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back to article Apple's iPhone loses carriers money, claims researcher

The iPhone isn't the cash-cow many operators behave as though they believe it to be, a market watcher claims. Denmark's Strand Consulting says that operators have fallen over themselves to gain access to the trendy handset - and rather a lot of money has dropped from their pockets as a result. Operators pay much of their iPhone …

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Try buying one on PAYG

Try this simple test.

Go into any CarphoneWarehouse or O2 store and ask to buy an iPhone 3GS on PAYG.

They will tell you that it is currently out of stock and it may be several weeks before they get stock - or some similar statement, they'll also tell you that they DO have it in stcok on Contract SIMS.

Now, do you know what the difference is between a PAYG sim and a Contract SIM? Nothing.

It's the same phone, the same box, the only difference is the box they tick for activation.

O2 and CPW simply do no wish to sell the phone on PAYG, therefore they must be making more money from Contract than from PAYG phones. So much more, that they would rather loose the £440 sale than sell the phone to a PAYG customer, and then keep the phone in stock until a contract customer comes along.

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Thumb Up

HA!

I knew it!

A loss leader perhaps? I don't think that model works in the mobile phone market.

I'm sure Apple present the products as one that can make money for their vendors.

I'd like to see the vendor product managers explain this one to the board of directors.

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Stop

ARPU

There are no hard facts upon which to draw a conclusion. People need to back up their statements with data.

Apple are doing something right - I still can't get a 32GB iPhone 3GS from my local 02 store and I've been calling in every week. They won't "reserve" one for me. So either Apple are having production problems or the phones are selling exceptionally well (considering they were launched some time ago).

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Don't go to O2, CPW, etc!

I went to those places first and got the usual run around and sales pressure. Luckily(?) I live in Birmingham, so went to the Apple store. Plenty of stock in every flavour, no hard sell, and a fairly painless/quick procedure (new O2 contract in this case).

I don't believe carriers are losing money at all. The iphone prices are still quite high even on high contract terms, and the contracts themselves are also long and expensive compared to other carriers. If O2 are losing money with the iphone pricing, everyone must be losing money!

With T-Mobile I paid less for my phones, less for my contract, yet still had similar allowances, inc web and walk. I don't think I've used much more 3G with O2 than I did before, especially as all data is pushed through wifi when I'm at home/work. (O2's 3G is so crappy I doubt you could swallow up much bandwidth out and about even if you tried!)

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Anonymous Coward

Internet Teathering... easy money in o2's pocket?

I suspect o2 are making something from the iPhone whether financial or marketing based.

Also I was interested to find that you cannot use your iPhone as a pc 3g modem, unlike many other smartphones with "unlimited data", without paying additional money on top of your high monthly charge which includes "unlimited data" for the phone, o2 are calling it internet teathering and I assume is one way that o2 will drive greater revenue from the iPhone is to effectively make you pay twice for the same thing.

That being said maybe with the improved user interface on the iPhone you don't need to use your phone plugged into your laptop quite so often to do common "out of office" tasks!

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Pirate

Rattle & Hum ?

Sabre rattling from the vendors for a price drop from Apple me thinks! Especially with Christmas on the horizon.

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AT&T

Spare a thought for poor Ma Bell while you're at it. The evil rumour mill has it that their network was so utterly shite that they've had to spend mucho wonga to upgrade it to cope with the metrosexuals pounding it with their Jesus 'phones on the "unlimited" data service, so much so that this area of their service would have been about as reliable as O2's without some much needed attention. Thus, any profit they may have made (yeah, OK, but hypothetically) from the Jesus 'phone disappears into capex. Lovely.

Still, they only have themselves to blame ;o)

Hmm, troll, evil Steve or FAIL? Bugger it, none of 'em...

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Paris Hilton

Re:ARPU

"Apple are doing something right - I still can't get a 32GB iPhone 3GS from my local 02 store and I've been calling in every week. They won't "reserve" one for me."

I wonder if merely having the iPhone in the store gets footfall up to the point where the phone shops turnover/signed contact value increases: "Sorry, sir, we've no iPhones in at the moment, but have you tried this LG/SE/Nokia model? It does all the same things that the iPhone does, but it's £20 a month less, has a better camera and the handset is free?"

The iPhone is a very nice bit of kit, but it is pricey (£77.00 per month if you want a 3GS@32gig and you don't want to break out the plastic to pay an upfront cost), and I can't believe that a member of the public couldn't be coralled into buying a much cheaper alternate phone if the salesman has a good crack at them.

Anyhow, isn't anyone who buys an iPhone a sheep anyway? Surely they can't be *that* hard to persuade into a Nokia?

Paris, for the persuasion/coercion factor....

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Stop

Cost to reputation ?

There is no doubt that O2's reputation has been hit hard by the impact of iPhone on its network. The constant Network outages suggests it certainly lacks the capacity to handle the load.

For this reason, O2 has received a lot of flack from other customers who certainly pull in more revenue in total than the iPhone users. I wonder how many customers have switched because of this. The same goes for AT&T in the states. Not a fault of the iPhone itself of course.

I dont think operators will crawl over broken glass to renew iPhone exclusivity especially now that comparable smartphones (Pre, Android) are hitting the market.

ps

the author of this article sounds like a big iPhone fan - very subjective to the point of defensive

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Anonymous Coward

AppStore

Does anyone know if the operators get a share of the AppStore % taken from the devs? The 30% cut on Android purchases goes to the networks rather than Google.

If so has that been taken into account?

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Anonymous Coward

Lost Cause

Let's be honest, the iPhone lovers are the same type of people who get excited when they see their own reflections. A shiny toy for iDiots.

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FAIL

O2

"It's hard to believe that the iPhone hasn't raised O2's profile among mainstream consumers"

Oh but it has. It's made a "we hate you" campaign. Since the launch of that "thing" O2 haven't picked up any of the good phones. It got the HTC Diamond as the Ignito but that was almost 6 months after everyone else, and it's not picked up the TouchPro 2 either. Also to add insult to injury they have upped the prices of there current handset so most of the phones you could get free on an 18mo £35 p/m contract are not free on 18mo £75+ or 24mo £45+

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O2 become no.1 in UK after taking on Iphone

Coincidence? - I think not. Admittedly Vodafone have themselves to blame for a lot of their current woes but some of its due to the Iphone Halo effect imo.....

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Paris Hilton

Awwww

please excuse me while I shed a tear for the poor, poor operators.

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WTF?

Simple...

... if you can't get the iPhone 3GS from CPW or O2, go to the Apple Store.... They will fall over themselves to give it to you on PAYG or Contract...

... And as for the network operator, ie, O2, not making enough money from the iPhone? If they provided a reliable service, and had negotiated their contract better with Apple, then maybe they would be making more from it. Its no one else's fault but their own...

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I left O2 because of the iphone

Once getting the jebus phone there attitude towards anything else stunk and so when I wanted a touch pro 2 (in my view a far superior phone to the iphone) I went elsewhere.

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FAIL

Boo hoo hoo

Cry me a river.

Have you seen how much Telstra charges for data down here? Not to mention every other network... though they give special deals and bonuses to you if you have a iPhone, oh yes. You have Sony Ericsson? No soup for you!

so, cry me a fucking Amazon, or charge me $10/month for 500mb instead of $250...

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MnM
Troll

Apple's iPhone loses users credibility

doesn't stop them either

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Anonymous Coward

Of course they are making money

What an absurd idea that they aren't.

Simple economics:

You pay for the hardware (which is subsidised by O2 at a similar rate to any handset)

You then pay at least £10 per month more for your iPhone than for any other phone on a similar minutes/texts deal. Remember that the similar & cheaper deal would have made them a handsome wad of cash in itself.

O2 then give a portion of that monthly to Apple.

Meanwhile, O2 / CPW pay their sales staff. This will be at least in part commission based and also their monthly figures will be used for performance monitoring.

So, you work for O2 / CPW and a customer comes in looking for a Nokia ZZFG675 TurboPhone. You do the maths and find this will get you £20 commission up front, £2.50 per month and look good at the next sales meeting. So you sell them one.

next up comes someone asking for an iPhone. You again do the maths and find this will count £10 against your months commission, will lose you £1 commission per month and make your figures look bad. I think you would find the last iPhone "was only just sold a few minutes ago, sorry"

Given the numbers of iPhones sold by O2 / CPW this seems unlikely.

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Grenade

Keeping it out of others' hands.

Operators would be mad to let anyone else get the Apple deal.

It drives business, massively improves brand awareness and can make even the most dull network appear to be hip and groovy - enhancing their brand further.

I know of one operator that's kicking itself for not winning the contract.

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Anonymous Coward

o2

Funny you mentioned that it raised the profile of O2. I have been with them for 8 years. Left them last year due to shoddy network issues (slow, down time, crap reception), increased cost and very little deals.

Couldn't give a shit about the iPhone either.

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Grenade

opposite view

"The evil rumour mill has it that their network was so utterly shite that they've had to spend mucho wonga to upgrade it to cope with the metrosexuals pounding it with their Jesus 'phones on the "unlimited" data service, so much so that this area of their service would have been about as reliable as O2's without some much needed attention. Thus, any profit they may have made (yeah, OK, but hypothetically) from the Jesus 'phone disappears into capex. Lovely."

So what you are saying is that they made so much profit from one phone, that they were able to upgrade their network? Without the iphone, all their users may still be on the old "shite" network and no sign of an upgrade. Now, if i could get a product into my sales line-up that would allow me to totally upgrade all my infrastructure in 2 years time, i think i would signup in an instant. That is GOOD business.

Of course, the obvious-ness of many things are lost on most readers here as they only see things as THEY want it, and wouldnt last 5 mins in the real world if they had to try and run any kind of company...

Is it Monday???

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Anonymous Coward

O2

The only thing I've learnt from O2 (courtesy of iPhone wielding friends) is that they have shit network coverage and uptime.

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You are mistaken

I used to work for o2 behind the scenes, and I can assure you that their management are nowhere near clever enough to have thought this through one way or the other. It must be a fluke.

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Big Brother

Why isn't there a national phone system?

I had two Windows Smart phones before I iPhone. And I find that the iPhone is the first one I'm managed to get to grips with. I don't like phones much. But the easy to use email interface and webbrower have won me over to carrying it with me pretty much all the time.

We were on Orange, 3 handsets paying £100 a month. Moved over to O2 and now paying £80 a month or there abouts.

The coverage is shockingly bad in some places, and fine in others.

it seems frightfully inefficient to have so many different mobile networks though. Why isn't their one wireless network, ran a bit like the national grid? In the rural area I work in, some of my clients are farms, and their workers sometimes need to have 3 different networks to get good signal across their whole farm.

So for me getting an iPhone was a good experience, but not being able to use it on Orange was an eye opener - cause the O2 network is shoddy.

I want one phone, one bill and the best coverage. Why can't my provider sell me that? I blame the Government.

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@John Square

"Anyhow, isn't anyone who buys an iPhone a sheep anyway? Surely they can't be *that* hard to persuade into a Nokia?"

I used to love my Nokia, until Symbian OS drove me mad with all it's bugs, then I was in love with SE, until they started seperating desirable features over a range of handsets. I was about to dip back into Nokia until we got hold of the new N-series handsets and discovered Symbian hadn't improved, but gotten /worse/.

I've got three iPhones now (for developing on) and all I can see is improvements; they look kinda the same, they operate kinda the same, but guess what? They're getting better with each update.

Contrary to profiling, I'm not an Apple fan (I have a homebuilt PC as well as a Mac, and I use the Mac less than my ugly plastic box). I don't particularly think the iPhone is all that attractive - it's not ugly at least. But I really do appreciate the fact that I never get pissed off with it, at least not as much as I've gotten pissed off with every other phone I've ever owned, sooner or later.

Aside from absolute basic brick-phones with minimal functionality, it's rare to find something that doesn't piss you off more often than not. And that, I suppose, is the reason I'd not pick up a Nokia. Because I don't need it.

Simples.

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Anonymous Coward

Jumping Ship

I left my old network and joined O2 because I wanted an iPhone. If O2 had not got the exclusive, I wonder how many of its customers would have jumped ship. However, the most obvious flaw in the "researcher's" claim is that O2 is a business and businesses exist to make money; anything which loses them money, they do not do; ergo, selling the iPhone is beneficial to O2 - regardless of whether or not they are making money on each device sold.

Note to the iPhone-haters: I did not get an iPhone because of a "ooh, shiny!" moment, but because I already owned a Mac and thus my music, contacts, e-mail, etc. would sync seamlessly. I also wanted a phone with a usable Web browser, and to try my hand at writing software for it. If anything, the "ooh, shiny!" aspect of it made me want to *not* buy it. I'll happily agree that it's far from being perfect, but what it does do, it does very well.

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Timing

The major issue that the report misses is one of timing.

Apple's business case is simple - they receive all the cash at one and only recognize the revenue over the life of the contract (which is a very conservative approach and clearly designed to smooth out the surge of revenue they're seeing).

For the service provider, it's different. They have to pay Apple for the phone up front ( as well as making sure they have the bandwidth to handle data-hungry iPhone users), but recoup their revenue over the life of the phone.

Apple's cash is front loaded, so they're never cash poor on the deal. The service provider loses money for half of the contract and then make it up on the rest. So any time you look at a fixed time period, it looks worse for the service providers than it really is.

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Thumb Down

O2 really have lost the plot...

My recent experience suggests they are just not interested in your business unless you want an iPhone. I went into an o2 store, asked them about the HTC Touch Pro 2. They said, "we do not intend to sell that handset". I said, I have been an o2 customer for 10 years, I would like to stay, is there anything you can do for me? He said no. I said, "okay, I'm walking out of the shop and into the Voda shop next door" and they didn't even try to stop me. Not even a suggestion of a different handset.

I got the exact same line from the retentions team when I called for my PAC code. The girl didn't even try to persuade me to stay. 30 second phone call, sorted. Bye-bye, O2.

Shame really. I used to like O2 - now they only want your custom if you're a sheep!

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Glad i o2 not making money

I am glad if O2 are not making money. I was on Holiday last week in Torquay and I had a full 3g signal on my iphone and a crap 3g signal on my O2 pay as you go dongle.

While on call O2 to sort something else out I asked O2 why the difference and he told me the iPhone 3g network is for only text and voice NOT DATA and the Dongle is only for data. so there you go its one big con.

The dongle had around a 1/3 of the full bar and the iPhone 3G had full 3g signal....

He even told me that they use two different coverage Maps when people ask them to check for cover for there area....depending on what they are using. phone or dongle.

And when I get home still got good 3g on iphone but only GPRS on dongle arghhhh

And only had O2 dongle as I got it free with a wibrain from Gadget show live this year

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@ Ed 34

To be fair, why would the largest mobile phone operator in the country with network capacity issues give a t0ss about you? The only businesses that show their customers *love* are those businesses for whom customers are a rarity.

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iPhone is driving the development of mobile data

I can believe that network capacity issues* and hard-ball pricing from Apple, and frankly why not exploit the popularity, could well leave some operators out of pocket in the short term. In the long term, the iPhone has opened a Pandora's box of new reasons for people to actually use mobile access to the internet, and that has got to be a good thing for everyone, now and in future. Ubiquitous high speed access enables many more 'game changing' products from innovators, and embeds wireless data network companies into our pockets for ever.

*(especially in the US with no standard 2G+3G so operators complement each others coverage and traffic - for a fee or as a mutually beneficial agreement)

@ Frostbite "Sabre rattling from the vendors for a price drop from Apple me thinks! Especially with Christmas on the horizon."

Sounds a more likely reason for this report

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Boffin

Only 600-700k UK iPhones on O2

There are roughly 600-700k iPhone users on O2 UKs network - anyone thinking that ALL O2 cares about are iPhone users, or that that is the only phone they sell, are simply misinformed. And if you think that that number of subscribers really matters in the scheme of their 13MM+ active customer base, then you really can't do math. Yeah, they are important - but only because they ARE chewing up the 3G network (with dongles) airtime, and even hitting the 2G network as well. Capacity is well overstretched - but that is not just an O2 issue, Voda and others are experiencing it too. The simple fact is that the current wireless networks were designed for voice first, data as an afterthought.

Until we get LTE in place, that will continue to be the case for every operator, as more 3" screen-bearing smartphones begin to offer good browsers and downloadable apps.

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Anonymous Coward

Customers

The story is wrong in countries like the UK where that are a number of opporators. O2 has gaind a huge additional number of subscribers from other networks, something it could only have done in other circumstances by offering lower rates.

The iPhone has allowed O2 to gain market share without the need for added compettitivness and it cannopt loose customers to other carriers whilst they have the iPhone on an exclusive basis. If and when people get fed up withthe iPhone many will stay with O2 and and O2 gain again.

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Jobs Halo

@dave 93

You hit the nail right on the head. For years operators and their pet handset makers have been haranguing and cajoling their users into making more use of their data networks only to be met with a big fat "meh" from the GP.

Phone ads abound showing grinning idiots watching TV or vidcalls on their crappy gprs (and later 3g) handsets that were churned out to the network operators specs but people were not interested.

Rather than actually give their customers the products that they wanted the carriers and their trained handset makers just kept on pushing the same old tired products and failed every time.

The nub of the problem was that Nokia, Sony Ericsson et al saw the networks as their customers, and made products that the networks wanted and the end users wants and needs were almost totally ignored.

Then, along comes apple who are not under the thumb of the big carriers with a product that is aimed at people and not network operators and now every one wants an iphone. Suddenly, the data manipulation capabilities of your phone are just as important as the voice side, which up to then the combined might of the entire mobile industry had spectacularly failed to achieve, apart from RIM with their mobile email platform.

O, a bif FU to the incumbent mobile industry players. They had their chance and they blew it. They keep on pushing out copycat products but they have yet to prove that they "get it" even now.

And no, I'm not an apple fanboy, never owned a Mac but I have hated telcos and the crap services and phones they push for years.

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Jobs Horns

Tethering

"Also I was interested to find that you cannot use your iPhone as a pc 3g modem"

Yeah rite, (caveat to what I'm about to say, I don't own nor intend to buy one, ever) - if you can't 'ssh -D' it I'll vomit all over the floor.

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Anonymous Coward

RE: Internet Teathering... easy money in o2's pocket?

Not that I would condone anything illegal, but if you want to try internet tethering on your iPhone (via USB or Bluetooth) you should download the appropriate config from http://help.benm.at (the site is in Austria). I tried it (out of scientific curiosity) and it works, though I have not yet been in a suitable location where I get a suitable signal without the availability of better internet from other sources, i.e. free internet in hotels, etc. I tried it last night and even though I was on the 8th floor of hotel my iPhone reported crap coverage and browsing on my laptop reminded me of the good old days of low baud rate modems :)

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iPhone does lose carriers money, short term

That's because they're suddenly having to work for their living at their underlying trade, instead of being beancounter plus sales narcissists.

http://counternotions.com/2009/08/26/pre-iphone/

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Gates Horns

Ooohh Shiny - Not :)

Just a quick word to all the nonboi's on here who are wading in to the argument, stating that the only reason to buy an iPhone is because you like shiny things.

After being a pro user of Nokia's for about 12 years, interspersed with an occasional SE. I picked up an original iPod Touch when they were first released, which coincidentally is still my only "Mac". My main PC was handbuilt by me, and the other two in the house are build off old bits that still work....

Now with an aging N82 and iPod Touch that are both slowly dying from lots of use I find myself in the market for a new phone and mobile media/ game device... I've looked at various phones including the Hero and the iPhone 3GS, and the simple crux of it is that I want to have a single device that does all the things I want it too. Namely, make calls, sms and email as well as being able to play a few games and browse the web on the go and navigate on occasion when I'm in London Town.

Although the Hero is a lovely device, its musical and video performance is till sub par when even compared to the iPhone (give it another year and I think that this will be different though).

So I find myself resigned to the fact that the only device that will do both jobs reasonably well is the iPhone until Android improves (which I'm sure it will).

However I'll be dammed if I have to pay to get on to O2 absolutely rubbish network, so will instead wait until either I or a friend go on holiday to a location where you can just walk in to an Apple store and buy one for the same price as it would cost to buy a PAYG one here.

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Bronze badge

Plan

I think that what this really shows you is the madness that is the current mobile market.

What needs to happen is for some separation between the phone makers and the networks - you should be able to go into one store and buy a handset, and walk into any other store and buy/rent a sim card, with the two acts being entirely separate, like it is with computers, or land-lines, or cars...

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Wah

If AT&T/SBC is losing money, maybe they need to look at themselves for a change.

Wankers. Remember, SBC was the company that told the FCC that the problems with their missing scheduled land-line installed dates was that the people in the Midwest expected them to show up and do the installations on the date that SBC had chosen.

(Where's a Darth Vader/Deathstar icon when you need one?)

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FAIL

@The First Dave

Dave,

Very few consumers would want to pay the upfront costs of a non-subsidized phone, given the limited lifetimes of many devices. Additionally, there is a HELL of a lot of testing and certification on each device before it is rolled out onto a telco's network - and sometimes each network requests firmware upgrades to better support it's network from the handset vendor, and sometimes testing will show that a given handset has too many problems to be worth supporting (rare, but it has happened).

Then there is the question of support - while many El Reg readers can configure WAP and proxy gateways on their phones, the overall public is loathe to do this, and wants things pre-configured so they just work. And if a Joe Public user has issues, they expect to be able to get detailed help from the network operator (after all, Curry's or Best Buy staff will not know the way to configure your phone for each network either!). But network operators cannot be expert with all phones, nor have the skilled staff to support an infinite variety - so they offer a selection (and remember, they have to support even older phones they used to sell, so the number of supported devices for each network is actually fairly large).

All of this points that the handset is NOT independant of the network, and therefore I don't expect the current model to go away any time soon for Joe Public. I personally buy my phones seperately (until I got an iPhone!), starting when I just "had to have" a linux-powered Moto A780 that I bought in a decrepit importer's office in Manhattan, and then I "had to have" the one of first HTC Touch imported in the UK by Expansys...so I am very familiar with the issues of non-supported handsets! Fine for some of us, but a nightmare for most...

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WTF?

Price

Looked at the iphone on the simplest of contracts for the 32Gb 3GS. It came out as £1000 over the course of the contract. That's a lot of money for a phone.

Gonna stick with a simple phone until the costs come down

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