but I feel that there is a difference between what has happened in the past and what would happen with a new SIM card. Historically, carriers have lost exclusivity to one or a couple of large established competitors, likely with similar infrastructure investments and aligned incentives. Under the hypothetically proposed plan, the carriers could be forced to go up against with 2nd and 3rd tier competitors who have nothing to offer consumers but price.

        The little guys have less desire to hold voice and data rates at sustainable levels, as they can't compete on level price footing with the bigs. This could significantly accelerate the price erosion that we have already seen in the last couple of years. In other words, ATT doesn't mind a Verizon iPhone as much as they fear a Cricket iPhone or a Boost Mobile iPhone.

        Apple must have some concern about ASP, or else why would they respect the carriers' wishes on this issue?

      • r00tabega

        Yes, I also feel Apple would suffer in this case as well. ie, wouldn't ASP erode along with contract lengths, data and voice rates?

        Otherwise, I definitely think Apple would have the balls to play the carriers against each other and try to "commoditize" them, de-commoditizing their own space (iPhone > other smartphones).

    • davel

      yes. that is the question.

      the simple truth is that it is in all their interests to do so. the only reason the phones is for the 2 yr lock in

      having a true world phone threatens them because you just up and leave.

      if they all play the same game apple cannot sell a 600 dollar phone against 100 dollar ones

  • Halex_Pereira

    There's something odd at play, here. http://www.gsmworld.com/newsroom/press-releases/2

  • AustinR

    I agree with your analysis of carrier power but am troubled seeing you quote Ashok Kumar. He's got a long record of being WAY off base on everything Apple related. Check out Gruber's listing of some low-points:
    http://daringfireball.net/2010/09/kumar_track_rec

    • asymco

      My point had nothing to do with Ashok. The story of push-back from Operators was running well before he made his claim that Apple backed off. Apple may or may not implement this new SIM, but the point is that I believe that if operators objected, Apple will not go to the mat with this technology–at this time.

      They may go with it when the time is right.

  • timnash

    Apple has had limited success in the prepay market so this SIM could help there, especially if it is easier to hold on to a mobile number. Of course if the SIM could be locked to a contract for the duration and the iPhone won't function without it, the carriers will be falling over themselves to adopt it.

  • davel

    Horace.

    that is a nice article. i think it boils down to price. at some point the cost of making a phone drops enough where subsidies are not required. then apple can do away with the relationship.

    • asymco

      Perhaps, but I note that even cheap phones are subsidized while in some countries very expensive phones are not subsidized. The root cause of the subsidy model is that a phone is useless without a contract and as a result the two products are linked in ways that cause price illusions.

      For phones to be valued without a contract, there has to be value in the device without a contract. You can look to the iPad as an example of such a product.

      • Steko

        The way out from the subsidy model is to sell ipod touches and a separate unsubsidized phone/data add on (iphone nano?). We already see third parties moving into this niche, putting the phone/data bit into a case (apple peel/sprint peel) or a separate puck (clearwire).

        Last quarter Apple sold about 4-6 million each of 32gb iphone 4's, 16 gb iphone 4's and 3gs's. Their median phone then is "only" $500, $199 retail. Separating the phone apple probably can't capture the same margin per device but potentially you have more people upgrading every 12 months instead of every 24 months. There's also a huge value proposition for people buying $30 data only plans or going down to minimal voice plans ($19, $9 or prepaid minutes).

  • noogie60

    I think that in the phone area Apple may have to bend to accommodate operators' wishes for the time being (although I suspect Apple will still want to make a future "World Phone" that is GSM, CDMA and LTE capable all in one handset and an integrated SIM would be apart of this).

    What I think is more interesting is outside the phone market. What happens if Apple start bundling these programmable SIMs into Macbooks and ipads?
    These markets already have no subsidy and it offer a more convenient way of accessing mobile data (dispensng with fiddly usb dongles, etc).
    Could they cut more special data deals like with the current ipad plans?

  • OpenMind

    Apply standard questions to unknown motive action. If Apple do its own sim, what does it gain? If Apple has no obvious gain, then whom does it hurt? Business rarely executes a plan with no gain, no hurt, even superficial ones.

  • Rob Scott

    Carries do not want to sell devices. Selling devices is not their core competence and it ties up a lot of money that could have been better invested somewhere else. They also do not make any money on devices. In an ideal world carries will sell the network and any other services that depend on the network.
    Fear is the biggest reason why carriers sell devices. The fear is not what would happen if Apple were to have 50% of the market (exhibit: Nokia), the fear is being jobless. If you were to remove devices carriers would have to fire 30 – 40% of their staff and those who are likely to be affected by that will never agree thus these threats from European carriers. Interestingly the iPad will have an integrated SIM and I suspect that once customers get used to switching carriers on the fly, they will demand this for their phones as well. Believe it or not some carriers are looking forward to a day where they are no longer involved in selecting and selling devices.