May 11, 2012
Strange Bedfellows – Apple’s Carrier Saga
Michael Harper for RedOrbit.com
It shouldn´t be overlooked that Apple is unlike any other handset manufacturer to come before them. You remember the days before Apple, of course. When the time came to buy a new phone, whether it be because you were switching carriers or because your two-year contract was up and you felt like a change, you would visit your local carrier-authorized store. There, a helpful representative would show you which phones you were allowed to buy within your plan. Smartphones weren´t nearly as big of a deal before 2007 as they are now, so it´s likely you would be pointed towards some sort of flip phone job, or perhaps something a lÃ¡ Motorola Razr. You´d sign a few papers, the representative would try to up-sell you on an insurance plan, a car-charger, or a case with a handle and soon you´d be on your way, your next few weeks occupied with abruptly ended phone calls and butt-dials as you tried to figure out your new phone.
There was no real spark in these phones, no real sex-appeal, no real grabbing feature which made you excited to use the phone.
(Unless, of course, you had a thing for keyboards and blinking red lights)
Life was different before the iPhone.
Now, as we approach the 5 year anniversary of what has oft been dubbed the “Jesus” phone, stories have begun to emerge detailing the carriers´ hard feelings towards Apple. Some are even saying the subsidies the carriers put up front to sell the iPhone are too high to sustain business.
Yet, for every complaint from the carriers of Apple´s expensive tastes and high subsidies–which sound more like jealous ranting, since Apple is making plenty of money per device–there are other stories of carriers who are just dying to have a few spare minutes with the iPhone, to really show her what a good time looks like. They´ve yet to have the iPhone and they´re sure they need it in their lives. For all these (American) carriers, does the iPhone make a good fit, or are they all strange bedfellows in an odd and twisted carrier / Apple four-way?
In doing my research, I couldn´t help but notice the ever-so-subtle irony of some of the articles I was finding, especially in how they were arranged on the page.
For instance, I found 3 articles which perfectly describe the iPhone dilemma, in my opinion.
First is an article in the New York Times by Brian X. Chen, wherein AT&T CEO Randall Stephenson reveals that he is very deeply and very personally upset by the iPhone and, more specifically, AT&T´s decision to sell it with an unlimited data plan. In this piece, we also get a rare glimpse into how the other side lives as we learn which world issues keep CEOs up late at night.
Blaming the carriers for the predicament they´re in right now (what with smartphone users wanting cheaper data plans and carriers wanting more money) Stephenson says if AT&T hadn´t given their customers the option for unlimited data, they wouldn´t have ever thought it existed, thus making it easier for the heavy users to pay more than light users.
“My only regret was how we introduced pricing in the beginning, because how did we introduce pricing? Thirty dollars and you get all you can eat,” said Stephenson.
“And it´s a variable cost model. Every additional megabyte you use in this network, I have to invest capital,” he said, making it ever-so-personal.
In fact, AT&T cancelled unlimited data just 2 years after the iPhone was announced and so far, it seems to be working. Last week they announced they had made $6.1 billion in revenue from mobile data alone.
But heavy hangs the head who wears the crown, as they say, for Stephenson hasn´t been able to get any sleep lately thinking about Apple´s iMessage and the extra billions they could be making by nickel and dime-ing their subscribers with every incoming and outgoing text message.
“You lie awake at night worrying about what is that which will disrupt your business model,” he said. “Apple iMessage is a classic example. If you´re using iMessage, you´re not using one of our messaging services, right? That´s disruptive to our messaging revenue stream.”
Of course, AT&T–known in the beginning as Cingular–didn´t have much room to complain. They were the exclusive carrier of the iPhone for nearly 4 years, thus beginning the love affair between Apple and the world. That is, until Verizon joined their ranks in January of 2011.
It´s important to remember, however, that Verizon initially spurned Apple and Jobs to become the first, exclusive carrier for the brand new Magic Phone. Cingular, deciding they could probably make the deal work once they persuaded Apple to take off her ugly glasses (high prices) jumped on board, hoping to be known as the first carrier to ever get in bed with Apple. Of Course, in doing so, they also became the first carrier to bow down to the Jobs-ian whims of Apple, paving the way for what was to come.
We all know what happens next, of course. The iPhone took off like a rocket. Maybe not so much in that first year, but while early adopters were bragging about their cool new gadget and showing off the slick accelerometer, touchscreen, and web-surfing, their friends were standing by for their contracts to expire. When they did, they pounced on Apple´s second release, the 3G. This time, the phone could actually access AT&T´s faster networks, and third-party apps were announced. Everyone wanted the iPhone.
And the carriers who didn´t have it began to worry.
Sure, they weren´t in too much trouble yet, but they knew what was coming. Which brings me to the second story I found regarding carriers and the iPhone: While AT&T´s Thompson is suffering through sleepless nights thanks to the Apple smartphone, Sprint CEO Dan Hesse is literally paying for iPhones out of his own pocket in a bold move to keep the carrier in contention with AT&T and Verizon.
In fact, this isn´t even the first time Sprint has bet boldly on the iPhone to help boost their sales. Last October, Sprint paid up front to the tune of $20 billion to purchase 30.5 million iPhones for 4 years.
Hesse even said, up front, that Sprint would likely lose money on the deal until 2014, but cited the number one reason his customers were leaving in droves was because Sprint didn´t have the special magic sauce that is the iPhone.
“Subsidies are heavy for the iPhone. This is the reason why a high percentage of new customers is important,” Hesse said in a March 2012 interview with Mobile World Live.
“But iPhone customers have a lower level of churn and they actually use less data on average than a high-end 4G Android device. So from a cost point of view and a customer lifetime value perspective. They´re more profitable than the average smartphone customer.”
Hesse believes in iPhone and iPhone customers. He believes in them so much he is turning his $3.25 million bonus back into the company to offset the cost of their investment, which is exactly how Hesse sees it. Are iPhones selling that poorly for Sprint, though?
As it turns out, no. In their last quarter, Sprint sold 1.5 million iPhones, down only by .3 million from the hot holiday season. During the first quarter, 44% of new customers were also iPhone customers. Hesse may be right about his big iPhone bets paying off by 2014.
So far there´s a very odd picture being painted of a torrid love-triangle between the iPhone and the carriers. AT&T and Apple were the best lovers for the first few years. Then they began to bicker and fight about who was responsible for bringing the network down and who was costing too much in data. All the while, the other carriers had their eye on the iPhone, just biding their time, knowing full well that if they ever got a chance at the iPhone, they wouldn´t treat it so badly. They´d take it out to dinner, flaunt it at the front of their stores, and tell the world that they were finally in bed with Apple.
Verizon was the coy one of the group, as everyone had already assumed Apple would go back to her first love once everyone realized she had been a ravishing beauty all along, and it was only the carriers who had been blind.
Verizon, you remember, dipped their toe in first, offering the first iPad with a Verizon Mobile hotspot plan.
Just a date here and there, really.
Verizon even tried to date the cheap, easy girl to make Apple jealous, pushing billions of dollars into marketing to become the number one carrier for Android. Now that Apple and Verizon have finally been seen together again, they keep it pretty casual, more like old friends than the white hot flame they once were.
Pity, then, the one carrier who remains left out in the cold.
In the third story, T-Mobile is doing all they can just to get Apple´s attention, going so far as to drive through Cupertino with her favorite song on the radio, asking her to remember the good times when she would crawl out of AT&T´s window late at night and have a romp in T-Mobile´s neighborhood.
Before Verizon came along, the iPhone only worked via SIM card on GSM networks, and it didn´t take long for users to find a way to get the iPhone on T-Mobile´s network. Now, T-Mo is shifting around some of their spectrum to accommodate all those transient devices, bringing them up to the faster HSPA+ speeds. (Until now, iPhone users on T-Mobile´s network have been paying less, but operating on the original EDGE network. You do, after all, get what you pay for.)
If that weren´t enough of a plea for attention, love and understanding, T-Mo is also spending some of that sweet cash they got from the failed buy-out deal with AT&T to extend their 4G rollout through 2013. Of course, T-Mobile hasn´t made any direct mention of cleaning up their house in hopes that Apple might stop by, but the fact that they're playing her favorite song, making her favorite meal, and wearing her favorite shirt sure do communicate a little something.
So why are the complaints from AT&T about higher subsidies and messaging plans keeping Thompson awake at night while CEO Hesse is buying iPhones for his customers by the crateful? And why are Verizon representatives actively steering customers away from iPhone and into the shipwreck that is Android when T-Mobile is doing everything short of mowing the Apple logo into the bushes on their front lawn?
Further complicating these issues are the recent rumors that Apple just wants to fly solo for a while to, you know, figure out what it all means and see if they really need to be in a relationship right now or if life can go a little easier on their own.
The iPhone, so far, is doing more than exceeding customers´ expectations; it´s creating them. We weren´t used to having nice things in those years before the year of our lord, Two-Thousand and Seven. All we had known were thick, plastic buttons and black-and-white screens. The iPhone showed us our future, a glimpse into the bright, wide world of tomorrow and of hopes yet to come. So many things that weren´t possible before the iPhone (like Twitter and mobile check deposits and visual voice mail and vintage-styled digital photographs) are now common place, and without these features, we would storm the gates of our carriers, demanding for them to get back in the sack with Apple.
AT&T may piss and moan about the high subsidy costs and Verizon may try to shift their customers to a cheaper phone to save some of their subsidy costs, but the fact is, the iPhone isn´t going anywhere anytime soon. We´re all still enamored with it, and even if Apple decided to forego its other lovers, (poor, poor T-Mobile) we´d still root for it because, damnit, it´s done so much for us already, and it deserves to truly be happy for once in its life.