I do hope more companies like this flourish to force the carriers to rethink their data strategy. I am not sure how FreedomPop's solution is going to pan out, but at least it's something.
Exactly. Inquiring minds want to know!
1 - we have a family plan (so yes, contract!)
2 - my wife blew her chance at getting the iPhone for $399 by upgrading to a crappy Sony Ericsson phone (which had to be replaced twice), hence the "subsidized" phone cost $650.
There is probably no monetary advantage (between subsidized and unsubsidized), other than sticking it to AT&T. But this is what AT&T may have wanted all along in the first place.
Exactly. Inquiring minds want to know!
I stay completely off contract. My wife and I do the BYOD with Straight Talk and spend $45 a month for unlimited talk, text and data. (The data is reputed to actually be 2 gigs a month.) I have an iPhone 4 and she still has the iPhone 3GS.
Clearly Apple doesn't do as well in markets where prepaying for service is the norm. It was shown that Apple takes a thumping for example in Eastern Europe. We already know that some of the reason Nokia and RIM are even still alive are because they can push out $200 smartphones with no subsidy in places like India.
Apple has done well with the subsidy model. However it is clear carriers are either questioning it or struggling with it and thus have started cutting corners. Contract terms are being extended a few months, upgrade fees are being added per line, little perks are being eliminated, etc. There has even been talk that Apple is being subsidized via Android phone sales in terms of carriers charging more for Android phones to avoid having to eat more of the Apple subsidy.
This article for me basically attempts to justify an unsustainable model. That doesn't mean Apple makes a terrible phone or that people will want to stop buying it for something else. The reality is simply that Europe is going back into recession, the U.S. may or may not follow, and large chunks of the world already do not subsidize phones. It doesn't mean that Apple still won't capture the majority of profits within the cell phone market. It does mean margins are under pressure for everyone and that will likely be less money to become profits for most companies. The low hanging fruit and easy growth will largely be gone and future growth will have to be legitimate, not subsidized with the promise of future profits for the carriers.
There likely will be a lot of consolidation, pressure on profits and an inability to control pricing for much of the market. I don't think Apple is above that. One of the interesting thing that no one discusses much is legacy costs. The positives of an "ecosystem" become negatives quickly if profits plummet and you are stuck with legacy costs. Most phone carriers have adopted or joined ecosystems that they do not have to directly fund. Nokia for example has largely chucked Meego and Symbian for Windows Phone. All of the Android providers obviously let Google handle a large number of services for them. We saw back when Apple was struggling with the Mac that having to roll your own everything can be very expensive when there isn't a huge tide of profits to support it all.
EBITA is not a good way to think about how much of your $90 goes to paying for your service.
You definitely have to think about interest and depreciation as a "cost to my service" in the wireless market, there is going to be an interest cost which you can just think of as the cost of investing in asset purchases to provide wireless services (Cell phone towers, networks systems) which most people would prefer over an upfront fee to join a phone company so they can finance capital expenditures.
Depreciation is extremely important to include when thinking about how much of your service fee actually pays for service. Accounting principles are based on the idea that an asset that provides service is eventually going to be worthless in the long run, which makes since in a technologically driven industry. A company put up cash, added an asset to the balance sheet, prepaid for a cost of what it takes to provide you with service, however you want to think about it, and that upfront cost (Asset on the balance sheet) has to be spread over a period of time (someones service) when thinking about how much of your fee goes to paying for service.
Now of course its hard to measure what asset classes are going to be purchased and the rate of which a companies various assets can depreciate according to the IRS, so it still should not be used as a perfect number, but to a fairly large degree should be considered.