Apple‘s iPhone is widely hailed as a must-have for most mobile operators, so much so that some go to quite some lengths to get the phone on their networks just to stop haemorrhaging of high-value customers.
There seems to be an un-talked-about additional benefit to mobile operators from the rise of iPhone – higher ARPUs on non-iPhone plans than they’d otherwise get.
As visible in the graph above, after taking out the retail cost of the phones, the monthly cost of an iPhone contract is consistently lower than that of the relatively no-risk SIM-Only plans. As a comparison, the similar ex-phone monthly cost of a Samsung Galaxy S3 is also higher than that for an iPhone on both EE and Vodafone (though surprisingly lower on O2 and 3’s networks Note 4-G).
It appears that the operators are giving up margins in the device (compared to pure hardware sellers like Amazon or Curry’s Note 4-F) and/or margins in monthly tariffs (compared to SIM-Only plans) to ensure the iPhone users stay with them. Add in the higher network traffic from iPhone owners (as frequently reported in media Note 5), and higher risk (compared to no-hardware SIM-Only plans) and it seems that the operators are killing the very reason they want iPhone owners so desperately on their network – higher revenue realisation.
My guess is that something else is happening. Instead of a SIM-Only plan being a baseline price, of sorts, and iPhone plans being built upon it to at least recover the phone subsidy, it’s the other way around. Operators have set the ex-phone monthly cost of an iPhone contract at the baseline figure – the minimum revenue realisation they want from a pay-monthly customer. Then, they’ve built all other phone and SIM-Only plans on top of that baseline figure.
This ensures that instead of haemorrhaging on iPhone contracts, and making normal profits on all other contracts, the operators now get to make normal profits on iPhone contracts and above-normal profits on all other contracts.
Thus, the cost of an iPhone contract acts as a high tide raising all the other contract prices along with it, resulting in higher ARPUs for operators than would have been possible in a non-iPhone scenario. Obviously, the telcos must love the iPhone Note 6.
Notes:
- All 4 major operators in the UK have the iPhone available on contract, so a no-iPhone operator wasn’t included. Comparing prices at such operators may help draw further conclusion.
- A time-series analysis would help further discover how the iPhone & non-iPhone tariffs have evolved since the introduction of first iPhone. It might also help quantify the value of iPhone and non-iPhone contracts to the operators.
- MVNOs were not included in the analysis, since their cost structures and operating principles are quite different.
- The graph (and thus all the analysis) was based on:
- 12 month SIM-Only contracts (the only one available across all operators).
- 24 month phone contracts (only Vodafone and EE had 12 month contracts).
- Most contracts included unlimited voice and texts, and 1 GB internet a month.
- Three did not have unlimited voice and text contracts, so closest contract values were used.
- The cost of phones was amortized over all 24 months, disregarding depreciation and time-value-of-money.
- For Galaxy S3, the minimum price easily searched was used: £400 at amazon.co.uk. Curry’s lists the price online as £440.
- I assume that the operators get a really high discount on Galaxy S3 from Samsung, which might help explain the really low prices on O2 & 3.
- For iPhone, the price on Apple UK website was used: £700.
- EE’s higher than the rest tariffs are likely thanks to being the only 4G operator in the country.
- Vodafone’s higher than rest-of-the-rest tariffs are likely thanks to their strong stranglehold over the corporate contracts market.
- Admittedly, not the best source on the topic, but the easiest to find online: Daily Mail: iPhone users take 50% of all 3G traffic – meaning networks must invest in older tech rather than roll out ‘next generation’ 4G
- Telcos might love the iPhone for helping raise tariffs across the board, but they must definitely hate it (mainly the company behind it) for eroding their market power, crumbling their wall gardens, and depriving them of the new lucrative revenues from app and content sales.