Fortune: Steve Jobs’ Apple ‘iPhone’ could upend entire US wireless distribution model

“If Steve Jobs’ Apple decides to build a wireless phone, as widely rumored, the company has the chance to shake up not just the wireless device business – an industry dominated by the likes of Motorola and Nokia – it also could upend the entire wireless distribution model in the United States,” Stephanie Mehta reports for Fortune.

Various sources wonder if Apple would seek to become a virtual phone company, and/or build a phone with built-in Wi-Fi service that would allow customers to make calls and download data and music from the free or cheap Wi-Fi networks proliferating in urban and suburban settings, bypassing traditional cellular networks, and/or do the traditional selling of its iPhone through the carriers. “Or Jobs could do something really experimental and sell devices in its stores completely independent of the service,” Mehta reports.

“But no matter how Apple decides to enter the wireless phone market, it is sure to change the status quo,” Mehta reports. “Here’s why: Today, phone companies heavily subsidize handsets in exchange for long-term commitments from customers. That Nokia phone you got for free from Cingular obviously cost the phone company something – probably hundreds of dollars – to buy from Nokia. Cingular, in the meantime, can make all kinds of demands of Nokia: It can ask for special packaging, prominent logo placement, etc. This system drives Nokia and other wireless device makers crazy.”

Mehta reports, “This is where Apple comes in – and why Nokia, Motorola (Charts), Samsung and LG might be secretly rooting for the iPhone to be a minor hit. Apple seems uniquely positioned to convince consumers to pay a premium – not demand a discount – for wirelessly connected devices, thus changing the economics of the wireless industry. Put another way: If a consumer is willing to pay $250 for an iPod Nano, why wouldn’t she pay even more for a Nano that can make phone calls?”

The excellent full article, highly recommended, with much more here.

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Apple’s ‘iPhone’ silence drives rumor mill crazy – December 08, 2006
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Analyst expects 16GB flash-based Apple iPod video player, 4-8GB flash-based ‘iPhone’ models – December 07, 2006
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  1. “If a consumer is willing to pay $250 for an iPod Nano, why wouldn’t she pay even more for a Nano that can make phone calls?”

    Because they’ll be able to get the equivalent for $19.95 with a 2 year commitment.

  2. “Or am I missing something?”

    Yes, you are missing that the phone company heavily subsidises the hardware from the future revenue it expects to make from your service.

    So a 3rd party phone sold after the service plan is sold will always be more expensive than the same class of device sold by the phone company.

    “I much prefer the system in Europe, where you buy the phone independently of service and then just buy a SIM card from whatever service provider you want.”

    Compared to the US model where you pick the GSM phone you want, get it really cheap, take it home and unlock it and put in a SIM from the GSM provider of your choice?

  3. This is just investor hype – I mean its cool that the market place is all worked up about Apple, after 10 years of beating up Apple, but… I don’t know, its all just too good to be true.

    If Apple phones don’t have to be linked to a provider like Cingular or T-Mobile, i.e. JahJah or whatever – maybe. Again, I think its going to be much ado about nothing – but I hope not.

    Go Apple! But please don’t release any phone thing until its completely ready.

  4. Chloe O’Brian: “Edgar, I’m picking up a spike in iPhone chatter over the last few days. It could be a diversion, but I think something bug is imminent.”

    Edgar: “I’m already processing scenarios.”

    Chloe: “I’m calling Jack. We need him to run field ops.”

  5. The article ended with “No matter what route Jobs goes, the phone business will be a challenge like no other he’s faced.”

    Remember the buzz about Apple setting up shop in India? the customer-service end of becoming a provider alone must be daunting, but perhaps the iPhone and the Indian connection go together. The thing that appeals to me the most is the prospect that Jobs & Co. can shake up the status-quo of the heavy hitters (providers) with some viable options and in the end, offer we the consumers some real, competitive choices.

  6. What’s wrong with just entering a market with some creative ideas? Does the iPhone have to UPEND THE ENTIRE US WIRELESS DISTRIBUTION MODEL?

    MWSF prediction: iPod with unlocked wirless phone. nice product but doesn’t immediately UPEND THE ENTIRE US WIRELESS DISTRIBUTION MODEL. Apple stock drops by half. buying opportunity for anti-creative cretin psychic.

  7. “iPod with unlocked wirless phone. nice product but doesn’t immediately UPEND THE ENTIRE US WIRELESS DISTRIBUTION MODEL”

    You can already buy an unlocked wireless phone in the USA. How many people do it vs just unlocking the phone they have, switching or staying with the one provider and getting a new handest every year or two?

    Now Apple could try to emulate Disney’s what Diney did with the ESPN phone, probably with the same amount of sucess.

    Or they could just sell the handsets to cellular providers in the same way all other companies do.

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