Though executives at AT&T likely would strongly disagree, analysts at Strand Consult say the value of iPhone (News - Alert) exclusivity deals are not documented in the operators’ financial statements. "We can also conclude that the closer a relationship is between an operator and Apple (News - Alert), the larger negative influence it has on the operator’s overall business case from a shareholder's viewpoint," Strand Consult says.
AT&T (News - Alert), for example, says 40 percent of iPhone customers are switchers who were not AT&T customers before buying an iPhone, while 60 percent of iPhone buyers were existing AT&T customers. In other words, AT&T experienced about 40-percent lift in terms of new customers gained because of the iPhone exclusivity.
On the other hand, AT&T also has reported that its profit margins, in at least one quarter, have declined because of iPhone handset subsidy costs. Singapore Telecommunications also has warned that iPhone sales have hurt its cash flow.
To be sure, there are lots of moving parts where it comes to a mobile provider's market share, which on the face of it one would expect to grow if significant numbers of new customers are being added because of iPhone exclusivity.
But Strand Consult says there are discrepancies. Most providers with an iPhone exclusive report significant new customer additions based on exclusivity. AT&T says about 47 percent of its iPhone customers were new to AT&T in 2008, and about 33 percent in the second quarter of 2009.
Telia Denmark recently got about 73 percent of its iPhone customers from non-customers. Orange Austria got more than 50 percent of its iPhone customers from outside its existing customer base during the summer of 2008.
Mobistart Belgium has reported 40 percent of its iPhone buyers were not previously customers. Singtel Australia got about 50 percent of its iPhone users from new customers in the third quarter of 2008 and Singtel Singapore got about 30 percent gross adds from customers new to Singtel.
So iPhone exclusivity has had demonstrable effects as a customer acquisition tool. What seems not to have changed is overall operator market share in iPhone-exclusive markets. AT&T does not seem to have increased its overall market share, which has remained at 29 percent of the U.S. market between 2008 and 2009.
Singtel Australia did not seem to increase its aggregate market either, from the third quarter to fourth quarter of 2008.
So what is unclear is iPhone impact against a backdrop of other changes in each market. It is difficult to pinpoint the churn reduction effects iPhone exclusivity might have had, since in most markets 50 to 70 percent of iPhone buyers already were customers. Might they have switched to other providers without the iPhone availability?
Also unknown are other changes that could have affected operator market share that have nothing to do with the iPhone. What might have happened, in terms of market share, had the iPhone exclusive not brought in 30 percent to 50 percent new net customers?
Strand Consult also argues that some operators might have over-emphasized iPhone marketing to the detriment of other devices, as the iPhone is a niche product carrying a high price tag (News - Alert), competing in many markets where lower-cost smart phone alternatives are available.
The iPhone's ability to drive customer acquisition also depends, in large part, on its scarcity: availability from just one authorized mobile provider in a market. As more contestants get the right to sell the device, the value of exclusivity obviously decreases.
That should lead to lesser value for any mobile provider selling the device, primarily the ability to take market share from other mobile providers in a market who cannot sell the iPhone.
Conversely, in markets where unlocked phone sales are the norm, the loss of exclusivity opens the way for some providers to to emphasize a "bring your own device" approach. In that case, the iPhone loses its power to differentiate a service provider's offering.
Another broad change is the actual profit margin from smart phone data connections compared to PC dongle accounts. Strand Consult argues that mobile operators will have to shift their subsidy activity from smart phones to PCs.
The thinking is that mobile broadband for PCs is a new market, where the smart phone market is more saturated, essentially a trade-up market from existing handsets. So some operators might decide they can make more money emphasizing services for PCs rather than smart phones.
Displacement of fixed broadband by mobile broadband is part of the reason. In Sweden, 20 percent of all broadband connections are wireless, while in Austria and Slovakia 30 percent of connections are mobile.
Also, Strand Consult believes the smart phone market is more a case of supplier push than user pull. Handset suppliers want the higher average selling prices they can get from selling smart phones, whether or not user benefit is commensurate with the higher prices.
Also, there is little question that iPhone customers provide higher average revenue per user than customer using other devices. But that comes at a higher customer acquisition cost as well. One way to look at the question of value is to ask whether higher ARPU can be gotten when promoting other devices with lower customer acquisition costs.
Strand Consult's views are contrarian, for the most part. The issue is whether they are right, given all the other variables that make up a mobile provider's actual market share, profit and churn performance.
There is little doubt but that iPhone exclusivity has worked as a way of attracting customers away from other mobile providers. What is less clear is whether the actual profitability of getting those accounts is equally high.
And it likely is unfair to argue that iPhone exclusivity has had no impact on operator ability to increase market share. There are lots of other inputs to market share performance that might be more important, even if the iPhone has increased share for those operators with an exclusive.
So has the iPhone exclusive been a value generator for mobile operators? It isn’t entirely clear.
Follow ITEXPO on Twitter: twitter.com/itexpoGary Kim (News - Alert) is a contributing editor for TMCnet. To read more of Gary’s articles, please visit his columnist page.Edited by
Patrick Barnard