Une Monday Note toujours très pertinente de JL Gassée. Récemment pour mon voulut je pondait une réflexion sur la ‘Mobilité’ et mes conclusions étaient - sans en arriver à la cheville ^^ - similaires : la Value Proposition de la mobilité se déplace de l’opérateur (qui avait agrégé portail, contenu, service, … et où le terminal était dévalué) vers l’opérateur d’OS mobile (et non pas seulement le constructeur). C’est là où semble se situer désormais la valeur. Marc.
Dictionary.com unfolds the historical and linguistic links to We Wuz Robbed, and translates: We were cheated out of a victory; we were tricked or outsmarted.
The gist of the carriers’ lament is this: We do the hard work and someone else is making all the money. And by someone else they mean a certain interloping personal computer company that has, without the slightest experience in the technical (and deal-making) intricacies of the mobile phone industry, inexplicably lucked into the smartphone business and pocketed an unfair share of the cash.
The PR flacks go to work and give us this “rich” WSJ article, “How the iPhone Zapped Carriers”, from which I extract a few of its many gems:
Americans are glued to their mobile devices, obsessively calling, texting, emailing and downloading applications. So why is the U.S. wireless industry in such straits, as shown by AT&T Inc.’s crucial but failed plan to buy T-Mobile USA?
A big reason is that carriers are losing power to the device and software makers riding the smartphone boom.
For the most part, it’s really been a wealth transfer from AT&T shareholders to Apple shareholders…
Device makers and app developers are having the fun, while the carriers are doing the grunt work.
Nowhere does the churnalist entertain anything other than the carrier party line.Not a word from users, from Google, from the device makers and software freeloaders who are “riding” the boom and having all the fun.
The article’s bias is clear, in its language and innumeracy. First, AT&T’s “crucial but failed” attempt to buy T-Mobile was a bid to restrict competition and raise prices. Had the merger gone through, customers would be the ones crying “We wuz robbed.”
Second, the article mentions a decrease in the sacrosanct monthly ARPU (Average Revenue Per User) to $46.09, down $2 from the previous year. Behold once more the lack of respect for the reader exhibited by the fake four-digit precision. But beyond the attempted intimidation, what is the meaning of the $46.09 average, what ingredients does it mix together?
Curious, I ask the oracle a simple question: ATT ARPU. The first hit is a happy — triumphant almost — AT&T press release for Q4, 2010:
AT&T Reports Record 2.8 Million Wireless Net Adds, Strong U-verse Sales, Continued Revenue Gains in the Fourth Quarter
…This marked the eighth consecutive quarter AT&T has posted a year-over-year increase in postpaid ARPU.
And the news gets better. The Q4 2011 investor presentation (download it here) yields these morsels:
The average ARPU for smartphones on AT&T’s network is 1.9 times that of the company’s non-smartphone devices.
The $64 ARPU is for all wireless devices, smart (with their 1.9x revenue premium) and dumb. Two years ago, AT&T CEO Randall Stephenson pronounced himself happy with the “over $100” ARPU from iPhone subscribers. So how much does AT&T get for its iPhones today?
From Apple’s latest earnings release, we know the iPhone ASP (Average Selling Price) is about $660. AT&T subscribers pay $200, plus $20 or more in accessories, directly to Apple. This leaves $440 to be fronted by AT&T. Subtract that $440 number from $2880 (the customary 24 month x $120 agreement), and there’s $2440 left — or about $100 per month of “real” iPhone ARPU.
But there’s a problem with my back-of-the-envelope calculations. Data consumption makes up 40% of AT&T’s service revenue; I can’t prove it, but I suspect that iPhone subscribers are more ‘‘generous”, they consume more data, than AT&T’s other customers. In Q4 2011, that probably worked out to a nice ARPU of about $120 per iPhone.– and users will pay even more now that the “unlimited’’ plans are no longer offered.
What about Verizon? Are they being “zapped,” too? The oracle obligingly responds to “Verizon ARPU” with a few good links, such as this one, trumpeting Verizon’s robust health:
US carrier landscape in Q3: Verizon records biggest ARPU
Ever since the iPhone barged in, we’ve heard carriers cry extortion; they complain that Apple’s prices — to them — are too high. But they took the iPhone and its prices for two simple reasons: higher ARPUs and fear of losing subscribers to a competitor, the cost of watching your most “productive” subscribers — the ones who contribute to the 1.9x ARPU factor — go elsewhere. It’s better to bet the company on the iPhone than on not having it.
Sprint agrees. According to our WSJ story, Sprint has committed $15B to the purchase of iPhones for a period ending in 2014. (Another WSJ story says $20B, but what’s $5B these days?) As obverse evidence, we have T-Mobile’s simple explanation for its subscriber losses: No iPhone.
Carriers subsidize smartphones because it’s what their customers want, and they put up with the iPhone’s higher price because it’s what their customers want most. Just last week, a T-Mobile exec called for an end to smartphone subsidies — but refused to go first. When/if the iPhone becomes less desired, the carrier subsidies will subside.
I introduce this thought by way of providing context for another statement in the WSJ article:
‘’… subsidizing a customer buying an iPhone would cost 40%, or about $200, more than another kind of phone, on average.”
(Let’s see: $200 divided by 24 months, that’s about $8 a month. Will an iPhone customer yield the extra $8 in monthly ARPU? The carriers’ accountants seem to think so.)
Still on subsidies, try this thought experiment: You walk into an AT&T or Verizon store with a fully-paid unlocked phone. Will you get a lower monthly deal? I asked and, in both cases, the answer is a polite no. See this on-line chat with a Verizon person:
No deal on an unsubsidized phone. The logic is impeccable: We complain about subsidies while using them to tie customers up.
Carriers want to imagine a world in which the ‘‘excess’’ $200-per-iPhone subsidy moves back to its rightful home: the carriers’ coffers. With 180 million iPhones sold so far, that’s $36B of pure carrier profit…and Apple would still enjoy an ASP of more than $400 for its iPhone. Cosmic order would be restored.
Back in this reality, carriers complain about excessive subsidies and threats ofdisintermediation, of attempts to make them ‘‘dumb pipes’’. But nowhere do we see a discussion of the ratio between the cost of an additional cell tower and the new revenue it generates. We can be sure carriers know this number, but they’re not sharing. It must be a good one: We now see carriers eager to offer their new LTE infrastructure as data pipes for the (unsubsidized) new iPad.
As a final offering, regard this handy chart from Fierce Wireless:
Some observations and a little math, in no particular order.
- The first four carriers, Verizon, AR&T, Sprint, and T-Mobile, have 295M subscribers, 90% of the total US market.
- If we multiply each carrier’s ARPU by its number of subs, sum the results, and divide by the 295M, the overall ARPU works out to about $50 (our journalist would write $49.69).
- For the two leading carriers, the churn rate (people leaving) is quite low, about 1%. Compare this to the iPhone-less competitors: Before Sprint got the iPhone 4S, Sprint’s churn was about twice AT&T’s; T-Mobile’s is close to three times that of Verizon’s.
- AT&T continues to benefit from its early bet on the iPhone and, in Q3, added more subs than Verizon.
- Both Verizon and AT&T get about 40% of their service revenue from data.