T-Mobile’s relaunch as an “uncarrier” has drawn it’s fair share of critics. After all, what is the difference between buying a phone with a contract versus buying a phone with a financing plan?
In practical terms, not much. I don’t think this will really move the needle.
But as an observer of the industry, I think it’s really quite interesting: T-Mobile is proposing a fundamentally different value chain that separates device makers and carriers,1 and potentially gives some interesting insights into handset selling prices and carrier subsidies.
To illustrate how T-Mobile differs from the rest of the industry, I created the plan I would choose on T-Mobile and AT&T (So, for example, since I never talk on the phone, I selected the 400 minute plan from AT&T, even though T-Mobile offers unlimited voice as a default).
|Voice||400min ($40)||Unlimited ($50)|
|Data||3GB ($30)||2.5GB ($10)|
Of course I also need a device. I compared the iPhone 5, Samsung SIII, and Blackberry Z10.
By far the most interesting data point here is the monthly payment for the Blackberry Z10: it’s $18, not $20 like the iPhone. This suggests that T-Mobile’s pricing may actually give insight into the average selling price of non-Apple smartphones (which no one other than Apple discloses). Unsurprisingly, the Z10 selling price is lower than the iPhone 5: $48 less in this case. While I doubt this is a true representation of the difference (I bet the Z10 is even less, and the iPhone may very well be more), it is still clearer than AT&T, where the amount of subsidy paid is completely hidden.
Where things really get interesting is in the depiction of the Value Chain:2
When “Andy” walks into the AT&T store, he sees an iPhone 5 and a Blackberry Z10 side-by-side for the exact same price. That’s a massive win for Apple! The Z10 is assuredly less expensive, but how much so is completely hidden from the customer: it’s between AT&T and the device maker.
The T-Mobile value chain completely removes the carrier-device maker back channel, and in so doing chips away at this advantage. Thus, when “Tom” walks in the store, it’s now readily apparent that he is paying more to Apple for an iPhone as compared to a Z10: $2 more per month to be exact. Instead of shielding the true cost of device makers behind an artificially high contract, T-Mobile is in effect forcing the device makers to be more transparent about their phone’s true cost.
To be fair, $2/month isn’t likely to make a big difference. But what if it was $5, or $10? Apple maintains by far the highest average selling price in the industry, and the fact the end users are completely hidden from that is a big reason why the average selling price has barely moved despite increasing competition and potentially overserving features. Now that end users are effectively paying Apple more on a monthly basis (and paying their carrier less) will they care?3
Three parting thoughts:
We already know that the HTC One and Samsung Galaxy 4 will cost $99 up front on T-Mobile. What will be particularly interesting is what their monthly finance payments will be. Neither HTC nor Samsung has commanded an average selling price as high as the iPhone, so something closer to the Z10’s $18 makes sense. Then again, T-Mobile would probably prefer to pocket any surplus, and HTC and Samsung may demand the same price for brand reasons. Actually, so might Apple.4
Kudos to T-Mobile for trying this. I hope it works; it’s a much better model that, were it adopted industry-wide, ultimately results in lower prices for customers. That said, I doubt it will. The benefits are much too esoteric for people to go to the considerable hassle of changing carriers. T-Mobile will continue to get the same cheapskates they always have, and that’s about it.
I’m a little surprised Apple agreed to this. The traditional carrier model (for the US) is one of the key drivers of the iPhone’s financial success, and all things being equal, I doubt they would want to break up that model. But things aren’t equal: Apple is facing a saturation problem, and this increases their Total Addressable Market.5
The $380 that AT&T pays Apple assumes that they are paying the same $580 T-Mobile is charging for a 16GB iPhone 5. In fact, the average selling price of the iPhone is $642, which may be accounted for by higher storage models (which are balanced by iPhones 4S and 4 ↩
Probably not ↩
Apple may have mandated in-kind pricing from T-Mobile to preserve the illusion of competitive prices; sketchy legally, but they’ve certainly done it before ↩