Should operators drool over the iPhone?

How badly do most GSM/HSPA wireless operators around the world want to sell Apple iPhones? Very, according to many industry insiders. The companies are apparently deeply jealous that some carriers – like Rogers Wireless in this country and AT&T south of the border – have exclusive rights on the hot device. Since it was introduced two years ago, soaring sales and wireless revenue has lead observers to conclude that iPhones drive wireless profits. However, according to a consulting company in Denmark it's a myth. Strand Consult looked at the financial results of a number of operators in the U.S., Sweden, Denmark, Norway and Singapore and concluded that wireless data and revenue growth among those who don't sell iPhones is about the same as those who do. Mobile data growth is being driven by the increased availability of wireless broadband, it found, not by the fancy handset. The data traffic iPhone generates is “marginal” compared to all of the wireless traffic whipping through the air.
Consider this: More broadband connections are being sold globally every quarter than the total number of iPhones sold in the last two years, Strand points out. OK, in Europe wireless is sold differently than in North America. But after examining AT&T's publicly-available average revenue per user (ARPU), wireless numbers, Strand found no proof that it has been able to use the iPhone to leverage wireless growth better than its competitors. True, the financial results don't break out the numbers by handset. However, if there was a benefit, Strand believes, it would show up. Admittedly, iPhone subscribers are only a small part of AT&T's total wireless subscribers. Still, Strand says that AT&T publicly touts the advantages is has gained from carrying iPhones, including helping snare customers from other operators. If so, it ain't showing up on the bottom line.

Why? One reason, Strand says, is that it costs operators who subsidize iPhone handsets more to get an iPhone subscriber. As proof, it cites the finances of mobile virtual network operators (MVNOs) who lease spectrum from licence holders). They don't sell handsets, so their subscriber acquisition costs are low. “The bottom line,” says Strand, “is that while the iPhone is poor business for Apple partner operators, it is very good business for MVNOs that are targeting the existing iPhone customers on the market.” Going further, it suggests operators reduce or discount iPhone subsidies because obviously handset isn't a cash cow.

One more thing: In some areas, like Europe, Apple can't distribute exclusively We should only be so lucky, because in those areas the competition is about which operator can offer the cheapest traffic rather than who can offer a desireable handset.

What does Rogers says about this? “Unfortunately, we will be unable to participate in an interview at this time,” a company spokesperson said in an e-mail Thursday. “However,” she added, “I can tell you that Apple is a great partner and Rogers is happy to work with them to bring the iPhone to Canadians.”

Presumably, all this is good news for Bell Canada, Telus Corp., who are rushing to finish their new HSPA network, and soon-to-launch HSPA newcomers Wind Mobile, DAVE Wireless and Videotron. We in the meediah have believed that one of the reasons they chose this technology is to get their hands on iPhones, should the Rogers monopoly vanish. So, if Strand is to be believed, they can chill out (if they haven't already come to the same conclusions).

Well, maybe, says Iain Grant, managing director of the SeaBoard Group, a Montreal-based telecommunications consultancy. Carriers feel the Apple deal is so bad their lining up to sign on the dotted line, he said “How bad could it be?” There is a huge benefit from having subscribers move from a base plan to a more expensive (and lucrative) data plan because they switch to an iPhone, he said. And all public financial reports “mask more than they reveal. I certainly know that AT&T is enthusiastic. Not only are they getting customers, they are getting broadband data subscriptions for three years and the usage behavior patterns of people who have iPhones are something they are really excited about.”

If Grant is right, Rogers will want to keep its iPhone exclusivity for a long time, while Bell et al continue to drool – and pray they can get their hands on The Next Great Phone.

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