June 9th, 2009
$99 iPhones Will Not Improve the Wireless Customer Experience
Selling the iPhone at $99 is simply an opiate for the masses. But like any addictive drug, it doesn’t fix the real miseries plaguing wireless service carriers.
This week, Apple did the unthinkable — it lowered the price of the existing 8GB iPhone 3G to a mere $99.00. And the world rejoiced, praise be The Fruit and he who no longer weareth the black turtleneck. Yes, I too noticed Schiller was wearing a grey Oxford and Jeans instead of the usual Silicon Beatnik uniform.
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Look, even I have to admit that I’m impressed that Apple and AT&T have decided to make an incredibly gutsy move in order to try to increase iPhone adoption. Indeed, I would imagine as a result of this price drop they’ll probably sell at least another half million units, and even I’m considering purchasing one for my wife because the price is so attractive. That is, if I meet the qualifications for that pricing.
In all likelihood only new AT&T customers are eligible for that special pricing — anyone else is probably going to get hit with the dreaded “Early Upgrade” fee, particularly if you are only a year into your two-year contract. This happened to me when my last BlackBerry died when it was just over a year old — my contract may have been two years, but the warranties on these smartphones are only a year. How convenient, right?
With their cheap Chinese and Taiwanese construction, anyone who puts a device like a BlackBerry or an iPhone through heavy daily use is almost guaranteed to have to replace their device in under two years. They just don’t make these things like they used to, especially since the crappy economy has whacked Asia as bad or worse than it whacked us — all sorts of corners are now being cut in manufacturing processes in order to pump out huge volumes of product and to produce smartphones cheaper.
You see, at $99.00, AT&T is actually losing money on the device to make it up in monthly service fees for voice and data, locking you into a 2-year contract with a huge termination fee if you decide to ditch early. As it has been said elsewhere, Apple’s component cost to manufacture an iPhone is around $173.00. Nobody knows for sure under the new consumer pricing what Apple is selling iPhone 3Gs to AT&T for, but you can bet that it ain’t for cost and Apple is unlikely to start getting into the practice of giving away razors to sell that blades (app store downloads). Unless Apple and AT&T have a huge glut (as in hundreds of thousands or a million units sitting in warehouses) of unsold stock and needs to liquidate it before the 3GS goes on sale, AT&T is going to have to eat a big chunk of that upfront cost.
Guess who gets screwed in the end so the carrier can make it[s money back? You guessed it, that would be you. It wouldn't surprise me if various nickel-and-diming service fees start appearing on our monthly statements from AT&T Wireless in the near future so that device cost can be spread around. And when your $99 iPhone 3G breaks in 13 months? Oh yeah, don't be surprised if your "Early Upgrade" fee just jumps to over $200. There's no such thing as a free lunch in the wireless business.
There is also the issue that bringing down the iPhone 3G initial purchase cost isn't going to improve the actual customer experience itself. You're still locked into AT&T as a carrier, which is getting dinged for spotty service and slow download speeds. By the way, I'm not entirely convinced that the AT&T network is the root of the problem -- the Infineon wireless transceiver chipset in the iPhone 3G has been problematic in the device everywhere in the world, not just on AT&T's network. Wanna bet that the 3GS uses a HSDPA transceiver from another company instead?
Let us examine what's wrong with the wireless industry. Handset manufacturers are forced into making exclusive deals with the wireless carriers, so that consumers cannot purchase the exact same device from say, Sprint, as they can from Verizon, T-Mobile and AT&T, at least during the initial launch period of the device. Apple got rooked into a five-year exclusive with AT&T for the iPhone, Palm got locked into at least a 1-year deal with Sprint on the Pre, and Verizon got dibs on the BlackBerry Storm. In the end, the consumer suffers, because they are unable to match the device that they want with the voice and data coverage that ideally suits their needs.
Ideally, manufacturers should not have to make exclusive agreements with providers and lock the device in to a specific provider's wireless technology so that the phone ends up being a paperweight if you decide for some reason to run it on another provider's network. I mean, when you buy a telephone for your house, does it have to specifically be designed to run on your local phone service's PSTN or even on your VOIP provider's network? Hell no, because all regular land line phones sold in the United States use a standard jack and signaling. A phone is a phone.
But with the wireless industry in the United States, that's not the case -- there's no standardization, at least between Sprint/Verizon (Who use different versions of CDMA/EVDO) and AT&T/TMobile (who both use GSM/HSDPA). Short of the government getting involved to help standardize the industry whenever it changes generations, handsets should be constructed in a modular fashion so that the base phone itself can be made to run on any wireless carrier just by swapping out the transceiver, just as SIM cards are swapped out today on GSM-based carriers.
If customers were really to be treated like human beings, I should be able to go buy an iPhone -- for $250 at Best Buy or Target or the online reseller of my choice, and I should be able to walk right into either Sprint, AT&T or Verizon and they should be able to pop in a standard transceiver card into it that makes it function on the latest generation of their whatever-G network -- and by removing the upfront device cost from the provider I also should also be able to get more competitive service rates with minimal termination fees.
With this type of model, I should be able to price the service that best fits my usage patterns with the device that I want, which also includes the use of pre-paid wireless voice and data service from competing vendors, which is a service option that is frequently used all over Europe, Asia and other parts of the world. And no service provider should have the God-given right to deny me access to whatever VOIP service I want to use on my handset if it has Wi-Fi or CatiQ capabilities.
None of what I have described is impossible for the industry to do -- it just requires some standardization efforts and the adoption of device virtualization technology to abstract the network provider and the modular hardware that supports it from the smartphone OS.
Will wireless customers ever be treated like human beings? Talk Back and Let Me Know.
Jason Perlow is a technologist with over two decades of experience integrating large heterogeneous multi-vendor computing environments in Fortune 500 companies. See his full profile and disclosure of his industry affiliations.
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