Will iPhone Save Handset Business?


Apple, it is rumored has signed a deal that will allow the Cupertino-based computer company to source 12 million iPod-based phones from a Taiwanese electronics manufacturer. In itself, the news is hardly a surprise for the iPhone has been subject of rampant speculation.

What is surprising the speculation that Apple will sell these phones unlocked, allowing consumers to pop in their SIM cards and use it as a phone. In the US, that would mean getting a SIM card from either the Cingular or T-Mobile. If this is indeed true, and it is not clear if it is so, then Apple will be lending a helping hand to the mobile phone makers.

You can buy unlocked phones in Europe, Asia and on the Internet. But in the US, the carriers in exchange of a long-term contract subsidize most of the handsets, typically between one to two years.

Since they are the big buyers of handsets, the US mobile phone providers have an unnatural control over the market, and thus giving them the ability to dictate what features or models come to market. Many of the major handset makers roll over and play The Pooch, as a result.

Nokia for example doesn’t sell the E61 smart phone in the US, and instead sells a striped down E62 (no WiFi) via Cingular. LG Chocolate (GSM) version is nowhere to be found, but you can get it from Verizon. It is a source of frustration for many handset makers, since they would like to sell their latest phones at premium prices.

The introduction of the unlocked iPhone will do two things – it would basically get US buyers savvy to the idea of buying full priced unlocked phones. Secondly, it is going to cause a behavior change – of buying phones instead of freebies.

It won’t be a mass-market phenomenon in the early stages, but eventually (as shown by iPod Nano and iPod Shuffle), Apple will bring the iPhone prices down to a mass-market price point.

If iPhone causes this behavior change, then, it is good news for rest of the handset industry. Nokia is currently selling three million N Series phones a month, a number that could easily go up if the company could sell its entire range of products at full price. So if you are Nokia or Samsung, it is time to secretly root for the success of iPhone.



Who’s actually overlooked the idea of opening up its own mobile phone service, google did it with wi-fi (the got businesses to provide free wi-fi in return they were able to use the network), this could be a possibility, but a highly doubtable one.

Jeremy Carlson

Good review — but there remain some nagging questions. No IM means not even Apple’s iChat will work? (I suppose so, but that seems odd.)
I assume as well that no VOI like Skype can be downloaded to use when on WiFi.
Full fledged web browser should mean all webmail programs work on iPhone, but I never see Hotmail mentioned among the examples. Is this just a courtesy — or do some webmails not work for some reason?
MAIN QUESTION: will the iPhone work for WiFi without an ATT plan? I’d be happy to use it as an iPod/PDA/WiFi device — at least until I can get out of my Verizon plan without eating a penalty. I like calling cards, using free phone
card comparison
tool to lower my cellular calling cost.


As an authorized agent of Unicel in the Northeast, this phone will be in hot demand at the retail price. Yes, some people, many people, still need basic handsets. However, the Apple name and product is enough for me to move several of these units. An unlocked quad-band phone works just fine on the Unicel network. I was selliing the KRZR and the SLVR long before Unicel brought them into inventory at full retail price and had buyers. Right now I’ve been moving the RIZR and the Sanyo D-900 in the $500 price range. I believe the iPhone will move more units than any of the previously mentioned phones. How sure of this am I? There is no Cingular service in my state. The customers (the same ones that drop hundreds of dollars on PS3, XBOX, or Wii) will have no option but to pay the full retail price to use it on our network. Cha-Ching!!


It is very unlikely that carriers subsidizing phones will disappear from the market because this would go against basic consumer psychology. Customers want to pay as little as possible upfront even if that means paying more over time for the service. Look at printers, where most of the money is made on toners. Look at game consoles where most of the money is made on the games themselves. Subsidizing handsets is a one-way street, once the customers are used to it, there is no way back. Carriers already found this to be the case in many European markets where their efforts to reduce handset subsidies failed.

Ol' Yeller

Why would Jobs pass up on a revenue share opportunity when the potential amount to be had is on the order of $180 of pure profit in ONE year? What’s the best sceneario on profit on hardware sales for one high-end iPod – $180 AT BEST! So, if you think Jobs is just out to help people and not to make money, then he’ll count on hardware revenue only and sell an unlocked phone.

It’s easy to lock a phone that connects to a proprietary data services platform – iTunes! Sure, you could take your locked phone and make phone calls and send text messages on another carrier network – and probably sync your music onto it – but you’d miss out on all the great connected features that Apple will surely include with this handset.


My guess is the iPhone (or whatever it’s called) will be positioned over the other music devices and will be the high-end item. iPod Shuffle -> Nano -> Video -> Phone. They’re (supposedly) ordering 12 million phones so you can bet they’ll be unlocked so they can sell them as world phones. I don’t know if they’ll create their own MVNO immediately but it might be in their best interests eventually to combine it with the iTunes Music store. I need a new phone (bad) but I’m waiting until after January.


dani, agree but it’s still too early for Apple to do by itself. If they were to partner with Google and one or two other solid hotspot providers, then maybe. So someday…

The issue with an MVNO is that it puts the Apple brand name on an underlying cellular service without having the ability to control the quality of that service. They could provide better customer service, but they can’t do anything about reliability, dropped calls, etc. So I think they’d be better off allowing the user to choose the service provider themselves, in the same way that one chooses an Internet service provider (cable/dsl). The Apple Store could sell SIM cards from a variety of cellular providers (GSM only) to go with the unlocked iPod phone.

Then, in the same way that the iTunes Store and .Mac rides atop the Internet cable/dsl service, Apple can sell services (iChat, iTunes Store, MobileMe) atop the cellular service. The potential for these services is huge, especially those that could entice a user to use Mac OS X and iLife.


Forget the Sim cards.
Here is the magic formula:

Ipod + Wifi + Hotspots + VOIP

“The wifi kills the mobile star”




You bring up solid errors in my post. I should have used Cingular and TMobile as my SiM swapping example in the States, as they are doing it for millions of customers. My oversight.

As for Apple selling prepaid SIM cards, I had in mind the same arrangement that, say, Apple has with retailers that sell prepaid iTunes cards. I don’t see why Apple partnering with mobile carriers to put this into action would be a problem. Nor do I think it’s requisite to selling an unlocked iPhone.

As for the price point, Apple doesn’t need to sell a $99 iPhone for it to be successful, for the same reason they didn’t sell a $99 iPod out of the gate. There are plenty of customers at the $400-700 range that will happily buy an iPhone. We’re already paying those prices for unlocked phones offered by Sony Ericsson.


Just remember that key to Apple is branding. The one thing about an Apple branded MVNO is that Apple could protect their brand. Once they hand it off to any US Carrier, they would tarnish their image. They can afford to stay out of the market if they can’t protect their brand/image. I would say their best bet is to do an GSM based MVNO service in the US to start. Savvy users that travel could figure out how to do the SIM swap thing. Apple could then work on EMEA (Europe, Middle East, Africa) providers. When they can’t control everything they tend to so tiered launches like with iTunes.

CDMA is key for Asia and seem to remember a a rumor a while back that Japan was going to get an iPhone first via Softbank Mobile (formerly Vodafone Japan, and before that J-Phone).

Having said all that, maybe the wait is they are making a GSM/CDMA phone. Motorola has made one in the past: http://www.motorola.com/motoinfo/product/details.jsp?globalObjectId=49

I guess we can just wait. Not like Apple is going to release any details any time soon!!


Matthew wrote:
“The alternative, to partner with one or two carriers is absurd these days, as people travel around the country and around the world and want ONE mobile phone. An unlocked phone solves that problem and is, really, a non-issue to consumers just so long as it’s unlocked.”

Disagree. This is an idealistic point of view. It’s too early to say that if you have ONE unlocked phone, you can get a wireless service around the globe. You still need a carrier anyway. While you can have ONE phone (if it’s unlocked)with GSM carriers (even GSM bands are different in Europe and US, so this phone should support all four GSM bands), you would end up with different phone numbers for each country you go. What about CDMA carriers, they don’t use SIM cards (at least the SIM cards that can be inserted by users). What about Asia, Japan or South Korea? They don’t use SIM cards as well. You mentioned Verizon and Sprint, but they don’t support SIM cards and unlocking is quite difficult with CDMA phones. Last thought, the majority of people don’t travel much on business, only minority does. So, they don’t need ONE phone, they need cheap or free phone that is good for making voice calls and that looks cool.

Besides controlling features on handsets, why do you think carriers sell phones under $99? In order to lure customers to sign a contract, ideally for 2 years. Carriers don’t make money selling handsets, they make money selling wireless service. Without subsidizing the phones, it would be much difficult to get people onboard.

How do you think Apple is going to seel prepaid SIM cards? To do that, Apple will need to partner with carriers to buy wireless traffic from them and resell it to iPhone users (the so-called MVNO model).


“it’s gonna be something that everyone you know wants. Can you really see everyone you know buying an unlocked phone? “

“wireless space is a whole new channel for Apple to sell content and services through”


Where to start. How about in reverse order.

Apple doesn’t have to turn it’s back on a mobile phone service revenue stream just because it will sell an unlocked iPhone. You’re thinking about the mobile market as it was in the ’80’s, perhaps. It’s different now, of course.

Apple could quite easily sell SIM cards and/or pre-paid SIM cards in the Apple Retail Store for iPhone buyers that don’t have an existing SIM. Apple makes money off the iPhone and off the SIM card/pre-paid.

The alternative, to partner with one or two carriers is absurd these days, as people travel around the country and around the world and want ONE mobile phone. An unlocked phone solves that problem and is, really, a non-issue to consumers just so long as it’s unlocked.

And for someone to object to buying an unlocked phone is as absurd as to object to buying a land line phone because it will work with any land line provider the customers chooses.

We don’t go to a Best Buy and ask for a 2.4GHz cordless that will work specifically with, say, Quest. We just ask for a 2.4GHz cordless phone, plug it in at home and make calls.

The same thing is possible with an unlocked mobile handset.

Customers need not be SIM-savy as you seem to be suggesting. Again, it’s just a feature. Like computers that work with any ISP, not a specific ISP, because they have ethernet, 802.11, whatever,

Best of all, the customer can either swap his/her SIM into the iPhone or have the Apple Store Genius do it. This is exactly what’s happening in TMobile, Verizon, Sprint, etc retail stores millions of times each day.

Apple wants to satisfy the demand you described, and because of several reasons, the mobile climate is right for selling unlocked handsets. Just ask Sony Ericsson.


What about a business model where Apple will offer iPhones/iPods running on cellular network, but without voice service, only data. So iPhone users will use it for social networking (SMS, chats, sharing playlists and songs, etc.) and OTA song downloads? Do you think they can do it? I don’t think they use WiFi for that purpose because it will drain the battery pretty fast.


Apple doesn’t care about the revenue share for the core cellular business, just like they don’t care about ISP portal business or the advertising business. Their goal is to build Web-connected end user services on top of everybody else’s infrastructure, SO they can sell their insanely great devices to consumers for a hefty profit.

SIM cards are no longer a geek thing, and even if it was, it would be very much like Apple to take it and make it mainstream. MP3 players? Podcasts? In any case, even my 79-year old dad knows about SIM cards because he can get an almost free contract just by putting a SIM card into an old phone.

Apple goes direct to the consumer when its a consumer device, and puts the consumer in control, bypassing “orifices”. So unlike RIM’s deals with carriers, Apple will try to sell a service directly to the consumer; that’s what Apple Stores and the Apple brand are all about. And for that, an unlocked phone will give that service a much wider global base of users in the long run.

Just to be clear, this doesn’t mean that Apple won’t partner. Contrast the above with Apple working with car mfrs and airlines (two other kinds of transport). Here the end user buys cars and airline tickets (service). You can work out the rest but you will see that a cellular service is more like a cable TV service than either a car, or airline service.

Ol' Yeller

Apple hasn’t done revenue share in other arenas because Apple hasn’t entered the Telco arena until this device. To capture value in the Telco service space, revenue share is the only way to go.

Think about RIM and their business model. They make money on the hardware AND the service – every carrier pays RIM between $4-10 a month for the right to provide the BlackBerry email service. RIM actually has a stranglehold on their platform as well – but they don’t know how to take advantage of it like Jobs does. If RIM gets $4-10 per month for their Intellectual Property and push-email server, what do you think Apple will get for their sex appeal, iTunes content and sales? Multiply that by 12 and you will quickly change your mind about Apple not caring about revenue share.


I would buy such a phone because I want the convergence and I don’t want the service provider soaking me for every last nickel. VZ currently blocks any ability to put music, etc. on their phones via your computer because they want to sell you every last item.

OTOH, VZ has the best coverage where I live and travel, so I’d have to be convinced that GSM coverage has improved.

And if I’m not amortizing a phone, I’d want to see the monthly cost go down compared to that of those who are. How long before we see that?


bryan christmas

Om, I love ya buddy, but there’s no way in hell Steve-O would go for some half assed model like that.

For starters, we all know that WE want to buy unlocked phones, we’re total geeks! But when was the last time Apple released a niche product that targeted only total geeks? If Apple’s doin it, it’s gonna be something that everyone you know wants. Can you really see everyone you know buying an unlocked phone? Most people don’t even know what a SIM card is!

Secondly, if there’s one thing we know about Jobs, it’s that he likes to have total control over the whole user experience. Jobs likes to have everyone using Apple software to consume Apple-bought content on Apple hardware that they got from an Apple Store. He would rather DIE than just drop a phone into people’s hands and say “ok, you go figure out the rest.”

Which brings us to the last point, that the wireless space is a whole new channel for Apple to sell content and services through. Not taking advantage of that opportunity would be leaving at least half the pie on the table- very un-Jobs like.

I realize Apple that making a deal with a carrier or starting an MVNO are both difficult options. But I wouldn’t be surprised to see Apple do an MVNO for some of the above reasons. Apple also now has some leverage to use with the carriers in a partnership, namely the iPod brand, Disney content, and possibly a partnership with Google.

Don’t get me wrong, if Apple released an unlocked iPhone it would make my millennium and I’d sell a kidney to get one, but it’s just not gonna happen.


Apple will be able to go above the $99 psychological barrier for cell phones because it’s really selling an enhanced iPod.
It will be comparable to an iPod nano with phone capabilities so if you allow the phone to cost even just $50, then Apple should be able sell a 2GB version for $199, and an 8GB version for $299 (or maybe it will have more flash or cost less by first half 07 since flash prices will have dropped again by then).


The comments about Apple needing a share of voice/data revenue are completely out of line with Apple’s device strategy as shown in the ipod.

Apple’s proposition is about the small but high-end market opening based around users who are about either 1) coolness/design 2) usability (sync, integration, etc) or 3) having an unlocked phone.

The third is actually the smallest, least compelling proposition – but it’s critical if apple is going to avoid pressure from networks about handset features.

Apple have shown that they’ll forgo scale to maintain control of the customer experience which is core to their brand.

The whole US model is based on suckering consumers into commitment – of course that is viable for the person who won’t pay more than $99 for a phone, but Apple could make a profitable product in this space at $499 or even higher and there is a market out there who will pay it, and the networks would have to accommodate it.

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