The End of Exclusive: How Apple Plans to Grow Market Share

The handset may not be God, but the Jesus Phone has certainly won another zero-sum battle for customer loyalty over the owners of dumb pipes.

Tuesday both Orange and Vodafone (VOD) announced they will carry the iPhone in the UK. Virgin Mobile (VM) is also said to be “desperate” to carry the phone, while the only uninterested carrier is 3 (the commodity 3G operator).

This ends the two year exclusive of O2 in Great Britain and Ireland. Exclusives were the norm for the 2007 rollout and the original iPhone revenue share model, but not for the 2008 rollout where multiple carriers rolled out the iPhone. This explains how Apple (AAPL) plans to grow its market share, and also points to non-exclusive sales in its home market — presumably with Verizon (VZ), the largest carrier. Presumably the rest of Europe and Japan will eventually follow.

It also marks a retrenchment of Vodafone from its policy of promoting commodity handsets. Perhaps it has something to do with the iPhone's new status as Britain’s “coolest brand” — well ahead of YouTube, BlackBerry and anything by Sir Richard Branson.

Comments

[Aussie Machead:]

I guess we are lucky in Australia as iPhones are available from several carriers, Telstra (the largest), Optus, Vodaphone, Three - maybe that is why some of the cheapest plans by world comparisons are here - starting at $30 per mth including data. The only strange thing is Telstra only sells iPhones on Consumer Plans not Business Plans.. and they still promote Blackberries on the Business Plans. So business groups overcome it by having all except one phone on a consumer plan and choose a business plan for the one phone - then people buy one iPhone outright and put their business SIM into the iPhone. Sometimes I think the carriers are the irrational ones the world over

Sep 30 07:58 AM

[RobCS:]

While you use the word "presumably" I would offer that your presumption is actually an assumption based limited (read none) information about Apple's plans. You take a large leap based on a small event. Each country has distinct factors and standards governing telecommunication decisions. Apple would have to develop a totally different phone to function on the Verizon network and would need to resolve the issue of app distribution; Verizon has its own store. Very superficial analysis leads to weak conclusions.

Sep 30 08:40 AM

[drbob:]

Would be nice if Apple/ATT let us unlock our iPhone legally after the 2 year contract period.

Sep 30 08:52 AM

[Ryan2615:]

Don't forget virgin mobile bringing it to a total of five service providers plus apple sell them unlocked.


On Sep 30 07:58 AM Aussie Machead wrote:

> I guess we are lucky in Australia as iPhones are available from several
> carriers, Telstra (the largest), Optus, Vodaphone, Three - maybe
> that is why some of the cheapest plans by world comparisons are here
> - starting at $30 per mth including data. The only strange thing
> is Telstra only sells iPhones on Consumer Plans not Business Plans..
> and they still promote Blackberries on the Business Plans. So business
> groups overcome it by having all except one phone on a consumer plan
> and choose a business plan for the one phone - then people buy one
> iPhone outright and put their business SIM into the iPhone. Sometimes
> I think the carriers are the irrational ones the world over

Sep 30 09:16 AM

[sleepy:]

Actually, iPhone is a commodity handset; it's just a commodity with its own category, and a relatively high price. What makes it a commodity is (1) quantity sold/in use, (2) they are all iPhones with uniform device and global service specified and part implemented by Apple (via iTunes and MobileMe), (3) universal software update keeping them all in step.

Apple have created a product in its own generic market space, which is a business proposition for a carrier very similar to a basic voice+SMS phone, except for the higher ARPU it generates. It thus offers large and immediate growth for the carriers out of the saturated voice market. Apple's largest current business is selling growth to the carriers.

Sep 30 12:47 PM

[mollytjm:]

the other Apple advantage: they know how to run retail space and make a big profit. They do this better than almost any other retail company and that will help grow their market share everywhere.

Sep 30 01:10 PM

[Jeromekalve...:]

TELE MISSES THE BOAT ON SALESMANSHIP.
EVER WONDER WHY 4 GAS STATIONS AT ONE INTERSECTION? ANSWER-THEY ALL DO BETTER.

APPLE COULD TRIPLE BUSINESS IF THEY HAD MORE TELES SELLING. WHY DO YOU THINK
RIM LETS THEM ALL SELL IT'S GOODS?
JOHN Q PUBLIC WOULD GAIN WITH LOWER TELE AND APPLE COSTS
GET WITH IT GUYS

Sep 30 04:04 PM

[Cali-arch:]

FWIW-The iphone is the opposite of a commodity... a commodity is a product that is the same no matter who produces it. The software, hardware, and media platform (itunes) can't be replicated by any other producer. Apple is unique in it's vertical integration, which makes the iphone not only NOT a commodity, but it actually is the exact opposite of one! Wheat, oil, generic PC's, etc., these are commodities.

Sep 30 04:46 PM

[GSlusher:]

Which network would you use it on? The only other major, nationwide network the iPhone would work on would be T-Mobile. Verizon and Sprint are completely incompatible--you couldn't use an iPhone on them even if it were unlocked. They use CDMA. As I understand it (correct me if I'm wrong), one reason that Apple is unlikely to make a phone for Verizon or Sprint is that, at least until they make major changes to their systems, a phone cannot make a call AND get data at the same time. That's a big problem with the Pre. With the iPhone, you can be on a call and go online to look up something, get email, send someone a photo, etc. The Pre can't do that, so it's vaunted "multi-tasking" is pretty much irrelevant, as that's just the sort of "multi-tasking" that most people want to do.


On Sep 30 08:52 AM drbob wrote:

> Would be nice if Apple/ATT let us unlock our iPhone legally after
> the 2 year contract period.

Oct 01 02:42 AM

[gusone:]

It's small beer really. The price of the handsets is too high for the average person so do not expect an influx of chavs and scrotes with iphones. Most people who wanted an iphone have already got one. Granted there is the 0.1% people who were waiting for their current 18 month contract (UK is ridiculous for that) to expire so they can jump to O2 for an iphone. Now they will not. With monthly plans of £50+ per month and 2 year contracts it nots going to make a blind bit of difference to Apple's bottom line. Especially since there will be no revenue sharing with Vod and Orange like they had with O2. Its more an marketing exercise for Vod and ORange to say "Hey! We sell iphones too." And also a sign Apple is desparate since O2 must be drying up.

Nokia still control 38.5% of the mobile phone market. That is not going to change.

Oct 01 08:25 AM

[xmplary:]

I havent bought one because I dont want to deal AT&T's BS. An "Unlimited" data plan that is limited, one that does not include SMS, or tethering to a laptop, one where you are charged more for less minutes than a voice only plan, even though you pay extra for a data plan, etc, etc. Also AT&T tried to unsuccessfully tried to gouge me in the past, and I have avoided AT&T like a plague now. I'd rather wait for another carrier (not that they are any better, but competition is a good thing for the consumer) or go with Clear internet rather than having a smart phone.

Oct 01 12:49 PM

[Donald Johnson:]

AT&T needs to deal with its iPhone debacle. It needs to run TV and print ads that explain its bandwidth problems. And it needs to start charging for the use of services that clog its networks.

Read the comments that follow stories in the NYT and Denver Post about AT&T's iPhone problems, and you'll see that people are furious and frustrated, and they don't understand how they are the problem as much as AT&T and iPhone are.

AT&T needs to give up its exclusive contract with Apple, allow customers to shift to other carriers so that it can reduce the burden on its networks and change its business model.

The company's big problem is that it is a utility in Apple's world, and its culture is incapable of dealing with rapidly changing technology and markets.

Oct 01 08:39 PM

[KenC:]

So, Donald, you think allowing iPhone users to move to T-Mobile is somehow going to alleviate the burden on AT&T's network? Or, did you mean that iPhone users should be allowed to go to Verizon and Sprint which both use incompatible standards? Who is going to pay to get Apple to build a new iPhone for a networking standard that is being phased out?

You write as if AT&T were Ma Bell, pre-splitup! AT&T is actually changing quite quickly, and I doubt any wireless company could have dealt with the order of magnitude increase in data usage that the iPhone brought any better.

Oct 01 09:55 PM

[neutrino23:]

The article correctly identifies some of the external pressure on Apple to end the exclusive with ATT, it doesn't shed much light on how that will happen. I don't particularly fault the author. No one outside of Apple knows the answer to that .

My guess is Apple will not make a phone for Verizon. They will wait till Verizon deploys the next generation network.

Beyond that, my intuition is that Apple is thinking more deeply about this than simply increasing share by adding a carrier. Just as the App Store changed the landscape I suspect they are looking at some other new feature in the near term that will once again change the landscape whether Verizon is involved or not.

Oct 04 07:18 PM