iPhone, the moment of truth: most operators loose money with it

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I have been reading during the weekend a 105-page report on the iPhone by Strand Consult fromScandinavia. The title of the report is "The moment of truth - a portrait of the iPhone". It happens to be a very interesting report, killing a lot of conceptions that are taken as "holy cows" in the industry.

I cannot distribute the report here for copyright reasons. What I can offer is some personal conclusions and the recommendation to anyone interested to get the report for free directly from Strand.

So here is the story: the analysts at Strand decided to put on proof the following assumptions:

1)  The iPhone drives data traffic into mobile operators networks
 2) The iPhone helps operators attract new customers
 3) The iPhone is good business for mobile operators
 4) The iPhone is dominating the mobile services market
 5) App store is a huge success that has revolutionised the services market
 6) There is money to be made by developing applications for the iPhone
 7) It is iPhone customers that are generating the majority of online mobile surfing traffic
 8) The iPhone has a large market share
 9) The iPhone was the first mobile phone with a touchscreen
10) The iPhone is a technologically advanced mobile phone

And this is the conclusion of the report regarding them:

If we take a look at the data traffic per kind of device in the different markets and in the different networks (with and without iPhones) where mobile broadband is offered to customers with computers and phones, we will see clearly that the iPhone is NOT the device driving the growth of mobile data traffic. GSMA believes that around 200 million people will have HSPA connections by 2010, and there are only some 20 million iPhones around.

Regarding the ability to attract new customers, this was kind of true at the times of the first iPhone when there was exclusivity to a few local networks. Even then it was only "kind of" true. Not all Americans left their networks to AT&T only to get an iPhone. But some did. In the USA the iPhone continues to be an exclusive product of AT&T. But in most of the other countries there are 2 or even 3 operators selling it, so there is no differentiation at all. The report shows some cases of operators that claimed that they have had a large number of new customers due to the introduction of the iPhone; however, if we look as they did at the total division of the marketshare in their market, we see that their marketshare has not grown.

The application store: the report praises Apple success in leapfrogging iTunes, a successful music store, into an application store for the iPhone. At the same time, it stresses that Apple has not been the first to offer an application store, that application stores are one in many solutions for this issue, and that it is being very hyped by Apple and the industry. One of the mentioned facts is that there aren't many developers that are able to live from giving their applications for free or selling them for 0.99 in a market of 20 million iPhones, and most of them prefer to sell applications for the 25 billion other phones around the world. The first to offer such a marketplace has been Nokia with Preminet, later OVI, and Apple only copied what was being done by others and hyped it.

Regarding mobile sales and mobile marketing, the report disbanks again the myth of the iPhone, by showing that considering the amount being invested in mobile sales and marketing, and the marketshare of the iPhone compared to all the phones in the US, the contribution of the iPhone in this field is tiny.

One of the things that are stressed by the report is the fact that the iPhone is a nice phone, and there is no problem on operators having them as part of their offer. However, there are many other options in the same category that are in many cases better than the iPhone itself in most of their characteristics. So there is no reason for the hype.

Another important point comes from the fact that the current iPhone 3GS is very similar to the first iPhone, and Apple is not making progress with this product as needed to keep away from competition. Their lead is currently in stake and they should be worrying about it. Strand believes that Apple should expand their product range, and if not they will rapidly see their lead disappear.

Now let's get to the money: most operators are declaring that the iPhone's customers ARPU (Average Revenue per User) is higher that with other phones, but that in parallel iPhone's customers SAC (Aquisition costs) are higher as well. The report asks if the higher costs of acquisition and subsidies are worth the higher ARPU and if it is really higher. And here comes the nice part:

Studying the US market, they show a table of the ARPU of the various operators' ARPU there, and AT&T has the second lowest ARPU rate, higher than T-Mobile's only. More impressing, it has kept stable since Q2 2007, without any growth, despite the high number of iPhones sold since then. Their data ARPU doesn't show any real message as well.

The same thing is shown regarding TeliaSonera in Scandinavia. Despite the iPhone, in many markets the company has performed more poorly than its competitors.

And the same trend comes out again with Singtel in Singapore. The iPhone has had no influence in its performance against its competitors.

In many countries, MVNOs have come out very aggressively with proposals such as "bring your own iPhone  and we will get you a cheap traffic deal". This seems to be having a good response from the side of the users. The report covers a range of case studies in Germany and in Scandinavia of companies which seem to be doing well in this area.

In summary, a very interesting report, that disbanks a lot of myths about the iPhone.

I wish it would have been released before the three Israeli operators decided to go into this adventure. It shows a completely different picture than what people are led to believe by Apple's powerful hype marketing.