Sunday, 24 February 2008

Could Apple resort to a contract-free iPhone?

Recent press reports indicate that Apple has three problems with its iPhone strategy:All three problems arise from one root cause – the networks. Sales are presumably lower than expected because the barrier imposed by requiring users to switch networks and sign new, expensive contracts is proving to be tougher to overcome than Apple had hoped. Income from network revenue-shares is lower than anticipated because of the large minority of unlocked handsets. The global rollout is slower than expected because Apple appears unable to extract the same revenue-share terms from other networks that they negotiated with AT&T.

Ironically, the deal that Apple struck with AT&T, which seemed so favourable to Apple at the time, is turning out to be more in the network’s favour. Whilst Apple succeeded in extracting an unprecedented agreement to share the networks’ revenue, this was at the costs of exclusivity to the network. And it’s precisely this exclusivity that is now limiting Apple’s options to promote sales. From AT&T’s perspective, however, the deal presumably still makes sense, because it’s helping to attract new customers to the network.

However, given that the success of iPhone is mission critical to Apple, Mac Predictions anticipates that the company will be willing to pay a hefty price to renegotiate with the networks. The result could be a new contract-free iPhone, sold at a small premium, alongside the locked iPhone.

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