$99 iPhones Will Not Improve the Wireless Customer Experience

$99 iPhones Will Not Improve the Wireless Customer Experience

Summary: 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.


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.

Click on the "Read the rest of this entry" link below for more.

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.

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Topics: AT&T, Apple, Hardware, iPhone, Mobility, Networking, Wi-Fi


Jason Perlow, Sr. Technology Editor at ZDNet, is a technologist with over two decades of experience integrating large heterogeneous multi-vendor computing environments in Fortune 500 companies. Jason is currently a Partner Technology Strategist with Microsoft Corp. His expressed views do not necessarily represent those of his employer.

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  • Phone as a uniform data device NOT mobile providers' preference

    Mobile phone companies prefer NOT to be treated as just a data ISP. Instead they have traditionally maintained false fragmentations, such as separate voice, SMS and lately data streams, when all can be expressed as data with differing QoS attributes.

    This allows them to charge absurd amounts for some things, such as 25c for SMS in Australia. How much data does an SMS use? Much less than an email!

    But the main use for this differentiation is to create absurdly confusing plans that make it difficult to accurately compare them. And makes it easy for users to have to pay for more than they will actually use.

    Flat rate data would allow users to determine what would be best for their needs as they go along, but it levels the playing field for providers.

    Kudos for 3/Hutchinson for pioneering this space.
    • Dude

      I work for OrangeUK which was founded by Hutchinson (He sold us to france telecom in 2004).
      We do not keep the gsm network backbone to raise prices, we infact almost throw them away.
      I get 3000 sms messages per month on my 15 pound a month contract.
      Voip calls actualy cost more than we charge via contract minutes anyway so we would be raising prices in order to do that.

      And our tariffs are far from confusing, infact we go out of our way to make them clear, when someone upgrades and they have been using to much we actualy talk them down to a lower plan.
      • OrangeUK - the exception, not the rule...

        In the U.S., the carriers are charging $99+ (US) for a worse plan than what you are getting for about $60? (US). We have many more limitations placed on how we use our plans. They break them up into bizarre pricing schemes which are geared toward milking the customer for every cent they can in every way they can. Consider yourself lucky you don't live elsewhere. I completely empathize with Australians because we get reamed here, too. AT&T even charges more to iPhone users than users of other phones.
        • Absolutely

          > AT&T even charges more to iPhone users than users of other phones.

          Yup. With iPhone or Blackberry, to get "unlimited" internet (6GB cap) and sms, you pay $50. Any other phone is $30. This is the #1 reason I won't buy either. I get all the same functionality (the way I use my phone anyway) on a Vu in a free phone with a $20 cheaper rate plan.

          I have a jvm which I unlocked on it, which gives me free GPS (aMaze GPS, with a bluetooth "puck"), all the games I want, and all the free apps I want with no nags including SSH.

          I admit I'm on the fence about buying an iPhone, but it's solely the bling factor and increase from 2 to 3 megapixel camera. Frankly I'm probably still not gonna do it.

          It's just not worth it. My LG phone does everything an iPhone does for the way I use my phone. I'm not interested in WiFi, or novelty accelerometer "apps". I just sms, email, surf the internet and use it as a music player. I play assassin's creed when I'm stuck somewhere and bored.

          The iPhone offers nothing additional to me outside of bling factor and a better camera. The battery life is horrendous, it's way too expensive, the reciever on it is terrible (I get excellent reception with my Vu) and the plans are highway robbery.

          Thx but no thx. The iPhone is a nice phone, don't get me wrong, but I simply don't want to burn that much money on bling factor.

          I'd rather spend it on a new video card.

        • AT&T even charges more to iPhone users than users of other phones.

          That last bit actually should be illegal. In fact I wonder if it isn't in some states? You would need a smart lawyer to check that out but I do wonder.
          • the data pricing logic

            There is some logic behind their charging more for data on some devices.
            1) 3G devices(Iphone) can transmit and receive data faster and so the users use the data features more.
            The only devices where the users use more data on AT&T's network are Computers with 3G modems in them.
            2) While the blackberry's are mostly 2G devices, except for the Bold, their business data usage for email again cause them to move significantly more data over the network.

            I am not saying I like the choices from them and I definitely would like to have a lower priced tier, but this is not entirely about gouging.
    • Glad to hear it's not just US consumers getting screwed

      I only pay $0.20 USD per text message ;-)

      I wonder why, if there is a decent living to be made as a "cut-rate" mobile bit pipe, no one has jumped on that and started stealing a significant chunk of the mobile customer base away from AT&T et. al. ?

      • You don't text enough

        Gee, that's odd, my son texts cost $.005 per text, as he sends over 2000 a month for $10.
    • i am in complete agreement

      i would like to say i agree with you i waas in Macau china for 2 yrs and it was an eye opener for me to be able to pop a smartone sim card in to any phone i want to and call where i wanted to. you can not do that hear thou there wireless netnorks put us to shame and it is very said that you can buy anyphone you want there use any sim card and in other counrtys use the some phone after changing the simcard and it works cant do that hear i sucks big time to know this why cant the USA cell carries do like they are doing if you want a iPhone just go buy it pop your sim card in and it works no problems we need to stand up all toghter and tell them stop pulling are chain and start given us what we want!!!!!!!
  • RE: $99 iPhones Will Not Improve the Wireless Customer Experience

    I totally agree..
    Wireless cos are treating us like animals today by forcing their service along with a contract.
    I'd be more than happy to buy a new iphone for 300 bucks from best buy and use it with whatever carrier i want.
    • Well

      On a Gsm network you can do, atleast in the uk anyway.
      We offer sim free contracts that come with no phone and only take 30 days to cancel.

      However most phones would be way ober 300 dollars when new so you would be confining yourself to older handsets.
      • Unlocked Nokia E63 solution

        I'm with AT&T and just finished my first two year contract. Leading up to the end of the contract I shopped all around for a smartphone to replace my Treo 650. Tried a couple out and had to return them to the vendor.
        Also considered switching to Sprint, but was put off by the interminable waiting for the Pre.
        Then I stumbled on a new Nokia E63. A family member who lives overseas has this phone so I was familiar with it. Bought it on sale for less than $200 and it's awesome. You can get the gussied up cousin E71 for a bit over $300.
        I can swap out a prepaid SIM card when I go overseas. I've got wi-fi that finds a connection without much trouble when I need to send an email from "out in the field" and I do mean "out in the field" as I work in a very rural setting. And I don't have to pay for AT&T's 3G network since I don't have to go wifi all that often.
        I flirted with iPhone, Samsung, Treo Pro, and others but ended up with a better phone and no new contract.
    • Until consumers put their foot down....

      Nothing will change. While the gov't should break up harmful monopolies, the fact remains that there are monopolies that are useful (albeit villianized by the masses and the press) such as pharmacutical companies getting exlusive rights to their creations for 17 years, Apple (I would contend they are much more monopolistic in behavior than MS, but since they are "cool" and "popular" they get a pass), even Google (to stick to the tech space). Now, you have gov't imposed monopolies with regards to some banks, automakers, etc... (you think the gov't will ever susidise the purchase of any brand except GM now? seriously?). So, answer is....stop jumping onthe bandwagon, demand better service. REFUSE TO BUY ANYTHING WITH BUILT IN CONSTRAINTS. Sure, I want an iPhone, but I refuse to use at&t's network, and pay their extortionist prices. The day apple drops that exclusivity is the day 30 million folks run, screaming from at&t service, even if they have to pay to get out of the contract.
      • use the iPhone in TMobile

        There is nothing stopping you from paying full price for the IPhone, and using it on any GSM/UMTS network.

        I am tired of hearing everyone complain that they are locked into a carrier like AT&T.
        Why is it unreasonable for AT&T to lock you into their network since they subsidized the handset you just purchased?

        This goes for almost any handset.

        In most of the rest of the world you are not locked in, because the carrier did not subsidize the device.
        • Not true! I tried it.

          I went to the Apple store, paid full price for an unsubsidized iPhone - $599!
          I have a sim converter that used to allow operation of an iPhone with a T-mobile SIM. I plugged in the SIM converter and the T-mobile SIM expecting to get service and it didn't work. Turns out that in their recent firmware upgrade, Apple changed the firmware in the modem software and all of the hardware SIM converters as well as the software hacks were rendered unusable. I thought that by paying full price for an unsubsidized phone that it would be unlocked from AT&T but it is still locked to AT&T. Thanks AT&T! Naturally I returned the $599 iPhone the next day.
  • Consumers used to have a choice

    Back in the early days of cellular telephony, at least in California, it was unlawful to bundle the hardware with the the service. There were two carriers in each market; you bought your phone, and then registered it on the network of your choice. At some point, the carriers got their way and were allowed to subsidize the purchase price of the phones. The whole thing deteriorated to the current mess when the U.S. government failed to create a standard for cell phone transmissions during the transition from analog to digital.

    Can you imagine what would have happened had the government allowed broadcasters and manufacturers to choose any transmission scheme they wanted for television instead of mandating ATSC as a successor to NTSC?
    • They have a choice in the uk

      And they can choose to have the handset bundled or not!
      Perhaps the rot in the cellphone industry in the US runs a little deeper.
      • They have a choice in the US

        They just do not like it, ;-)
        Users in the US are spoiled. They have been getting handsets at 50 to $100 percent off for so long, they have no concept of what they really cost and are unwilling to pay it.

        You can get almost any handset unlocked on the Internet for full price and put on any network the technology matches.

        All Verizon phones will work on Sprint and vice verse.

        Almost all GSM/UMTS phones will work on both TMobile and AT&T.
        Just have to be careful that the device supports all the frequency bands your carrier is using. Nokia is notorious for their phones where the GSM is Quad Band and works pretty much world wide but for UMTS (3) they have US devices (800, 1900MHz) and Europe.ROW device that support 1800, 2100 MHZ.

        So you cam make voice calls almost world wide but you can only use the fast 3G data in one area or the other.

        • Same as the UK

          I have to explain to people why they cannot cancel alot.
          The sim free idea is pretty unpopular though we dont get alot of users on it, so I guess its pretty much the same over here.
    • The real crime are these mandatory 2 year contracts with cancellation fees.