{"id":863,"date":"2007-08-27T14:32:16","date_gmt":"2007-08-27T13:32:16","guid":{"rendered":"http:\/\/smlp.co.uk\/blog\/?p=863"},"modified":"2007-08-27T14:32:16","modified_gmt":"2007-08-27T13:32:16","slug":"apple-going-to-change-the-uk-mobile-market","status":"publish","type":"post","link":"https:\/\/smlp.co.uk\/blog\/2007\/08\/apple-going-to-change-the-uk-mobile-market\/","title":{"rendered":"Apple going to change the UK mobile market"},"content":{"rendered":"

Apple have been technology trend setters for a number of years; notable so since the launch of the iPod.\u00a0 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.<\/p>\n

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).\u00a0 You also don\u2019t have to walk very far to find\u00a0 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.\u00a0 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.\u00a0 The problem is the profit that retailer are making is reduced more and more as the price of handsets go up.\u00a0 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.\u00a0 The biggest problem with this is handset manufacturers are making bigger and better phone that all cost more money.\u00a0 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.<\/p>\n

Now along comes Apple and the iPhone.\u00a0 Apple are pushing a geniuses proposal to the networks that wants to sell its phone.\u00a0 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.\u00a0 This means that you will buy the iPhone at the set Apple price,\u00a0 About \u00a3250.<\/p>\n

Dose that means is the retailer are going to make a much larger profit from selling a iPhone? Wrong!\u00a0 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.\u00a0 Apple are making sure they get some of the extra money the networks are going to make.\u00a0 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.\u00a0 They are not going to allow the retailer\/networks to discount the phone in anyway!\u00a0 Apple, as always have negotiated themselves into a tremendous deal and the fact that customers will have to pay for the phone probably won\u2019t hurt there sales either.<\/p>\n

Like it or not but this could be the best thing to happen to the mobile industry in the UK.<\/p>\n

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.\u00a0 The average mobile handset costs about \u00a3250 and commission to the retailer is around \u00a3350.\u00a0 Networks profit for a 18 months contract is about \u00a3370 after paying the retailer their commission.\u00a0 When the retailer is no longer discounting the phone the network can easily reduce the commission they pay down from \u00a3350 to about \u00a370.\u00a0 This won\u2019t hurt the retailer that much as they should make a small profit from the handset sale itself, about \u00a330.\u00a0 So the retailer will make about \u00a3100, round the same as they were before.\u00a0 The network will make about \u00a3585 profit after paying Apple there 10% that\u2019s a extra \u00a3215 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.\u00a0 It is with all this is mind that triggers the change to the mobile industry.<\/p>\n

\u2026<\/p>\n

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.<\/p>\n

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.\u00a0 Due to the costs involved with these high end phones, few retailers focus on selling them, this is due to the \u201cI want it for Free\u201d mentality of the customer, from the retailers point of view \u201cWhy 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\u201d.<\/p>\n

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 \u201cFun loving\u201d customers with plenty of money.\u00a0 Most of these handset are very much based on productivity with email, Spreadsheets, Word Processing and Organisation; however the trend for most of the \u201cFun loving\u201d customers is a mix of these \u201cMicrosoft Gray\u201d features with web applications, music, video and games.\u00a0 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.\u00a0 Also in this age of technology more and more people are wanting \u201cHi Tech\u201d 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.\u00a0 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.\u00a0 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 \u201cApple method\u201d of selling its phones; however I also believe that a number of other thing are going to change over the next year.<\/p>\n

My predictions for the change in the industry are:<\/p>\n

1 \u2013 More high end handset sold using the \u201cApple Method\u201d.<\/p>\n