iPhone poses some unanswered questions for Apple

Stan Beer
Thursday, 11 January 2007 03:06

Business IT - Technology

It may have taken two and half years to develop and be, as Steve Jobs says, one of the three revolutionary products of Apple Inc. However, the day after the launch, when the excitement has died down, there remain some unanswered questions about the iPhone that refuse to go away.

One question that a number of people are asking is why Apple has chosen to enter the US mobile phones market through an exclusive arrangement with just one mobile carrier. Cingular may be the largest carrier but both Verizon and Sprint Nextel are almost the same size and T-mobile is almost half as big. That's more than 130 million subscribers Apple won't reach with iPhone - unless they swap to Cingular.

The answer to this one is fairly obvious. Apple has decided to go with the most widely used global standards in GSM and EDGE, which Cingular has, while Verizon and Sprint have CDMA based networks. German owned T-mobile also has GSM and EDGE but is less than half the size of Cingular, which has exclusivity until 2009.

The second but related question is why launch a mobile phone with Internet capabilities using relatively slow 2.5G technology? After all Cingular has UMTS and HSDPA technology just like Europe. The answer to this is less obvious because Jobs has promised 3G versions of iPhone and it is likely that Apple will enter Europe with a 3G phone in Q4.

The answer may be simply a matter of keeping the cost of early models down. Also, the iPhone has Wi-Fi capability, which is cheaper and better than 3G for net browsing and hotspots are proliferating throughout major US cities. Apple could be betting that most early users will want to use the iPhone for voice calls, messaging, email and music listening, with Internet browsing reserved for the occasions when a hot spot is handy. 3G web browsing is still expensive.

Will Apple sign similar exclusive deals when they enter markets outside the US? If there is a major incumbent probably. If the market is fragmented probably not. If Sprint and Verizon move over to UMTS and HSDPA then around 2009 the exclusive arrangement with Cingular may well end.

Finally, is US$499 and US$599 on a two-year phone contract too high a price for a hybrid device like the iPhone? It may well be for many users who just want a phone. However, there will be a fair number who will want a device that replaces both their ageing phone and music player. However, will Europeans, who are used to getting phones on nothing up front plans buy it? That's a hard one.