An analyst at Bernstein Research has some advice for Apple, Inc. (AAPL). Sign up more carriers, and kick out a cheap iPhone. Both bits of advice have merit, but are the arguments strong enough to persuade Steve Jobs to take a shot at them?
Toni Sacconaghi, the Bernstein analyst, notes that Apple’s iPhone is sold in 89 countries through 143 different carriers. The iPhone’s share of the total smartphone market is about 40%, according to Sacconaghi. Gaining more share with its current carriers will be difficult for Apple, so the obvious move is to increase the number of carriers.
And there are some really big carriers left to sign up: China Mobile Ltd. (CHL), NTT DoCoMo (DCM), and Verizon (VZ) leap to mind. Apple’s exclusive contract with AT&T (T) in the US is believed to be ending this year, opening the door to other carriers, including Verizon and Sprint Nextel Corp. (S). Verizon Wireless, a joint venture between Verizon and VodaFone Group, is the clear leader in speculation.
There are some issues with this suggestion though. First, current iPhones don’t work on Verizon’s CDMA network. Verizon is skipping 3G technology and going directly to 4G LTE technology. The company expects to have its 4G network operating in about a third of US cities by the end of 2010. Apple does not have a 4G iPhone yet.
Which leads to Sacconaghi’s second recommendation: Dumb down the smartphone. The iDummy would be available without an expensive data plan for those 3G users who don’t want or need or can’t afford a smartphone. Apple could also build a cheap CDMA version of the iPhone that could run on Verizon’s network.
The strength of this idea rests on the size of the post-paid market for low-end phones, some four times the size of the post-paid smart phone market. With average revenue of about $40/month per user, a low-end Apple iPhone could generate as much as $9 in additional EPS for Apple.
Apple has resisted both ideas for a long time. If there’s one thing Steve Jobs understands is how to make and market a product that nobody ever knew they needed before. Making and marketing a me-too product like a dumb phone holds little or no interest for Jobs and Apple.
Introducing a dumbed-down iPhone reduces the premium that customers are willing to pay for the real thing. Apple tried that once before, when John Sculley ran the company and licensed Macintosh clones.
The company almost folded and it took years and Steve Jobs to set the ship on course again. Jobs himself is highly unlikely to adopt a course that follows that line of reckoning.
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