The buzz is inescapable.
Next week, Apple Inc. CEO Steve Jobs is expected to announce the next iteration of the company’s iPhone at Apple’s annual developer conference.
In the run-up to the purported announcement, several issues have been bandied about by the global media, which has been fascinated by the device and its disruptive effect on the cellular industry – effectively creating the buzz that Apple’s PR department could never deliver.
Those issues include the new device’s pricing, its capabilities and the timing of its release.
Global handset vendors are watching closely, if furtively. Many vendors are expected to release large-display, touchscreen devices as the holiday season approaches. The game is to respond to Apple’s challenge, without appearing to be reacting to its innovations.
Subsidies could impact network
One of the most-discussed issues is whether AT&T Mobility – and, conceivably, other operators across the globe – will subsidize the device to a disruptive price point from its current perch at $400 and $500, for 8 GB and 16 GB models, respectively.
Recent, general remarks about the efficacy of subsidies by AT&T Inc.’s CFO Rick Lindner on May 22 at a Reuters conference in New York further fueled speculation on the issue. Media speculation has focused on possible iPhone pricing as low as $200. Neither Apple nor AT&T Mobility have publicly, directly addressed the topic.
Analyst Roger Entner at Nielsen/IAG, however, dashed some cold water on the notion of near-term subsidies last week.
“There’s no need to upgrade the device’s capabilities and lower its cost at the same time,” Entner said. “AT&T Mobility first will have to see the effect that a 3G iPhone will have on its HSDPA network. Right now, that HSDPA service is robust, with only a few million laptops riding on it. Add a few million iPhone users, who are heavy users of the Internet, and it could be like shaking a skyscraper. AT&T Mobility is not just selling a device, it’s selling a service. AT&T Mobility doesn’t want complaints about its service. That would spell out no abrupt price subsidy for the device.”
With the outrage that erupted after Apple abruptly cut its original launch price from $600 to $400, a cheaper 3G iPhone on the heels of a more expensive EDGE device simply doesn’t make sense, the analyst added.
Goosing numbers
AT&T Mobility can use iPhone pricing, in fact, to control the device’s uptake and determine a measured approach to capital expenditures on its network, should it need to increase capacity, the analyst pointed out.
An iPhone subsidy, should one be contemplated, would represent “a secret weapon for Christmas” should Apple and/or AT&T Mobility determine that they need to gin up device sales to reach or exceed Apple’s 10 million-unit goal by the end of 2008, Entner said.
“If either party needs to step on the accelerator, they can create a great stocking stuffer with a non-premium-priced iPhone,” the analyst said.
For competitors, a major subsidy would undercut a sense that the iPhone’s greatest contribution to the industry has been in resetting the value proposition for advanced devices. Smartphone vendors, for instance, have seen a silver lining in the rapid sales of the $400 and $500 device.
Speculation also runs rampant on the new iPhone’s improvements.
The new device is widely expected to overcome crucial shortcomings inherent in the company’s original EDGE device – probably adding W-CDMA/UMTS connectivity, GPS capabilities, enterprise-grade security and e-mail functionality for business, perhaps tactile or haptic feedback to its touchscreen and, presumably, only-Steve-Jobs-knows-what-else. Additional applications that play into Apple’s content and services strategy are possibilities.
New markets
Meanwhile, last week, Apple added a slew of relatively small markets promising to deliver the next iPhone. Those include Stockholm, Sweden-based TeliaSonera, which will offer the device in Sweden, Norway, Denmark, Finland, Lithuania, Latvia and Estonia, and Hutchison Telecommunications Ltd., which will bring the iPhone to Hong Kong and Macau.
Russia and China remain the largest markets worldwide without an announced iPhone deal, though with Apple apparently abandoning its model of exclusive deals with one operator per country in exchange for a slice of the resulting data revenue. Thus, further penetration of announced markets such as India remains possible as well. TeliaSonera has subscribers in Russia, for instance, and China just reorganized its telecom industry, giving two operators 3G licenses compatible with a W-CDMA/UMTS device. Dropping its demand for revenue-sharing may yet win Apple a contract in the massive Chinese market.
Infineon impact
As for timing, operators who’ve announced deals uniformly use the term “later this year” to describe the device’s launch date.
At least one analyst said last week that that vague reference may disguise a delay in bringing the device to market.
Analyst Gareth Jenkins at UBS Investment Research said in a research note that Infineon Technologies AG’s second-quarter profit warning, due to “lower volumes in certain wireless platforms projects,” may presage the delay. Infineon is expected to deliver the W-CDMA/UMTS chip for the new iPhone.
With the world’s most formidable handset vendors, such as Nokia Corp., not expected to deliver an iPhone challenger until late this year, it would appear that Apple has a window of opportunity in which to strike.
