Apple's iPhone "wrecking" the cell industry
While many iPhone owners hail Apple as saving them from greedy cellular carriers, an analyst now says the company has overturned AT&T and the entire wireless industry -- and not always for the better.
Analyst Craig Moffett of Bernstein Research likens the relationship between Apple and AT&T as that between the former and music labels dating as far back as 2001, when Apple first had to ingratiate itself with labels as it incorporated music CD ripping into iTunes. Apple at first won important concessions and praise from its partners, only for them to regret it later as the iPod maker's popularity left these companies at the supposedly smaller company's mercy.
When it comes to carriers, particularly AT&T, the researcher sees them as just now realizing the bad bargain they'd struck for themselves. As late as this spring, AT&T has continued to praise the iPhone as virtually saving the company from the US economy's fallout by driving customers to its network and encouraging them to spend more on data plans. But with the launch of the iPhone 3GS in June and the 3G congestion problems in the months leading up to the handset's debut, AT&T was increasingly cast as Apple's anchor -- keeping a good device locked to a carrier that doesn't enable features like MMS and tethering.
"Apple has stolen the march, and in the process has recast AT&T from hero to villain," Moffett says. "At Apple?s June developer conference in San Francisco, where Apple unveiled its new [iPhone 3GS], AT&T was roundly jeered at every mention by the more than 5,000 application developers in attendance... even Apple itself seemed uncomfortable talking about its U.S. partner."
The attack is such that Apple has all but taken control of the partnership, according to the analyst. Now, the Cupertino company has "radically tilted" the normal balance of power against AT&T and cellular networks as a whole. If Apple preferred another carrier, many iPhone owners would switch to preserve the experience they already have; an incentive that forces carriers to keep the handset maker happy. At times, though, it also has the caustic effect of suggesting an conspiracy at the carrier to limit useful services, such as voice over IP calls, when cost or technical reasons are the real motivators.
And while the US government may be close to investigating exclusivity deals as possibly anti-competitive, Moffett argues that Apple's presence in the marketplace has actually helped competition by forcing companies to keep reasonable service rates and let apps dictate business rather than network services. Government intervention could paradoxically hurt the industry by telling providers how much they could discount a phone and hardware developers which networks they would have to support. Leaving Apple to pursue its usual path with corporate partners is considered the best route as it may keep those firms honest.
"In short, the iPhone seems to be doing just fine at wrecking the wireless business without the government?s help," the analyst notes.
Analyst Craig Moffett of Bernstein Research likens the relationship between Apple and AT&T as that between the former and music labels dating as far back as 2001, when Apple first had to ingratiate itself with labels as it incorporated music CD ripping into iTunes. Apple at first won important concessions and praise from its partners, only for them to regret it later as the iPod maker's popularity left these companies at the supposedly smaller company's mercy.
When it comes to carriers, particularly AT&T, the researcher sees them as just now realizing the bad bargain they'd struck for themselves. As late as this spring, AT&T has continued to praise the iPhone as virtually saving the company from the US economy's fallout by driving customers to its network and encouraging them to spend more on data plans. But with the launch of the iPhone 3GS in June and the 3G congestion problems in the months leading up to the handset's debut, AT&T was increasingly cast as Apple's anchor -- keeping a good device locked to a carrier that doesn't enable features like MMS and tethering.
"Apple has stolen the march, and in the process has recast AT&T from hero to villain," Moffett says. "At Apple?s June developer conference in San Francisco, where Apple unveiled its new [iPhone 3GS], AT&T was roundly jeered at every mention by the more than 5,000 application developers in attendance... even Apple itself seemed uncomfortable talking about its U.S. partner."
The attack is such that Apple has all but taken control of the partnership, according to the analyst. Now, the Cupertino company has "radically tilted" the normal balance of power against AT&T and cellular networks as a whole. If Apple preferred another carrier, many iPhone owners would switch to preserve the experience they already have; an incentive that forces carriers to keep the handset maker happy. At times, though, it also has the caustic effect of suggesting an conspiracy at the carrier to limit useful services, such as voice over IP calls, when cost or technical reasons are the real motivators.
And while the US government may be close to investigating exclusivity deals as possibly anti-competitive, Moffett argues that Apple's presence in the marketplace has actually helped competition by forcing companies to keep reasonable service rates and let apps dictate business rather than network services. Government intervention could paradoxically hurt the industry by telling providers how much they could discount a phone and hardware developers which networks they would have to support. Leaving Apple to pursue its usual path with corporate partners is considered the best route as it may keep those firms honest.
"In short, the iPhone seems to be doing just fine at wrecking the wireless business without the government?s help," the analyst notes.
Comments
Another year and I'll be with the iPhone pack. When Steve introduces the next generation iPhone (iPhone 4GL?) at next year's WWDC to work on Verizon's LTE network coming in the second half of 2010, I'm in. I actually hate both Verizon and AT&T, but Verizon is definitely the lesser of two evils.
Prepare for disappointment.
The same thing happened with the music industry. All Apple has done is use innovation to drive the customers into the arms of their partners. The customers they always said they wanted. If they can't handle the results I can't see how that's Apple's fault.
"Apple has stolen the march, and in the process has recast AT&T from hero to villain," Moffett says.
Nonsense. AT&T brought that entirely upon themselves through incompetence. Apple gave AT&T the opportunity to be the hero and AT&T failed their customers by being late on MMS and tethering and failing to adequately prepare for the huge increase in data usage that they should have seen coming from miles away.
Personally I don't care about any of the things they've dropped the ball on lately so I'm not clamoring for a new carrier, but I can totally understand why people are displeased with them.
AT&T and all of the other cellular providers imagine an Internet with a toll booth at every entry point, on every device, and at every node or junction. Consumers want an internet with unlimited everything, one monthly charge per customer (not per device), no mention of terms like: Contracts, Kilobytes, Roaming Charges, Cancellation Charges, etc.
What's really happening here is that Apple is giving the customers what they want but AT&T (and the other networks) are giving the customers the shaft (or to be nice, exactly what the customers don't want). The Cable companies like Comcast are certainly no better.
This author is so far off the deep end. Whoa!
AT&T and all of the other cellular providers imagine an Internet with a toll booth at every entry point, on every device, and at every node or junction. Consumers want an internet with unlimited everything, one monthly charge per customer (not per device), no mention of terms like: Contracts, Kilobytes, Roaming Charges, Cancellation Charges, etc.
What's really happening here is that Apple is giving the customers what they want but AT&T (and the other networks) are giving the customers the shaft (or to be nice, exactly what the customers don't want). The Cable companies like Comcast are certainly no better.
You mean that Apple is giving customers what they want.... such as forcing customers to take data plans which cost $30+ per month which kicks back to Apple, along with the other subsidy that AT&T is extorted to give Apple?
As soon as Apple moves to another carrier, I'll drop AT&T like a hot potato. I don't care if I'm in the middle of a contract with them or not, I'll gladly pay the $175 to get our of this lousy service. "Fewest dropped calls"... "Raising the bar".... what bullshit that is. If I could get an iPhone on Sprint or Verizon, I would be unbelievably happy.
You’ll also have to buy another iPhone.
As for Verizon, they are still not very “Apple friendly”, which means, they are not very willing to let any vendor control their own HW, control their own repairs (Apple Stores not through Verizon Stores), control their own call center for technical support or control their own App Store. Perhaps they would make concessions for Apple, but historically it doesn’t look good.
Plus, consider that Apple is locking horns in China for certain control for over 2 years now when they could have had the iPhone selling to the 58 Trillion (slight exaggeration) Chinese mobile phone users so I don’t think that the 50M potential Verizon users are going to make them relinquish their control of the iPhone. I think will Apple stick with carriers it can control and dominate.
Another year and I'll be with the iPhone pack. When Steve introduces the next generation iPhone (iPhone 4GL?) at next year's WWDC to work on Verizon's LTE network coming in the second half of 2010, I'm in. I actually hate both Verizon and AT&T, but Verizon is definitely the lesser of two evils.
Don't hold your breath - 2011 at best - the Verizon 4G network will be worthless unless the phone has full CDMA/EVDO failover/fallback. Could happen if China negotiations go that way, but they don't appear to be.
I agree with others that AT&T has made itself the villain. I just got a 3GS and have far more dropped calls than with the 2G iPhone. 3G data is pitiful in the city (SF), though pretty great down the Peninsula.
The term "Wrecked" is from an analyst and what do analysts care about - stock prices (and maybe sometimes shareholders who buy through their firms). If you hold AT&T stock, you might agree that Apple has the potential to "wreck" the carrier. Remember, the whole strategy of the carriers is to add value (and revenue) to the wireless pipe - like Comcast tries with video/phone/broadband and new features e.g. on-demand/dvr/hd etc. If Apple is the one driving the added value and reaping the rewards, then the carriers get commoditized - no turn-by-turn monthly fees, no music download fees, no app revenue, etc. If and when we eventually get full network portability, there will be a race to the bottom in terms of prices for wireless network access. Look at base prices for broadband access in non-US deregulated markets, or basic mobile phone service in more competitive markets than the US - way cheaper than here where the big 2/3 wireless carriers and cable/telco cartels are still effectively price fixing.
Still AT&T's problem, still mostly their fault...
I can see how they might feel strapped over a barrel. They're going to have to work harder to impress us. Boohoo. Better get started or Apple will lease spectrum and steal everyone's iPhone users.
Americans should be grateful for Apple. If AT&T severs its relationship with Apple, their business will decrease up to 50% within 2 years. AT&T needs Apple more than Apple needs AT&T. And the same goes for any carrier out there. Right now, Apple is in the control seat and will dictate how this game will be played for a long time to come.
You mean that Apple is giving customers what they want.... such as forcing customers to take data plans which cost $30+ per month which kicks back to Apple, along with the other subsidy that AT&T is extorted to give Apple?
Do you think Apple is forcing mandatory data plans or AT&T? Even if it is Apple in part, they don't set the network pricing. The real stinker is AT&T charging an extra $30 for tethering (when available). $30 (total) wouldn't be bad if your 3G could replace your home internet connection.
iPhone carriers in other parts of the world seem to be adjusting well. If I understand correctly, there are six carriers in Australia that support the iPhone. Competition is healthy and customers have a wide variety of ways to acquire the phone with various length contracts, hardware subsidies, etc.
If anything, it's AT&T wrecking itself.
This is a bullsh*t analysis. It says that AT&T is being cast as "the bad guy" but it doesn't mention that this is only valid if AT&T is not in fact the bad guy but only being cast as such. The actual reason they look bad is that they *are* under-performing and also gouging customers. They also oversold the capabilities of their network and when they finally get traffic driven to them by a product like iPhone their claims about how good the network structure is are proven to be false.
The same thing happened with the music industry. All Apple has done is use innovation to drive the customers into the arms of their partners. The customers they always said they wanted. If they can't handle the results I can't see how that's Apple's fault.
I agree with your view, but would add the that the analyst is looking at it from the telco's perspective. From their point of view, I can see how the iPhone, and Apple, are a mixed blessing. They just haven't anticipated the volume of data that iPhone users would consume because no other device was as easy and productive to use.
Apple doesn't sit still and the telcos don't seem to be able to keep up with the pace that Apple prefers.
2. AT&T needs to be prepared technically for any new business venture they join.
Apple and AT&T need to learn some lessons and let's hope they will.
Do you think Apple is forcing mandatory data plans or AT&T? Even if it is Apple in part, they don't set the network pricing. The real stinker is AT&T charging an extra $30 for tethering (when available). $30 (total) wouldn't be bad if your 3G could replace your home internet connection.
That is probably a complex answer. When the original iPhone arrived the unlimited data plan was only $20 with the profit sharing setup, well below the norm which was $40-50 across the major carriers. This might have been Apple?s idea, but regardless, it?s something that has taken hold in the US for the more expensive, higher-end devices like the Storm and Pre. I?m certain this trend will continue.
From the telco's perspective [?] I can see how the iPhone, and Apple, are a mixed blessing.
That is the probably the basis of the original article, though it was somewhat lost in the way the author wrote it.
1. Apple needs to lower the costs of it's plans to make people happy and get more customers.
AT&T prices the plans. I don?t see why Apple would have a problem with AT&T lowering the price of their plans so long as Apple gets their money. After all, that would mean even more people buying the iPhone.