Analysts Agree with Me!!

Well that may be overstating it a bit but for anyone that has heard my ongoing debate with Tim over recent weeks you will know that I have said from day one that I didn’t like, understand or agree with Apple’s decision to tie the iPhone to a specific carrier. OK so that it how it is done in the US, but in Europe we give people a choice usually – carrier and contract or handset only.

My argument has always been that there are always more people NOT on the single carrier you chose to partner with and that true choice should embrace the option to either buy a subsidised handset with a contract or to pay a premium for the handset and use it on your carrier of choice.

Well thanks to this article over on AppleInsider it looks like I am not alone in this view as Bernstein Research has warned that the company may have to opt for marketshare instead of profit if it wants the iPhone to gain acceptance beyond a handful of countries.

Copy of Full Article

Opening its coverage of Apple for the first time, Bernstein Research has warned that the company may have to opt for marketshare instead of profit if it wants the iPhone to gain acceptance beyond a handful of countries.

The wealth management firm warned investors that Apple’s current revenue sharing agreements with AT&T, O2, and T-Mobile were likely to provide the iPhone maker with substantial profits, but could hurt the company’s long-term success in countries where the exclusive deals were with carriers that only hold a small (albeit significant) portion of the market in their respective countries. Many of these countries have alternate carriers which could technically support the iPhone but have been locked out as a result, said Bernstein senior analyst Toni Sacconaghi, Jr.

“This could… limit the iPhone’s addressable market, since each of its carrier partners typically have 25-40% share in their respective markets,” he said.

Sacconaghi also cautioned his firms client’s by noting that these deals, which bind customers to long-term contracts to collect revenue, would not always be effective in certain countries. In Italy and Russia, cellphone customers typically opt for prepaid phones and so would have to pay the full cost of the phone up front. This would negate much of the profit or else increase the initial cost of the phone to maintain the same profit level.

Future introductions are most likely to address key markets where postpaid (contract) customers dominate, according to the report. Issuing a relatively detailed prediction, Sacconaghi said he expected Apple to release its cellphone in Australia, Spain, and Taiwan within half a year and for Japan and Korea sometime later. Apple would have access to as many as 515 million subscribers in these regions if it supported every carrier but would face a much tougher prospect persuading customers outside of these areas to accept similar agreements and pricing.

“If Apple decides to launch the iPhone in additional markets, it will likely have to settle for much lower revenue sharing, or abandon revenue sharing altogether,” the analyst reported.

In turn, these choices could ultimately affect Apple’s ability to reach its stated goal of 10 million iPhones sold by the end of 2008, he added. Estimates by Bernstein would have Apple selling just 4-5 million iPhones during the 2008 calendar year within the US, making the Cupertino, Calif.-based firm dependent on foreign sales to reach its target.

Within the safety of its confirmed markets, though, Apple was predicted to reap a significant reward. While the iPhone’s recent price drop put it at the same price as a typical BlackBerry smartphone in the US, the revenues Apple would collect from AT&T were estimated at $14 — roughly double what the BlackBerry’s creator, Research in Motion, already received from providers for its own phones and mail services. Apple might collect as much as $360 from each iPhone customer in the US over two years; Britain’s O2 would supply even more at $500.

Still, Sacconaghi argued that Apple would need to really move units, not just skim from a small user base, to avoid disappointing shareholders in the future. Bernstein raised its share targets to $175 but would start covering Apple only as an average “Market-perform” company, as any perceived shortcoming in sales could damage the company’s stock value.

“We believe an investor buying Apple’s stock at its current price must believe that the company can sell 10 [million] iPhones in 2008 without sacrificing the high profitability of the business — a scenario we view as unlikely,” the analyst said.

24 thoughts on “Analysts Agree with Me!!

  1. Dunks

    I think in balance I agree with you Chris. I’m lucky in that I happen to be an O2 customer at present and therefore have no problem with getting an iPhone if I wanted one, however I have bought phones in the past unlocked to stick with contracts I had particularly if moving carrier would lose me a ‘grandfather’ plan. If I had been unable get the phone unlocked i would not have switched carrier so not bought the phone – an instant loss of potential sale.

    I cannot believe Apple would would not make more money offering the iPhone unlocked and given how the iPod has been the catalyst for switching PC users (look at Glenn’s recent regular reader and my own experience) surely the iPhone could have the same potential.

  2. Danny

    Another “I agree” comment Im afraid.
    But I think when it comes to Apple, every user is an analyst a very high proportion of users are very interested in what the company is doing on a regular basis and are quite vocal about their opinions.

    Oh btw Chris – I now require a fee for commenting ๐Ÿ˜‰

  3. Chris Marshall Post author

    Not sure I agree with that one! I think most Apple fans are too biased to be analysts! I think they are either hyper critical or more often than not just looking to make a ‘smart comment’ that will get them noticed!!

    Fee, yep great idea. Wish I had thought of that ๐Ÿ™‚ What you reckon you are worth????

  4. Danny

    I didnt say they were fair analysts! But if you think how much attention Apple users give to the company compared to pretty much anything else, its pretty spectacular.
    Hmmm fee wise I dunno $40 a month, if Im top commenter ๐Ÿ˜‰

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  6. Mac Sokulski

    It seems to me that north american mentality is usually concentrated on the “moment”, on “now”, also on quantity and not quality. So if a person sees a coool phone for $99 on a 3 year term…. he/she usually thinks “hey a cool phone for $99 bucks…. wow, I’ll get one and get another for my wife. They don’t usually think that there is a 3 year contract involved which after a year becomes a burden. In Canada we don’t really have a choice, having only 1 GSM provider. In the US, I think there is 2 GSM providers? I’m curious how many providers are there in UK, or other parts of Europe.
    So then you have to understand that these providers in NA will do their damnest to keep their cutomers luring them with cooler phone for cheap, but locked, so the customer has to stay with them.
    So all in all Apple should be selling the iphone unlocked. It would make more sense for them. Now they can’t because of AT&T. I think it was a stupid move to partner with any carrier. I think the iphone would have sold more and be available around the world all at once if it wasn’t locked.

  7. Chris Marshall Post author

    Three years ago I was doing some consultancy for a company looking to launch in the US and no one could believe how far behind Europe the US was (and stillis) when it comes to mobile phone technology!

    In Europe every carrier is GSM. In the UK there are 4 main ones and a few smaller ones. In Spain there are two main ones and the ‘usual’ worldwide ones. People like Vodafone, Orange, T-Mobile, O2 are usually in most countries either under their brand or their parent/siblings brand.

    What people have missed in all of this is that in Europe it is fundamentally illegal to sell a phone ‘locked’ to a network, at the very least you are able to buy yourself out of the contract and then get the phone unlocked and use on your carrier of choice.

  8. Dunks

    @Mac: Is the Canadian network Rogers/Rodgers? I hear Amber Mac and Leo Laporte (net@nite podcast) bemoaning the lack of choice and therefore issues with data plan costs/bandwidth issues etc due to the monopoly. Wasn’t sure if this is the carrier you are talking about.

    Interestingly, they also mentioned the fact that an Unlocked iPhone couldn’t be made to work on the Rodger/Rogers (sorry not sure of the spelling) network?!

  9. Dunks

    Sorry, didn’t make last shout clear. Seemingly Leo Laporte had an unlocked iPhone running on a Verizon sim card. He took it up to Canada on a trip and put a rogers SIM card in. It didn’t work. It was mentioned in the most recent TWIT podcast.

  10. Chris Marshall Post author

    I think the issue would be the Verizon SIM card then. I am not 100% but as far as I am aware only T-Mobile and AT&T are on the GSM network, so only their SIM cards would work on other GSM networks, which of course Rogers is.

    In Europe a SIM card is a SIM card. In the USA a SIM card is a SIM card, but not necessarily as we know it Jim i.e. not GSM.

  11. Mac Sokulski

    I thought a gsm sim card is just a gsm sim card. It’s interesting that the unlocked iphone would not work with the only Canadian GSM provider, Rogers. I heard that on the TWIT as well. I know that CDMA use sim cards but they are not the same thing. I used to have a an old nokia phone which was locked to Rogers, and having it unlocked I used it on the trip to europe with local gsm sim cards. Everything worked fine. Rogers could have prevented the unlocked iphones working with their network, by identifying the phone, and once it showed up as iphone, placed restrictions so it would not work. Since iphone is not available in Canada, and Rogers seems to be the one and the only carrier of the iphone it would be logical to speculate that they did not want the unlocked iphones penetrating the Canadian market ahead of schedule, when ever that may be. That’s what you get when you have monopolies running the market. They can do anything they want.

  12. Chris Marshall Post author

    A GSM SIM card is a GSM SIM card, that was really my point. Although it looks like Verizon are using a SIM card as they don’t use the GSM network it wont actually be a GSM SIM card so wont work.

    I am really glad that I live in Europe ๐Ÿ™‚

  13. Mac Sokulski

    @Chris
    So you have the phones, but you don’t have is wild prairies with never ending grass steppes (sp?)
    ๐Ÿ™‚

  14. Chris Marshall Post author

    [quote comment=”13077″]@Chris
    So you have the phones[/quote]

    That’s right, kick a guy when he is down why don’t you!!!!

  15. Mac Sokulski

    It wasn’t my intention ๐Ÿ™‚ The iphone should arrive soon enough, unless your friend posted it ground/ocean, then it will arrive next year. Or the spanish post office is having fun with your phone ๐Ÿ™‚

  16. Chris Marshall Post author

    Looks like it could be a while yet ………..

    Just got this update through:

    Arrived in Customs Oct 03 ๐Ÿ™

  17. Mac Sokulski

    I told you the Spaniards are having fun with it. Once you receive it, check the album for photos taken with it, and then post them ๐Ÿ™‚

  18. Chris Marshall Post author

    ๐Ÿ™‚ that would be a good result. At this stage my money would be on a knock at the door next week or even in two weeks and a small fee to be paid.

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  20. Shaquita Spendlove

    This is a great article! I’ve never done much commenting on other peoples’ blogs, but after reading this I’ll certainly be paying more attention to it!

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