What’s a CDMA iPhone Worth to Apple?

18 Comments

Last week, both the Wall Street Journal and New York Times reported that a Verizon Wireless (s vz) will sell a CDMA version of Apple’s iPhone (s aapl) early next year. Here in the U.S., that scenario could help Verizon maintain its lead of total subscribers over rival AT&T (s t) and boost iPhone sales figures by an estimated 10 million handsets per year in 2011. A CDMA iPhone offers Apple an even larger sales opportunity, as more than 543 million customers globally use CDMA networks.

 

Source: asymco.com

 

To be sure, the GSM version of Apple’s handset appeals to more potential mobile subscribers: Approximately 3.45 billion people use a GSM phone in the world. Adding a CDMA iPhone option, however, increases Apple’s addressable market for an iPhone by 16 percent, says Horace Dediu of asymco, a mobile research site. The estimated sales of 10 million Verizon iPhones account for only two percent of that potential market, affording Apple a sizable opportunity to boost iPhone sales outside of the U.S.

The CDMA Development Group reports that 164 million mobile phone subscribers in the U.S. use a CDMA handset. That number pales in comparison to the 302 million CDMA handset owners in the Asia-Pacific area, a region that, until recently, hasn’t seen huge demand for Apple’s smartphone. Last month, however, Apple’s initial run of GSM iPhones sold out in China, and the pre-order process was halted due to high demand.

While discussing a CDMA iPhone in the past, readers have astutely pointed out that 80 percent of the world uses the GSM standard. So. why should Apple even consider a CDMA iPhone? If Apple sold iPhones to only 10 percent of the total addressable CDMA market, it would gain 54 million additional iPhone sales over time. With an average selling price of $600 per handset, that works out to $32.4 billion in revenue on a product with high profit margins. To put that in perspective: Apple’s total revenues for the 2009 fiscal year were $36.5 billion.

Ignoring the “small” CDMA market simply leaves too much money on the table for Apple’s iPhone, regardless of which cellular network technology is considered the world standard. And while Verizon and other CDMA carriers are rolling out 4G technologies such as LTE and WiMAX, it’s going to take a few years before these next-generation data networks are available on a national basis. That leaves Apple with plenty of time, and billions of reasons, to sell CDMA iPhones to 3G customers around the world.

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18 Comments

nik

I don’t buy it – I am in Asia Pac and frankly the CDMA “standard” isn’t much of a standard – it’s many different standards. Some CDMA carriers use SIM cards, others don’t. Different frequencies are in use. This is the kind of thing Apple doesn’t want to get into.

That said, Apple desperately needs to be on Verizon. Those people who haven’t switched from Verizon by now simply won’t. VZN is the only carrier in the US with decent coverage, and AT&T, despite all their promises, has made very little progress. Once the iPhone is on T-Mobile and VZN, Apple will finally be able to sell as many iPhones in the USA as it can, and maybe more importantly Apple will never have to worry about AT&T again. AT&Ts problems won’t be Apple’s problems anymore.

As much as the iPhone was a technological miracle, Apple really screwed up the marketing. The ill-fated revenue sharing idea, carrier exclusivity – all of that just served to limit iPhone sales. Apple is now remedying that. I think they’ll sell way more than 10M on Verizon alone.

Thomas

@Czarembo

Although I agree. Looking at the history of iPhone releases, it is evident that apple could care less about selling a product that will be obsolete in a year.

Shah Ullah

Kevin, this is a great topic.

But how come everyone here is forgetting that the GSM association has formally adopted LTE as their next gen 4G solution?:

http://www.informationweek.com/news/mobility/showArticle.jhtml?articleID=203101622

Qualcomm essentially owns CDMA and is a key player in leading LTE and as such, will likely be in the best position to optimize migration from CDMA *OR* GSM to LTE. So while most of the world currently does *NOT* use Qualcomm IP/technology as their part of their central baseband solutions, after GSM’s migration to LTE, Qualcomm will have a de-facto monopoly on next gen wireless unless WiMax pulls a seriously inspiring Rocky Balboa move. So if I was a mobile device/network equipment OEM like Apple, I’d start playing nice with Qualcomm now and if I was anyone else, I’d just be piling up on some $QCOM.

Derek Kerton

“So while most of the world currently does *NOT* use Qualcomm IP/technology as their part of their central baseband solutions”

Like many people, you do not understand the nature of the 3G technology used by most telecom carriers, even those in the “GSM” camp. You see, while GSM won the global popularity contest, CDMA won the technology contest. Thus, the 3G versions of GSM evolutions are all actually CDMA based. Yes, UMTS is really Wideband CDMA, W-CDMA and leverages extensively on Qualcomm’s Intellectual Property.

Let me make it clear, because it is confusing:
Verizon 3G: CDMA EV-DO
AT&T 3G: W-CDMA
Orange 3G: W-CDMA
Vodafone 3G: W-CDMA

QCOMM has far less IP in LTE compared to any 3G.

Shah Ullah

@Derek Kerton

Solid point on W-CDMA and GSM 3G tech specifically, – I should have been careful to point out 3G is largely being implemented via UMTS which is essentially W-CDMA. But again, most of the world does *NOT* currently have 3G networks running and many internal corporate and national forecasts are anticipating much of the world, especially the emerging markets, will do a “double jump” to 4G, bypassing 3G altogether. Thus, it’s still true that most of the world currently does *NOT* rely on Qualcomm IP/tech today for their core baseband solutions and *WILL* rely on them tomorrow since GSM has formally embraced LTE. Am I incorrect about this? Yes, Qualcomm may have less IP in LTE than CDMA (I am not even entirely sure about this, there is a ton of ancillary non-core core network/handset radio IP that will be critical for the success of LTE that Qualcomm owns or is patent-pending on), but they certainly have more IP in LTE than say the IEEE-embraced and open WiMax which the GSM association did NOT show any love to. So, it still remains the case that if I am a handset/network equipment OEM today serving the GSM market, I would be wise to get on Qualcomm’s good side today to stay relevant tomorrow.

Note: I didn’t get an email alert on this reply even though I checked the box and confirmed my subscription to this post.

Twist

As a Sprint user with major iPhone lust but major AT&T hate I am waiting for just about any carrier other than AT&T to get it, I don’t care if it is GSM or CDMA.

Czarembo

So, how quickly will a Verizon CDMA iPhone become obsolete? I’d not be interested in purchasing something which will become obsolete in a matter of years!

Ted T.

Define obsolete. If you mean “will no longer function”, it won’t be obsolete for the foreseeable future — Verizon will keep the CDMA network going for a long time to support its current 100 million+ phones.

If you mean “something better gets released” that happens on an annual basis with of without CDMA…

Marian

@wk24:
Actually, GSM is very messy. It’s not called quad band just because they liked the name. GSM uses 4 different radio bands (in different markets) just for voice. Data gets even more messier.

phil

“My guess is that it would not be worth it”
eh? even if it’s “only” 5B it’s easily worth it. Or 1B. It’s not THAT hard to do a CDMA handset. There are dozens of handsets that support both GSM/CDMA. The hard work has already been done (iOS + basic hardware design)

Yacko

One more reason. Apple can afford to do it at this point because the research and engineering and lessons learned have mostly been done in the GSM version, so the extra money, time and personel is small potatoes. The Apple way, the small team engineering, has been taxed by all the iOS and Mac product lines, but this shouldn’t be a problem now, and it makes it worthwhile to go for the smaller pool of money.

wk24

One thing that is missed is the cost of radios.

The iPhone GSM version had an advantage of not only having 80% of the market, but also that most of that market was addressable by a few radios. eg. 2.1GHz for UMTS, and 800MHz for GSM. But the radio situation for CDMA is much more messy – so if Apple wanted to sell the same CDMA phone in US (Verizon, Sprint, USCellular etc.), China (China Telecom), Japan (KDDI), Korea (LG Telecom) – it would face the painful prospect of putting many different types of radios.

My guess is that it would not be worth it. They’d just concentrate on a few of them. So your 32B is probably off a bit. Not sure by how much.

Which is also in a round about way probably why they wouldn’t create a dual mode world phone even if the chipsets from Qualcomm supported it. Just too many radios.

Scoopster

Actually most of the larger markets in Asia (read China Telecom, as well as HK and Taiwan networks) use the exact same frequencies for CDMA as we have in the US.

Sprintj + VZW + China Telecom = 250M+ CDMA subscribers. The rest of the TAM is gravy. Sell iphone into 10%, or 20% of that market…and you do the match…big revenue for a single device (one CDMA radio config)

tom

india and russia(plus many smaller east europe nations) also have CDMA at the same frequencies.

nik

Totally agree. VZW alone is worth it, Sprint and China Telecom are nice additions, the others don’t matter. China is interesting to Apple but it remains to be seen how many of those current CDMA subscribers will switch to iPhones – it’s a total unknown. They might very well be the cost conscious kind who buy chinese made phones with rip-off Windows Mobile versions on them (at a cost of $50 unsubsidized – they’re an amazing deal).

Customers that really care about having a cool, high-end phone are on the GSM networks. Because that’s where the cool phones are.

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