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The end of exclusivity doesn't change the price operators pay for the iPhone

AT&T does not pay a higher price for iPhone exclusivity | asymco.

At the risk of repetition, there are three instances in conference calls that Apple management has stated that the iPhone has a fixed price for all operators and resellers.

The first was in October 20, 2009:

“So when you go from exclusive to multiple, you don’t change the charge to the carrier?”

Cook answered: “Correct.”

The second was a year later, October 18, 2010:

Chris Whitmore – Deutsche Bank:  And what is your experience then when you’ve gone non-exclusive from a subsidy and margin standpoint on the phone, have you had to give anything up in the past?

Tim Cook: We don’t give specific information out on the margins. But I think you can look at our ASPs and see that they’ve generally stayed above $600, and that’s despite opening up several markets from an exclusive market to a non-exclusive market.

And the third was a few days ago on January 8, 2011:

Toni Sacconaghi – Bernstein Research:  You’ve said on previous earnings calls that the move to iPhone non-exclusivity in regions of the world has had no impact on your ASPs. Can you comment on whether that is it still the case today and whether we should expect any impact in the migration away from U.S. exclusivity?

Timothy Cook: I don’t envision the overall iPhone ASP decreasing from the December quarter that we just completed to the March quarter that we’re currently in.

But, as always, we can confirm and validate using the data on pricing we have available.

In this case in the financial reports (take iPhone revenue and divide by units sold):

You can see that after the first iPhone “2G” which had a peculiar pricing that included revenue sharing with the operator and which showed up differently in the accounting, the iPhone has had a steady price slightly above $600 for over two years[1].

This is despite having more than 60% sales outside the US and being non-exclusive multi-operator in many countries. Despite being available locked, unlocked and everything in-between.

We can even confirm what one particular operator paid exactly. In October 2008 AT&T reported that they had paid $900 million for 2.4 million iPhones. That’s $375 per phone. Assuming a mix of $199 and $299 3G phones that gives something around $600–below the global ASP for that quarter of about $676. Here exclusivity would imply a discount to average price! The reason for the discount is most likely volume as AT&T was by far the largest buyer of iPhones globally.

Still unconvinced? Try shopping for an unlocked iPhone at any of various retail locations where it’s available unlocked. Accounting for VAT or other taxation, the price is always the same and is a slight mark-up to the operator ASP due to retail margins.

Judging from comments on this site, the myth that loss of exclusivity in the US will change profit margins for Apple still persists no matter how many times I repeat this story.

—–

Notes:

  1. The steadiness of the price should give another huge clue as to the effect of competition on the product.
  • FalKirk

    Thanks, Horace. Now whenever I hear Apple naysayers predict reduced profits for Apple because Apple's "sweetheart" deal with AT&T has ended, I can just link to this article.

  • tfaulk

    Horace, it won't make the argument go away, but we thank you that Asymco now has one or more posts that should fully address and dismiss any one of several myths that naysayers like to perpetuate. Again, thanks.

  • http://ARMdevices.net Charbax

    Verizon pays less than $400 average per Android phone. What makes you think Verizon would ever want to pay $200 extra per customer to use an iPhone? Why would any among AT&T or Verizon even spend $1 on promoting the iPhone if they can save more than $200 per customer which they sign up with an Android phone?

    Fact is, AT&T will now focus all their promotion and sales channels on Android, and Verizon will not make any effort at promoting iPhone instead of their current crop of high-end Android phones.

    What will happen, is cheaper and cheaper Android phones will arrive, some to be sold below $150 directly to consumers in every super market, unlocked or on pre-paid plans, and that will put even more pressure on Apple.

    Once Apple is forced to lower their revenue per iPhone from $600 to $400 to remain attractive to carriers, they loose half of their profit margins overnight, and the iPhone is Apple's absolute largest source of profits.

    • r00tabega

      Charbax,
      Who's gonna sell those $150 Android phones without contract/unlocked?

      Carriers – not a chance in hell, if they can continue to sell $400 Androids.
      Manufacturers – no distribution channel, locked phones more profitable
      Google – no distribution channel

      Apple is the only electronics manufacturer with it's own distribution channel, thus it's success with the iPad (no contract needed). But even Apple couldn't go it alone with the iPhone given the power of the telecom carrier cartel.

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

        Go check your local Wallgreens and CVS stores, they may actually have the Android $150 phones on pre-paid selling already. Those have 3.5" capacitive 800×480 screens, consumers think they are just as good as an iphone.

      • Narayanan

        Yes, The keyword there is "think" !

        A majority of the poor consumers who "thought" into the deal will not be happy with either the phone or the salesman who pulled a fast one.

        Most of these people also cannot afford a data contract and pretty soon they will realize they are better off with a free feature phone and an ipod Touch for wifi browsing + than the "iPhony".

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

        Comon, the experience between Android and iPhone for a consumer is the same. When both have 3.5" capacitive screen, same size, same weight, both have cool designs, both can make phone calls (at least when holding it with the right hand in case of the iphone4), most consumers will not feel the urge to signup for a 2-year upwards $3000 contract on iPhone if they can have it for $150 at Wallgreens with pre-paid plan on Cricket, Virgin Mobile, MetroPCS or the like where you don't even need to pay monthly minutes of whatever, just buy some minutes and use them whenever you want.

        Over here in Europe, I spend less than $5/month on pre-paid plans, everything else is done on a $8/month 3G data connection SIM card on prepaid also no contract, with all kinds of VOIP that I need.

        Just wait, you guys will have as good prepaid data and minutes pretty soon as well and you will understand.

    • dms

      There's a simple reason why Verizon is willing to pay more for the iPhone: subscriber growth.

      With the iPhone, Verizon can start to win back customers from AT&T. Without the iPhone, Verizon was losing this battle. With the iPhone, Verizon and its better-reputed network, can beat the crap out of AT&T. $200 is chump change compared to the $2000+ you get for the 2-year service contract.

      The iPhone has been the only differentiator between the two carriers up until now. The smartphone uptake for AT&T is much higher than for Verizon, and the simple reason for this is the iPhone. What more evidence do you need?

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

        Verizon is the biggest smartphone seller in 2010 in the US, still the biggest carrier in the US, they make the largest ARPU, and that is without the iphone.

      • kevin

        Verizon is still the biggest carrier, but AT&T has the largest ARPU ($62.84 vs. 53.66), and AT&T likely is the biggest smartphone seller in 2010 in the US. At the end of the 3Q10, Verizon reported that 23% (rising from 15% at the start of the year) of its 82.3m postpaid subscribers have smartphones, which is about 19m total.. AT&T reported that it had 33.5m 3G postpaid integrated devices on its network (rising from 23.5m at the start of the year), with estimates of nearly 19m iPhones at end of 3Q (and 11.1m iPhones activated during the 9 months).

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

        I don't know where you get your numbers from but they are wrong.

        Verizon's average revenue per user on Android smartphones in 2010 is $105.45 per month

        AT&T's average revenue per user on iPhone in 2010 is $98.20 per month

        Which means consumers in USA pay about $2400 or more on their 2 year contracts no matter which "smartphone" they choose, but Android clearly makes more revenues.

      • Pieter

        Odd, first you claim that Android phones are about $200 cheaper, so the carrier will have more profit with the same monthly price, now you say that Android subscriber revenue is about $174 higher than the iPhone over the 24 months of the contract?

        Are you sure that the price that providers pay for Android phones is indeed lower?
        (In the article it is stated that AT&T payed $375 for the iPhone in 2008, maybe those 'cheaper Android handsets' are not actually cheaper, as the Android handset market is fragmented, so no volume discounts?)

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

        It's not clear from just those figures but if both plans cost $2400 and the handsets are the same price at retail then the wholesale price of Android handsets must be less than iPhones, ergo the carrier makes more profit from Android.

        The US is bizarre. In Europe what would happen is the plan for the Android handset would come down. Profit on each would be the same. That's what happens with cheaper Nokia and Android handsets. Unless that happens in the US also then there is no market for cheaper handsets there.

      • KenC

        If you had been reading Horace's blog more carefully, you wouldn't be making all these factual errors. This is exactly the WRONG place to be spreading FUD. Go somewhere else where the pickings are easier.

    • Peter
      • http://twitter.com/charbax @charbax

        That Youtube video cost them about $500 to make.

      • FalKirk

        You make a foolish statement. You're conclusively proven wrong. Then, instead of apologizing or re-considering your position, you dismiss the evidence against you as irrelevant. It's clear that no facts and no logic will ever sway you because you're not interested in learning the truth, you're only interested in telling others that your opinions are the truth.

        Go to hell, charbax. You're a Troll and nobody here wants to play with you any longer.

    • kevin

      Verizon also spent over $150m each during the last 2 years advertising Droid. I'm sure they'll spend less on iPhone because Apple will be busy advertising iPhone.

      But if you think they won't promote iPhone, think again. Verizon's first ad for iPhone is already out, over 2 weeks before the iPhone even goes on sale. And Verizon Wireless' website has the iPhone on the main screen. It's menu provides three choices: iPhone, Smartphones, and Feature phones. Unlike what you predicted, iPhone is getting preferred treatment.

    • KenC

      You wrote, "Fact is, AT&T will now focus all their promotion and sales channels on Android, and Verizon will not make any effort at promoting iPhone instead of their current crop of high-end Android phones."

      That's NOT a "fact". That's a fantasy.

    • Keith F

      I think you answered your own question when you point out that Android phones are becoming cheaper and cheaper on other networks. What incentive does VZ have to continue to invest heavily in a product with diminishing returns? VZ's Droids compete with Sprint's EVO as well as the el cheapo phones available on Boost and MetroPCS. Not to mention the aspect of having to utilize expensive promotions such as the BOGO in order to compete with the other low balling carriers. It is a race to the bottom, and most Android users realize that you just wait a few weeks for that high end Droid to sell at a huge discount. Then a new shiny Droid comes out and the process repeats itself. As carriers roll out 4G and improve their network infrastructure, they are going to need a better mix of phones that bring in top dollar monthly data plan. iPhone users are willing to pay for this, and furthermore, they are conditioned to expect it. Notice how VZ is going to sell the actual headsets at the same price as AT&T? If they were getting a better deal than AT&T, why wouldn't they use that advantage to lower the price to consumers? It certainly would put them at a competitive advantage.

    • Todd

      So, are you going to put your money where your mouth is and short AAPL? No, I didn't think so either.

    • chano

      The hidden premium advantage of Apple customers, iPhone buyers included of course, is that they are not freetards for the most part. This means they spend money using their phones more and generate much more income for carriers. Watch and see as Verizon's network begins to creak and groan under a real load, for a change.

  • http://ARMdevices.net Charbax

    The only chance Apple has is if they somehow managed to convince Verizon to sign some kind of deal saying that they have to sell iPhone at the same price as Android phones, and not charge any more on the 2-year contracts. Meaning, that any increase in ASP for iPhone over the range of Android phones could not be reflected in purchase or contract pricing. But Verizon would be really stupid to sign such agreement basically forcing them to give $200 extra to Apple for each customer who happens to choose an iPhone over an Android phone. As far as I know, there is no proof that iPhone generates higher ARPU than Android, in fact I believe Android has a higher ARPU for the carrier.

    • http://twitter.com/sandro1981 @sandro1981

      I'm not sure if I follow your logic, but that's OK because what I think you're missing is the fact that the market WANTS iPhones and are willing to pay a premium for them. Android looks to be more your cup of tea, or an equal cup to Apple's iPhone, in which case price will make a difference to you as a handset consumer.

      I can recall only one time Apple reduced prices (iPod Touch). They've been a premium player forever and I don't think they will change. They've had a whole lot of lesser quality competitors (my opinion), who are also cheaper, and none have been able to slow down iPhone sales.

      I just can't see any scenario in which Apple's strategy to compete would be to cut prices as opposed to improving product.

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

        Well if consumers will have to pay a premium for iPhone, that is exactly the question. Verizon can do what they want with their money, if they want to pay Apple $200 more per new customer compared to what they pay for the latest and best Android phones from HTC, Motorola or Samsung, that is up to them.

        I just don't see why Verizon would be anxious to give money to Apple, when they could just as well stock up more Android in the store and keep more of the profits on those for themselves. Verizon for sure will offgfer iphone now for consumers who absolutely want that, but I think, either they increase purchase cost of iPhone, either they make a specific iPhone subscription plan that turns out to be more expensive, or else well, then they just give money to Apple.

        Verizon could even now do the illegal thing, call AT&T and make some kind of agreement to price iPhone higher on both networks compared to the Android phones. At least as long as Apple charges them comparatively more than the equally as good often even better Android phones.

        The only reason AT&T gobbled the iPhone premium price was because they had the exclusivity, now they don't have to anymore.

      • Will

        The mobile operators make the majority of their revenues and profits on subscriptions, not device sales. The operators use devices as loss leaders (subsidies) to add new subscribers and boost ARPUs from existing subscribers. The concepts are very basic economic principles of the mobile industry. A slightly more advanced understanding of mobile telephone economic principles is the value of SUBSCRIPTIONS over a period of time, using a discounted cash flow rate.

        iPhones are are popular; they add value to operators by attracting new subscribers, and boosting ARPUs.

      • Sandro

        wow. "carriers decide what they sell more than consumers decide what to buy" – while ultimately that may be true, don't you think the latter informs the former about 99% of the time (ignoring exclusivity)?

      • asymco

        Carriers have some power to decide the portfolio and encourage adoption, but consumers have veto power on those decisions. It's rather like the legislative and executive branches of government: checks and balances. The will of the nation is not always evident but we muddle through somehow.

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

        AT&T decided to only provide iPhone as high end smartphone. At least until that Galaxy S alternative came to their network cause they have to be good palls with the giant Samsung as well. Now AT&T's exclusivity is finished it also means AT&T will much increase Android high-end presence such as Motorola Atrix 4G and the top upcoming ones from Sony Ericsson Xperia Arc, LG Optimus black, Samsung Galaxy S2 coming up. Pretty soon, it'd be logical that AT&T will be selling far more Android phones on its network than iPhone. And I think it's very unlikely that Verizon will sell more iPhone than AT&T will sell Android phones.

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

        It seems clear that Verizon will sell far more iPhones than AT&T will sell Android devices.
        1) Due to the subsidy paradigm, consumers think that high end devices all cost $200 – so why not get the best instead of a second-rate knockoff?
        2) US consumers are (even now) wealthier than European or other ones so less sensitive to handset costs
        3) US carrier plans are expensive, so the device cost is less of a factor in the scheme of things
        4) Aside from the above, AT&T has a horrible reputation, and Verizon a good one. The Verizon iPhone as unlocked huge pent-up demand for iPhones that actually make calls.

    • Alan

      I think what the iPhone has, and what Verizon wants, is desirability. Customers want the iPhone and are willing to switch carriers to get it. So Verizon will continue to market it heavily because it is the phone people want. If Verizon raises the price to consumers they will lose out to AT&T.

      So far the cost to customers is the same for high end Android phones vs iPhone. There are some lower-end Android phones but they don't really compare to high end phones of either type. If you look at buying a high end Android phone off contract they run $500 to about $600 – not much different than iPhone4.

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

        I'm not talking about price of unlocked phones, I'm talking about the price carriers pay for each phone.

        Sure enough, US carriers make an average $2400 or so per smartphone customer, so it may not be huge difference if they have to pay $350 or $600 to buy the actual hardware. But hey, carriers decide what they sell more than consumers decide what to buy. How the carriers position phones in stores, how sellers are trained to talk about them, how many are stocked, how quick they go out of stock, which are advertised on TV, etc etc. Carriers actually decide what to sell.

        Another factor for Android is carrier gets a share of Google Marketplace app sales, they will get a share from Google Music or they can preload the Android phone with whichever extra services and they even get a share of the advertising revenues from Google on each Android phone sold. Carriers get none of that when they sell an iPhone, on the contrary it's apple alone who gets all the bonuses, apple even used to charge AT&T extra on good performance and it often pays off as iphone users are more often people with too much money to spend, they travel more to Europe and spend tons and tons on roaming fees which Verizon customers obviously don't do.

      • chano

        So why do all carriers lust after carrying the iPhone then?

  • FalKirk

    "Verizon pays less than $400 average per Android phone. What makes you think Verizon would ever want to pay $200 extra per customer to use an iPhone?"

    Both Verizon and AT&T just signed multi-year, non-exclusive agreements with Apple to do just that.

    "Why would any among AT&T or Verizon even spend $1 on promoting the iPhone if they can save more than $200 per customer which they sign up with an Android phone?"

    Because the more expensive iPhone brings the carriers more subscribers. Paying an extra $200 per phone is not a problem if the carrier is going to charge the customer who bought that phone $1,800 or more dollars over the following two years.

    "Fact is, AT&T will now focus all their promotion and sales channels on Android…"

    Possibly. But AT&T may not have to promote the phone. It's well-established already.

    "…and Verizon will not make any effort at promoting iPhone…"

    They're already promoting the phone. http://techcrunch.com/2011/01/20/verizon-iphone-c

    "What will happen, is cheaper and cheaper Android phones will arrive, some to be sold below $150 directly to consumers in every super market, unlocked or on pre-paid plans, and that will put even more pressure on Apple."

    You're assuming that cheaper always beats more expensive. Common sense would tell you that it doesn't. Just look around at the things you and your friends own and the clothes you and your friends are wearing. If cheaper always won, we'd all be driving Kias, we'd all be wearing shirts bought from K-Mart, we'd all be buying our furniture from trucks parked by the side of the road and all of our artwork would be sprayed on black velvet and glow in the dark. (OK, I'm down with that last one, but you get my point.)

    Price is only one component of value. There are a myriad of other things that make people willing pay more in order to get more.

    "Once Apple is forced to lower their revenue per iPhone from $600 to $400 to remain attractive to carriers, they loose half of their profit margins overnight, and the iPhone is Apple's absolute largest source of profits."

    This is the exact same argument you made in the other thread. It wasn't true then and it's not true now. Apple is selling the iPhone all around the world for the exact same price. Competitive pressure has not forced Apple to lower it's prices anywhere in the world and there's no reason to believe that it will happen in the U.S. So long as the average sales price remains essentially constant, per phone revenue will remain at or near current levels.

    Charbax, no one here minds you having a different view on this. This site welcomes diversity of thought. But if you keep basing your arguments on provably incorrect data and flimsily constructed logic then you are missing out on an opportunity to learn and share with some of the brightest and best minds that the web has to offer. Don't blow it.

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

      Price does matter. It matters for the smartphone maker as well as it matters for the carrier. A huge price disruption is upon the whole smartphone/carrier industry.

      $100 unlocked/prepaid vs $3000 on contract, we are talking about a potential price factor 30x difference between similar products.

      I'm not only talking just about the $200-$300 difference that the carrier is paying per customer on a top Android vs iPhone.

      • unhinged

        And somehow this magical $100 unlocked/prepaid phone lets you consume resources from the telcos and they never charge you anything for your usage???

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

        In the UK, yes.

        We have carriers here that give you free Skype and other data services even if you don't have a contract or don't have any credit.

        But that's a side issue really, The $100 smartphone needs cheaper tariffs to succeed in the USA rather than the one price fits all no matter how cheap your phone is tariffs. ie. move to a more European model.

  • Jeffi

    Apple has not lowered the net price of the current (newest) iphone since it’s introduction in 2007. Competitive price pressure has not caused them to reduce gross margins. Apple has always sold premium products at premium prices. To this day, Apple has not been able to produce enough iPhones to meet worldwide demand. Therefore, why would you anybody else come to the conclusion that they will need to reduce their price and gross margins? By innovating, Apple is able to maintain gross margins and not compete on price just like BMW or any premium manufacturer in any retail space. Einstein defined insanity as repeatedly making the same mistake expecting a different outcome. Sound familiar?

    • FalKirk

      Jeffi, you make a great point that I completely neglected. Apple is selling every iPhone they make as fast as they make them. What competitive pressure? No one's going to drop the price of an item that they can't even keep in stock.

      • asymco

        See also "Notes" section in the original post.

      • FalKirk

        "The steadiness of the price should give another huge clue as to the effect of competition on the product."-Horace Dediu

        Ha! Right you are. But just because you killed the horse before I got here doesn't mean that I don't get my chance to beat it! http://www.youtube.com/watch?v=ddQoU9x7Azs

  • Ted crankier

    Kudos FalKirk, an extremely cogent response.

    I wonder why the analysts refuse to accept this point, especially when the numbers are clear. I only hope Apple can continue to ramp supply as demand at the current prices continues prove the iPhone is the “gotta have smartphone”. I believe this will be even more apparent as more of the non-early adopters buy smartphones. Once we get past apple afficiandos and fandroids, we will really seem how Apples ease of use, style, and brand appeal holds sway with the mainstream user just picking his first smartphone. Pay just a little more for a highly desired top of the line device? “You bet” will be the common answer for anyone who isn’t in the anti-apple crowd.

    • FalKirk

      Thank you for your kind comment.

      As to whether Apple can ramp up the supply to meet the demand, Apple sold 8.4 million GSA iPhones in the June quarter, made a big jump to 14.1 million phones in the September quarter and a more modest jump to just over 16 million phones in the December quarter. Based on that, it's really hard to know how many GSA phones they can make and sell during the March quarter.

      The seemingly bigger question is how many CDMA phones Apple can make. I say "seemingly" because I don't think Apple would have announced the Verizon iPhone if they weren't very sure that they had a supply sufficient to meet the demand.

  • ericgen

    Someone made a comment on an earlier post here at Asymco about Charbax being a troll. I wasn't familiar with him so I searched for "charbax troll" and got "About 4,790 results (0.32 seconds)". That, of course, doesn't mean he necessarily is a troll. However, you may want to weigh the value of the effort you chose to spend on a response.

    That being said, some of the responses are excellent and quite informative, so perhaps there is value in responding.

    • FalKirk

      Noted.

    • asymco

      If you click on charbax you get http://armdevices.net/

      There is contact info under about.

      Charbax’s other sites: http://archosfans.com and http://forum.archosfans.com http://olpc.tv

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

        Yup, while I am a long time Apple hater because they basically stole Archos ideas and used in my opinion illegal anti-competitive behavior in the iTunes model, I don't deny that Apple has been successful at making a ton of cash fast. Historic in fact for the consumer electronics industry. I'm just politely pointing out that a $301 Billion company based mostly on revenues and profits from one product, the iPhone, and with the Android tsunami upon it, I just don't see that as an arguably stable foundation for continued growth.

        Taking out quotes from Cook and Co is good work on your part as a blogger, but those guys can't keep coming with such growth as they have with the ipod first and then exponentially with the iphone. I think their game may be over.

        And if you listen to Steve Jobs insane Android bashing in their previous earnings call you'd consider that when a CEO goes mad about competition publicly like this, calling competitors products "Dead on Arrival" and the like, it's probably because something must be threatening to his throne.

  • busterone

    @Charbax,

    Let see if I can break down your posts and both you and I might gain some insight. In your first post you indicated that Verizon spends less than $400 avg per Android phone. You have no link or fact to support such claim. But intellectually, I will accept that value for argument sake. Accepting that, why did AT&T and now Verizon, pay more for per iPhone vs Android phones? It may have to do with that getting the iPhone was indeed very lucrative for AT&T. Let's look at a previous post from Horace, http://www.asymco.com/2011/01/11/for-every-att-an…. See the chart from comScore, how for the month leading into Nov 10, AT&T had almost 15 Million iPhone sold vs only 2 Million Android.

    Verizon sees this number, and must be asking itself, what does that mean for us? With a $100 Million ad campaign, what have we to show is about 7 million Android phones subscribrs? AT&T didn't spend anywhere near that $100 Million for the iPhone ads, it was Apple that paid for most of the ads. A couple of million and AT&T have 15 Million new subscribers; Verizon spends $100 million (http://money.cnn.com/2010/06/23/technology/verizon_droid/index.htm) and only has 7 million. Sounds like a no brainer on seeing why Verizon felt the need to go get the iPhone.

    So now we have a great reason why AT&T and Verizon are willing to pay more to get the iPhone on their networks.

    Your next post about Wallgreens/CVS Android phones going for $150, and that consumer want them because they see them as being the same as the iPhone, again no facts or links to support this. Ok, again going further, not one company is indicating what the numbers are in terms of sale, so it is difficult to argue if this is successful or what impact this is really having. So we are left to leave this argument alone due to inconclusive information.

    Your next argument about Verizon was the biggest seller of smart phone in 2010 in the US, so ask your self, why did Verizon feel the need to go after the iPhone. Borrowing again from a previous post from Horace, http://www.asymco.com/2010/12/13/verizon-strikes-… Horace argues that the current strategy from Verizon was not working. That AT&T was indeed continuing to gain subscribers, while Verizon was unable to stem this loss.

    Your speculation about ARPU is unconfirmed, since no source is quoted or links are given. Your opinion is welcomed, but to give unconfirmed numbers or facts often leaves others to be suspicious about your motives about posting.

    Well it may be true that Carriers may get a portion of Marketplace, Music or any services that Google may bundle with Android, currently I would argue that this amount to $0 dollars to the bottom line. Nothing in Google financial this week indicated that any money was made in services Android offers. Nothing in the future even hints that this will ever happen. Even with Apple being the most effective at music, movies and application being sold, they are only breaking even. Also, that carriers can mess with the phones and put custom apps may be seen as a positive by the carriers, but I know of no customer that considers this a benefit. In fact, it is often seen as a negative by the customer as they see this as bloatware, but were often resigned to this fate, since they had no other options. This really changed when the iPhone came about as it showed how a 'pure vision' of a phone could really work without carrier interference. I do not know how much is true, but it is often reported that Verizon was unwilling to concede this control, which lead Apple to AT&T, a willing participant.

    At the end, what is left is this. Verizon realized that excluding the iPhone from their portfolio was costing them a lot of money. More money than Android devices could maintain for them. Looking at what the iPad did this year and what the iPhone has done historically, Verizon could no longer risk being left behind.

    • dvel

      nice post

  • timnash

    Vodafone owns 45% of Verizon and is the largest mobile operator by revenue with networks in 30 countries (UK, Germany etc.). It missed out on the initial exclusive iPhone contracts but signed non exclusive terms when they became available. Vodafone therefore knows very well and can quantify the iPhone effect. Clearly the effect is significant or Verizon would not have signed a contract with Apple and it will be for pretty much the same iPhone price as Vodafone pays.

    • HTG

      Bang on! Also, you only have to consider the competitive landscape which Horace has covered off very well… It is pretty clear that Verizon needed the iPhone far more than Apple needed Verizon…

  • FalKirk

    You post is a shining example of argument without acrimony.

    • FalKirk

      My apologies. My comment was intended to be a response to Busterone's post.

  • Chester

    Charbax is a senior analyst at a major financial institution. Isn’t it obvious? Fingers in ears and tantrum on the floor. Probably still has a “buy” for poor old Sony Ericson.

  • Patrick

    Horace,

    On a personal note it is such a profound relief to come to this site and get not just the quality of analysis you offer, but a respectable and well-seasoned group of commenters who are themselves knowledgable and polite. You all are spoiling me for other analysis sites and blogs!

    One other item that has not hove into view (yet) are Google's continuing intentions for ChromeOS. The initial indication were that this was going to be the saving grace first for netbooks and then at first for tablets. It appears that given the direction into Android Honeycomb for tabbies ( in spite of Google's demurement on using Android for tablets) that Chrome is either a) not ready for tablets/handheld devices or b) ChromeOS is going to be backburnered for full Android support across platforms, and will limited only to net/note/desktop approaches. Although ChromeOS seemed to give the level of control and exposure to user data that Google has been seeking, perhaps circumstances have dictated otherwise.

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