Living in a prepaid world and how Apple failed to change the economics of mobile
By Stefan Constantinescu on Saturday, June 14th, 2008 at 12:12 PM PST In Apple
Two seemingly non-related articles, one detailing the mobile industry in Spain, the other explaining how Apple will make money off the iPhone 3G versus the original, and the fact that in just a little over one month I will have lived in Finland for one whole year, has left me wondering why the state of the wireless industry in America is so far behind the rest of the world? The one company that could have changed it all, failed.
Apple (NSDQ: AAPL) blew it. There, I said it. They totally blew it.
America was ripe for change. Apple, with the iPhone, showed people the potential of having a device in your pocket that could browse the internet. Apple showed an entire country that a mobile phone is not just a tool, but a lifestyle product, to paraphrase Michael Mace. They created a device that changed people’s minds, at least on one side of the pond, of what a mobile is capable of doing and with the App Store launching later this summer they legitimately earned themselves the title of smartphone manufacturer. Could it have been that much harder, that much more revolutionary, to have sold the iPhone unlocked and unsubsidized and changed consumers views on how mobile phones should be purchased?
Why is it in places like Spain things like this are happening?
Unlike in the U.S., you can easily get pre-paid SIM cards in Europe and get talking immediately. In countries like the UK or Germany, you can even buy a SIM card out of a vending machine. You use up your minutes on the card, and then “charge up” the card later at an ATM machine, a grocery checkstand or an Internet cafe. Unlike in the U.S., nearly half of cell phone users in Spain are not under contract with any carrier.
And this:
My roommate’s generosity in gifting me a cell phone and telephone number was appreciated, but it was no skin off his nose. He had several handsets lying around as he constantly replaced the older ones with newer ones with better features. I thought this was specific to him but realized soon that most of the people around me in their mid- to late 20s had the same obsession.
I remember asking another roommate, on more than one occasion, if the cell phone she had was new. The answer was almost always yes. The bottom line seemed to be that because cell phones were so accessible and the relationship with the carriers so no-strings-attached, there was an incentive to always get a new one. Not being under contract or getting penalized gave these guys the ability to upgrade their phones when they got tired of them (which was quite frequently).
I can tell you from my experiences in Finland, the exact same thing is happening here.
During my first week in this country I wanted to sign up for a post paid account, aka pay a monthly fee like many of you are, but I had to make a deposit of 200 EUR because I was a foreigner, it would be returned to me after 1 year. It wasn’t something I was prepared to do, so I said goodbye and went back to my hotel room to do some research. I found Kolumbus, a prepaid SIM card company owned by Elisa, the second largest operator in Finland, who charges 6.9 euro cents per minute for local calls, 6.9 euro cents per SMS sent, 1.5 euros per megabyte of data, HSDPA mind you, with the option of sending an SMS with a short code to get unlimited data for 1 day for 2.90 euros or for 1 week for 6.90 euros. Oh and one more thing, in Europe incoming calls and text messages are free. Sounds awesome right, where can I buy one of these? Apparently at any corner store, similar to 7-11 on the east coast or am/pm on the west coast, they’re called R-Kioski here.
I leave my hotel room, find one of these shops down the street, buy a can of Red Bull, find a SIM card by the magazine section, and within 90 seconds of stepping into the store I now had a Finnish number. Shocked by how easy it was I made sure I did everything right, the instructions came in about 6 different languages, and sure enough that was it; nothing to it.
Visiting my parents for Christmas and trying to get a T-Mobile (NYSE: DT) prepaid SIM card required my name, address, social security number and credit card information. Why?!
Buying a phone in Finland is an equally enlightening experience. You go to any major electronics store and stand in front of an epic wall with at least 50 models, sometimes over 100 in the larger stores. The prices are all unsubsidized, point at what you want, someone comes and gives you a demo phone to play with and answers any questions you may have, if you like it they pop in the back room and grab you a brand new, sealed in a retail box device, that you can ring out along with an ice cream cone. Seriously, you can buy ice cream everywhere in Finland.
Why can’t America be the same? Why did Apple have to bend over and get with AT&T (NYSE: T)? Why didn’t they sell directly to the consumer?
I just don’t get it. Steve Jobs is all about thinking different, and the iPhone is a remarkable device that sent shock waves through out the mobile telecommunications industry that have yet to be felt and probably will not be felt for another year or two, yet the same archaic model of selling devices with a ball and chain attached still applies.
Apple tried to get operators to share a slice of their revenues and still charge a hefty premium for their devices, trusting the consumer to activate the device in their home. That failed, an estimated 27% of all iPhones sold in 2007 were never activated and instead jailbroken. With the iPhone 3G it is “business as usual” with AT&T buying devices from Apple to the cost of $1 billion per year according to Cowen & Co analyst Tom Watts, and then selling them back to consumers to make a little bit of money.
It didn’t have to be like this. Here is hoping Apple does what Palm (NSDQ: PALM) does, by that I mean sell their devices unlocked and unsubsidized on their online store. Then, and only then, will I buy one.
You heard that right, I’ll buy one.
The problem is that AT&T executives have the mentality of transistor radio age executives, unlike their counterparts in Europe. I’m surprized that Steve Jobs allowed these people twist his arms and let such backward mentality to take over otherwise wonderful product.
Spot on. Iphone could easily be next Razr(in a good way i mean ;)) They got great product on their hand, but they are focking it up.
Nick I think you totally missed the point of this article.
Quite agree Stefan, Iphone is almost unique in not being available sim-free, a huge limitation IMO.
Thats so true Stefan, even here in India, which is considered so backward in many respetcs, we go to electronics stores and buy whatever phone we want and put our own SIM and start using it. i still remember when AT&T or T0mobile started selling prepaid SIM wihtout any handset and made a big fuss about it, it was a laughing stock, as whole world was doing that, and they made it look like they just invented something totally revulurionary!
You NokiaHeads dont get it, do you?
The iPhone is just not ANY phone, is an SPECIAL phone.
Do yourselves a favor, Stick to your crappy Nokia Nwhatever and leave us alone!
Very interesting article!
I always tought that cellphone industry in the US far below Europe’s one and also African’s one.
Here in Morocco, we may not have a big cell network and neither a big 3G netowrk, but when people want cellphones, and wanna talk with them they can easily buy one for less then 40$ or 30$ witouth any kind of contracts and having the liberty to change carrier whenever they want.
I think the US cell market know that american consumers got money, and can pay for what they want, so they but high prices on almost everyhing that’s mobile… I call it a bad philosophy.
Excuse my poor english,
From Morocco,
A faightfull reader.
@bustafone: i usually don’t respond to trolls, but i find it funny you lump yourself as a part of iPhone users yet some how you left a comment with the following IP address: 195.189.142.53 , f142-053.opera-mini.net
i didn’t know Opera Mini ran on the iPhone
@lekid: if Americans have money to blow, why not take them for all they’re worth? i agree, that’s a bad philosophy.
Someone above said,
“Thats so true Stefan, even here in India, which is considered so backward in many respetcs, we go to electronics stores and buy whatever phone we want and put our own SIM and start using it. i still remember when AT&T or T0mobile started selling prepaid SIM wihtout any handset and made a big fuss about it, it was a laughing stock, as whole world was doing that, and they made it look like they just invented something totally revulurionary!”
That is what is so entertaining about Apple’s stupidity. They are contantly putting shiny plastic or brushed aluminum on something that has been around for a decade and then calling themselves revolutionary and forward thinking. But you know what - it isn’t Apple that is so stupid, it’s all you idiots that buy their crap for 3x more than it is worth that are stupid. Apple is actually very very smart in that they are able to dupe so many of you morons into buying their crap - and the funniest part is that you actaully think it is somehow better than anything else you could buy. A perfect example is another person who commented above me:
“You NokiaHeads dont get it, do you?
The iPhone is just not ANY phone, is an SPECIAL phone.
Do yourselves a favor, Stick to your crappy Nokia Nwhatever and leave us alone!”
If it wouldn’t be a complete waste of time to ask complete idiots why they think shiny plastic and brushed aluminum makes a product “better” than another product, I would venture to ask but instead let me say to my fellow intelligent human beings that there is nothing you can say to convince an Apple cultist that they are stupid. Apes don’t know that they are less inteligent than human beings and trying to explain it to them is futile.
I am just releaved that it is a minority of our population that are that stupid and in direct response to mister pissed off Apple fan boy above - what we don’t get is not “how special your iPhone is” but rather how you can be a part of our species and yet be so F’n stupid as to buy into Apple’s “we’re just better” B.S.
I used my garbage-time 6120 classic.
My iphone is too good to post in your shitty site. You’re not worthy.
By the way i heard you on the AAS podcast today, You guys are pathetic, all four of you.
i love you too bustafone, thanks for listening to my buddy’s podcast. nice to know you care about symbian!
No problem. Keep up the lousy work.
A Finnish point of view:
Apple’s phone can be considered as a new type of phone, but not in technical way ((I had my first smartphone in 2003 when I accidentally happened to buy the 7650)) but because it’s the first phone on the market you cannot buy without a contract or “kytky” as it’s called here.
It’s actually illegal for the service providers to sell sim-locked phones unless the phone has a 3G chip in it ((talk about strange laws..)) so this american style of selling phones is a very new phenomenon …and the deals are considered as total “hoax” or ripoff by anyone with more than two neurons still firing.
BTW, I’m REALLY suprised to read that RECEIVING a call does cost something in the States :O
bustafone is gay
Nice, I would love to buy the iPhone, but I’ve been out of contract and loving it! I’ve gotten out of some stuff with the hinting of leaving the network and going elsewhere(with all 5 phones on my account) and had whatever it was taken away, I’d go to prepay, but not in a rush, but it’s still nice to have that available, to be the one in control. I see what you mean about SJ dropping the ball about revolutionizing the cell industry, he could’ve sold the phones, for whatever price, for GSM AND CDMA and apple could’ve swamped the networks over here, and left the cell companies powerless!
Totally agree with the article Stefan. When I was in Portugal four years ago almost no-one had contracts, only business users.
The true reason I’m commenting here is that bustafone is really funny. He loves Apple, hates Nokia. However, he not only uses a Nokia phone, but he listens to the All About Symbian podcast…
Well here in Jordan it’s the same thing you can get a Pre-paid sim for as low as 10 JD (15$) that is already charged with 5JDs. Now apple will fuck it up because it signed with Orange and a new contract era will start as other companies will follow and the easy world will diminish as we know it.
As a Canadian who currently has to make do with a measly 12MB/month of mobile data, I’m torn.
On one side, I too would seriously consider getting an iPhone if I could enjoy true, unlimited mobile internet access — not seen in this country since the Danger hiptop. But if I’m locked to my carrier (and possibly the same handset) for a three-year contract to get it the value goes way, way down…
I’m slightly confused as to why everyone things contracts are absolutely evil and such a bad deal. If you are a twenty-something who has to change phones with every fashion whim or minor technological change, they could be a problem. If you move frequently and you have to change networks, this could be a problem. From a cost standpoint, the iPhone plan seems to be a good deal compared to your prepaid SIMs. The base cost of a plan with 450 minutes and unlimited data would be about 39€ per moth. Using your figures from above, a month of unlimited data and 200 minutes of outgoing calls/sms would be 59€. Seems like a fair trade to me.
BTW, I assumed that on a 450 minute plan, you would lose more than half of the minutes to incoming calls. What I didn’t allow for was the fact that the AT&T plan also gives 5000 minutes for nights/weekends and any AT&T to AT&T mobile calls don’t cost you any minutes at any time. This could, depending on your calling habits and what networks your frequently called numbers are on, this could actually make the contract a very good deal.
Stefan,
I have been reading your blog since Ring Nokia. Congrats by the way on your new position @ Nokia. I think the iPhone would be great if it was network independent, but in the U.S. we have 2 different networks. So adding a CDMA chip for Verizon is not practical.
I also think that this is a short-term to mid term plan for Apple. They needed to make the exclusive deal with AT&T to get the Mobile OSx out the door untouched by AT&T. Now they need to create a developer base for the mobile OSX, which is why they lowered the price, so the developers will see a large potential market to develop for.
All of this lays the ground work for 2012 when Apple will be out from under an AT&T exclusivity contract and
LTE will be the single network used by the U.S. carriers. At that point, I think Apple will let the iPhone be carrier independent.
Think Big Brother and 9/11.
In the USA, you can’t even buy a Greyhound Bus Ticket without providing identification.
You can’t get cash from a bank without being photographed.
All in the name of Homeland Security.
A new law requires all new cellphones to be traceable to within 50 metres.
regarding charging for incoming calls - there is proposition that may allow them in europe. someone at brussels thinks that this will increase competition and will lower the price.
w/e no disrespect meant guys,
But I’d rather live in a country with drinkable tap water, than be able to have a couple extra cellular perks
(excuse my grammar, just got back from the nightclub)
@Jeff: The article talks about prepaid/”loadable” SIMs. Unless you’re foreigner and unwilling to pay that 200 euro deposit, there are cheaper alternatives that *aren’t* bound to a specific handset (you can use the SIM in whatever device you want) and whose contract profile can be changed or even terminated without early termination fees with a delay of one month, maximum.
A quick look at some “bulk” brands of common mobile operators here in Finland suggest that calls go from regular ~0.07 euros to 0.05-0.02 euros per minute (and incoming calls are free) with these 250-2000 minute contracts, and SMS packages drop prices from regular ~0.07 euros per message to 0.02-0.01 euros with 100-1000 message packages (receiving is, again, free).
It’s really your personal decision based on your current situation what you want to pay for - basic contract costs essentially nothing per month, but you can modify the contract on a whim if you feel like it, or you can even just terminate the contract or move your number to an another operator if you’re satisfied, without big extra cost (couple euros per change, usually). And of course, you can use the SIM on whatever phone you want.
So, from non-American perspective, I call the iPhone innovation really backwards. Several-year contracts (with a phone) are mostly for the people with a constrained budget (or rather, bad money planning), not really something people want to boast about around here, since it’s obvious that those deals are not exactly wise investments… I don’t believe iPhone is going to change it to a hip thing.
Oh, one addition: basic 384k unlimited 3G data goes for 10 euros per month, as one of the options. Depending on your usage and speed requirements, you can get considerably cheaper if you use the data services only occassionally. (It seems that the operators have more or less shifted from data-based to session occurence based billing in these “cheaper” options lately.)
Also, there are less flexible, but rather cheap monthly deals if they really match your use instead of mix-and-match of different options, and most of them can be terminated early without extra cost. And if a two-year contract is fine, you get the phone and pretty much everything you might ever use from operators. For instance, one advertises a contract with 3000 minutes voice calls, 3000 minutes of video calls, 3000 SMSes, 3000 MMSes and unlimited 1 Mbps data for 50 euros per month.
Just trying to give an idea of options that people have on more competetive mobile markets than the land of the free…
rofl. …No, sorry.
i live in Spain and MOST PEOPLE have contract, at home we are 4 people and we have 5 contracts and 1 pre-paid, and the fact that everybody got contract now is just because pre-paid phones are really tacky and old and nobody wants them, they are good for an emergency like your phone dropped off and broke and you need a phone asap
it seems to me the whole point of the rant is he wants to get a new phone every month. why bother with an iPhone then? stick to your flip phone nokias,
@JD
I’m from Canada, and yes China and India are gaining steam but at the end of the day, they’re still both 3rd world countries. They would need major work on health care and other essential services before they can surpass North America
At one time, a year or so before the iPhone was announced, Jobs made a comment about having to go through “orifices” to get to the mobile customer; sounds like he was a bit frustrated. So I’d believe Apple examined all the different approaches to sell a high-end phone to customers, and settled for what they eventually did in the US+ with a no-subsidy high priced phone and getting a cut of monthly carrier revenues. But in studying this, it seems to me that most international carriers rejected this model, so Apple has capitulated and gone back to up-front subsidy.
I’m also from Canada and wish to point out that not all Canadians are trolls :->
@Stefan: it would have been nice if your article had included Japan’s mobile markets in the comparison. In Japan, the mainstream handsets come with advanced features and services which European consumers/manufacturers/operators can only dream of. On the other hand, the pre-paid business is very restricted by law; only residents can get up to two pre-paid SIM cards per person. You see, the Japanese model and the iPhone point to the same direction: good handsets and services are locked to operator contracts.
hahahahaha
I LOVE IT!!!!!!!!
Dude, why don’t you go eat your curry and make my consumer electronics
I’m surprised you can actually afford a computer! Props dude, how many year mortgage did you have to sign for that?
dude look me up on facebook: Zak Ramdani
you can say whatever you like “JD,” but at the end of the day, my life is 10X better than yours. I personally don’t care what will happen to Canada in the next 50 years.
I’m better looking than you aswell
My gf is 100000000X better than whatever arranged woman you’ll end up w/
Stupid pooner
@Zak&JD
If you two imbeciles are going to try and one-up each other, talking about your girlfriends and money and how great you look, how about doing it somewhere other than a forum on cellphones, because honestly, your just embarassing yourselves.
@JD,
Seriously Dude, Nobody, and I do mean NOBODY cares about you, ur country, or anything u have to say. You can say whatever u want about Americans or Canadians but when it comes to the wars, we actually stick up for our selves rather then coward and piss in our pants at the thought of a fight. Obesity may be a problem here but people actually can do what they want with is the beauty of our country. I’m sure ur getting proposals but they are probably from men who think u look femine. And atleast our jobs involve working to get honest pay while ur country has to resort to using lowlife cheap tricks and foriegn investing to get money. It’s not our fault that you guys are so poor that u have to work for pennies. So why dont you just go work at a gas station to pay for your college and “Shhhhhh”.
Sorry, Zak. I kinda wanted to jump in! lol.
@James,
Man, sometimes you have to just sit back and enjoy the show. People can sometimes get alot of stress build up and its almost a nessesity to argue with someone about something to help relieve it all. There’s no harm being done with texting on a forum. Join in if u most. Its somewhat entertaining and maybe even fun. Just dont take anything to seriously and if u do, then you cant handle others opinion. Notice how they kept coming back? Nobody wants to end the arguement because both are looking froward to the others post. Gives them somehting to do!
so, getting back to things, how is apple going to recover, or is this going to leave a huge hole in which nokia, or another manufacturer can flood the market with cheap, contract less touch screen phones?
Really dude, do you just hover here and wait for some sort of comment so you can have some meaning to your life to stick up for a country with people the probably dont even like you which is why you are taking college in australia? And did I ask you about your government? I dont care… Is your mom the one that told you India doesn’t have gays when you told her you had a crush on the neighbor boy? Btw, girls don’t have adams apples so I would be sure to check those people who were proposing again. You obviously do care about us americans otherwise you wouldn’t keep comeing back to throw in your meaningless comments. I also didn’t ask about who cared and who didnt care. So you are just throwing out more stuff to try to get more things to argue so our comments back to you would give you some sort of excuse of a social life because ur obviously not doing to well on that one your self. And 1 more thing, its called grammer, study it, learn it, and apply it!
Lame? Ok, not going there. I’m sure we were they to moment you made your first post. Different cultures huh? Well I guess any culture is better then yours so I can see your point. Wise isn’t a factor here, if you were wise then you wouldn’t have said anything. I like how you call us children. Because your spelling suggests your a 9 year old who failed English class. I didn’t lose my job becasue I’m sure my job is to complex for your tiny brain to handle so I have no worries. I hope your going to college for Technical Support because thats the only thing your capable of and btw, you would probably do a a terrible job at that just like everyone else. I sorry you got born into a culture who thinks cows are holy as with ours thinks cows are delicious so we are going to have our hardships. Rivalry is an amazing thing, isnt it? have a nice day. And it was nice tlaking to you!
I apologize. I’m in no way racist. I just dont like those who bash America because they are jealous we are more successful then they are and will be. Figured I would just clear that up!
Let’s keep comments clean, guys.
Just wanted to add. The iPhone 3G will *hopefully* be unlocked in the near future. That would essentially put unlocked iPhones back on the grey market - giving contract-haters an iPhone to look forward to.
Now, the question is. Will Apple’s lack of “official” support for the unlocked iPhone trade keep purists away from the iPhone due to philosophical differences? In other words, are contracts and hardware exclusivity a philosophical or convenience problems?
@Radium
You’re a pimp
@JD
Just keep on going in your little world w/ all of your “proposals” lmao
In North America its usually the mans job to do the proposing
Wow, I would hate to be him! lol. Funny stuff!
Sorry Will, I’ll be good… for now!
Completely agreed. Working in the US prepaid wireless industry, and having visited the prepaid carriers in London, I think that rather than being logical, it’s just historical. i.e. The US started with postpaid, and prepaid has always had a stigma of being for a lesser class; but that’s simply not true in other countries. It’s a way to pay, and a very good one at that with a whole bunch of benefits. I believe that in the long run prepaid will take over in the US as well…it’s only a matter of time!
Prepaid is an outstanding idea with all the benefits it offers. Alot of people these days are afraid of the 2yr commitment because of the ETF. With prepaid, u pay for ur phone when u want to or need to and the same goes for the data access or texting. I know alot fo people who dropped there postpay to switch to prepay. Prepaid wireless services are going to be the future with all the new plans and such they are coming out with like the Boost Unlimited for instance or Metro PCS. People like the flexibility!
Prepaid is a hit in most of the countries around the globe especially in Asian countries and young people mostly students.