Apple have been technology trend setters for a number of years; notable so since the launch of the iPod. Now with the launch of the iPhone in the US and its imminent release across Europe Apple are not only setting trends but are also going to chance the Mobile Market Place in the UK.
The mobile market in the UK is very competitive with 6 main mobile network (Virgin, 3, Vodafone, O2, Orange and T-Mobile) and many other virtual networks (Tesco, Asda and Fresh). You also don’t have to walk very far to find mobile phone retailer on the high street. The main 6 operators sign customers up to a 18 months contracts and pay a commission to the retailer. This commission allows the retailer to discount the cost of handsets normally reduced to free, this means deals can look very attractive for the customer. The problem is the profit that retailer are making is reduced more and more as the price of handsets go up. The networks are pushing for longer contract lengths so they can give higher commissions to the retailers allowing them to discount better handsets, contract lengths used to be 12 months. The biggest problem with this is handset manufacturers are making bigger and better phone that all cost more money. Mobile plans are not getting any cheaper because customer expect the get their phones for free and this means that the networks all keep there prices at a level where they can cover the cost of the handsets (commission to the retailer) and make as much profit as they can.
Now along comes Apple and the iPhone. Apple are pushing a geniuses proposal to the networks that wants to sell its phone. Like Apple do with their other electronics they keep the price set; most Apple product are the same price no matter where you buy them and they want it to be the same for the iPhone. This means that you will buy the iPhone at the set Apple price, About £250.
Dose that means is the retailer are going to make a much larger profit from selling a iPhone? Wrong! Apple know that their products are very sort after and thus the network that gets the exclusive deal to sell the iPhone will also get a bucket full of new customers. Apple are making sure they get some of the extra money the networks are going to make. The agreement with the network (probably O2) is that Apple will get about 10% of the revenue from every customer that buys a iPhone, they will also make a profit from the purchase price of the phone itself. They are not going to allow the retailer/networks to discount the phone in anyway! Apple, as always have negotiated themselves into a tremendous deal and the fact that customers will have to pay for the phone probably won’t hurt there sales either.
Like it or not but this could be the best thing to happen to the mobile industry in the UK.
Even with the 10% of the customers revenue going to Apple, the networks are still going to make a lot more money from selling the iPhone. The average mobile handset costs about £250 and commission to the retailer is around £350. Networks profit for a 18 months contract is about £370 after paying the retailer their commission. When the retailer is no longer discounting the phone the network can easily reduce the commission they pay down from £350 to about £70. This won’t hurt the retailer that much as they should make a small profit from the handset sale itself, about £30. So the retailer will make about £100, round the same as they were before. The network will make about £585 profit after paying Apple there 10% that’s a extra £215 ARPU (Average Revenue Per User) and lets be honest a customer that buys a iPhone are not going to be average, their is a much higher chance of making more money from a customer with a high end handset; additional data based applications on the phone will drive up customers use. It is with all this is mind that triggers the change to the mobile industry.
When the other handset manufactures see how Apple are selling their phone and when it inevitably turn out to be very profitable for them, things are going to change.
The number of very high end handset in the market place is not known to the majority of customers due to the fact that they have to pay to get these handsets. Due to the costs involved with these high end phones, few retailers focus on selling them, this is due to the “I want it for Free” mentality of the customer, from the retailers point of view “Why try to push the high end handsets that customers would have to pay for, when we can simply push the low end phones that we can discount to free”.
This has meant that most high end phone are geared towards the business customers (Nokia Communicator, HTC Exec, XDA etc) with very little features for the “Fun loving” customers with plenty of money. Most of these handset are very much based on productivity with email, Spreadsheets, Word Processing and Organisation; however the trend for most of the “Fun loving” customers is a mix of these “Microsoft Gray” features with web applications, music, video and games. The iPhone is a step in the right direction for these customers but if more manufactures focused on combining all of this with good design and the Apple pricing method there would be able to push peoples to take higher end devices and allowing them to build a better handset without cutting corners when it comes to quality. Also in this age of technology more and more people are wanting “Hi Tech” for personnel use. Again the network could support the handsets with a better multi media tariffs, giving the customer more of a reason to pay the higher cost for the handset. With the handset manufacturers on board and the networks support the mobile market could move forward to the next step; based on quality handsets and better pricing for the customer. I am a big believer in the impact that Apple are going to have on the mobile phone industry in the UK with the introduction of the iPhone and the “Apple method” of selling its phones; however I also believe that a number of other thing are going to change over the next year.
My predictions for the change in the industry are:
1 – More high end handset sold using the “Apple Method”.
- There is no reason why this should not happen, it may not occur across all phones but almost certainly with Key high end devices.
2 – More SIM only contract with little or no contract tie ins.
- People have a much shorter fuss when it come to dealing with bad service or high bills. Normally the high bills are due to the customer not fully understanding how tariffs work (i.e. high line rental=lower bills) so they connect to low line rent tariff thinking it will make their bills lower. When a customer gets bad service or high bill they want to jump ship to another network quickly. SIM only deal with pick up the jumpers that will still have there handset. Also there are a number of customer that just want the best handset available and don’t want to wait to get it, they buy direct from the manufactories then want a good deal but the mainstream offers include a handset that they just don’t want.
- Mid to High end Pre Pay customers have a phone but don’t like “Toping up” all the time. Cheap SIM deals with help them make the switch.
3 – Converged Services
- Multi service tie ins. Broadband, Mobile, Landline, Petrol, Banking, Shopping, Insurance, Mortgages. With more and more companies with fingers in every dirty little pie they can get there 25 fingered hands on, Multi service can mean a overall big discount for the customer and more money for the Network / Company. Virgin Media (Mobile, Land Line, Broadband and T.V. for £40) are the first to do this well and I’m sure we will see a number of other companies doing similar using the mobile services as the anchor with the aim being people as less likely to go to another provider when they are getting discounts on multiple service..
4 – The End of GSM
- WiFi enable devices will take over the standard mobile market place, another reason why manufactures should move away from the low cost subsidised GSM / 3G handsets.Apple going to change the UK mobile market