Even in the Android/iPhone era, carriers dominate

11 01 2010

The launch and availability of Google’s Nexus One smartphone last week reinvigorated the dialogue about how phone makers are changing the carrier model in the United States.

This is far from true.

Google offered the Nexus at competitive, subsidized prices with contracts with TMobile for $179 (or Verizon and Vodafone soon), and “unlocked” (without carrier contract) for $529. The unlocked offering was a pure marketing play to exploit Apple’s exclusive contract with AT&T, but it’s not unique. Nokia smartphones are also offered unlocked and at high price points in the United States, and every other phone, including the iPhone, is offered at subsidized prices with no contract.

Google didn’t break away from the carrier model, it reinforced it by offering the Nexus One with three carriers off the bat (whereas most phones only launch with one carrier) and selling the unlocked Nexus One at a high price point, driving customers to want to save money upfront with a carrier contract.

What has changed is that the marketing of phones has shifted from carriers to phone makers. Credit Apple. It has reinvented revenue opportunities by offering iPhones through Apple Stores and selling applications through the App Store. It has also shown that a focused phone maker can produce a better, focused marketing campaign for a single phone than a carrier can for its portfolio.

But this too benefits the carrier model.

The service contracts (Read: revenue) for the iPhone reside with AT&T, and operators supporting the Nexus One, whether it be the subsidized or unlocked phone require contracts. Apple has bought no spectrum, nor has Google, and until they do they will not be able to offer service for their phones.

Google and Apple have positioned themselves as thought-leaders and innovators over the past year, just like Microsoft and Palm did five years ago, and like their predecessors they haven’t changed the carrier service model – they’ve only supported it.

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9 responses

11 01 2010
peterlux

Well said.

What would be needed to truly break open the carrier service model? And is it in the interest of Google and Apple to do so?

11 01 2010
anitamedia

It’s too bad the offer sounded better that it turned out to be. Why is it so difficult to create a european service model?
For $1,000 or more to purchase a contract and mobile service for a smart phone it’s no wonder that people are looking for cheaper ways to get mobile products/service.

11 01 2010
pmottola

@peterlux Thanks! There will always be carriers providing a network service, but what I think can break is the limited choices that consumers have within the existing two-year contracts. I DOUBT that Apple or Google would really care to build-up or even purchase and maintain a carrier service because of the large operation that requires. Rather, Google or Apple might be able to put a stranglehold on the operators to be more reasonable with contracts as customer loyalty continues to drift toward device rather than operator.

@anitamedia We’ll never be able to turn over to a European model because the carriers are making too much money with the current model.

11 01 2010
ingescheve

Actually, it’s not even new that Google shifts the marketing of the phone from the carrier to the manufacturer. This is a long-standing practice in Scandinavia (if not the most of Europe): For instance, Nokia will advertise it’s new phone and it’s unmatched features, you decide you need to own said phone and you’ll start shopping around for either:
a) the phone unlocked and switch your SIM-card to this new-found item of satisfaction, or
b) available providers that offer the object of your desire at a reasonable price up front and that have decent coverage and plans for your needs and wallet.

In my opinion, the biggest problem with the US cell phone model is that you are limited to a provider that has coverage in the areas you plan to frequent, and hopefully affordable plans to suit your habits. Then you have to hope and pray that they carry a phone you even want to own. With T-Mobile, the only carrier in the US with acceptable coverage in the boonies (ski races tend to happen there), the selection of phones that can handle some outdoor abuse is close to non-existant. Additionally, this flimsy phone I got is locked to T-Mobile, and I can’t swap in my Norwegian SIM-card when I travel home. That would be convenient, since that would save me buckets of money while using my phone in Norway, compared to paying international rates through T-Mobile for using my phone abroad. Yes, I sure understand the carriers’ love for the carrier model, but why don’t the US consumers rebel?

11 01 2010
verasays

Hi Paolo,

Very insightful post! By clarifying the marketing play of Nexus One, you clearly address the current model of mobile phone in U.S. market and to what degree, Nexus One affects this market. It is good to learn these concepts, thanks!

12 01 2010
yuhsuanchen

Yeah, I agree with you. Only launching a celluar phone would not break away from the carrier model in today’s mobile industry. For me, Google just provides options that you can sign in with some carrier to experience better mobile services, while having your favorite phone. People don’t need to tolerate bad services in a 2 year contract. I believe Google’s aim is not providing us a new mobile phone and it also understands that carrier dominates the mobile industry after the launch of Nexus One. For now, Google cannot bid the spectrum license, so the mobile phone becomes a potential platform for it to enter into the mobile market. The mobile services beyond Nexus One would be the following we shoud keep a close eye on. There are more Android-based smartphones would be launched this year. Once google creates a killer mobile service or application on the Android, the mobile world would change.

12 01 2010
seattlekungfoolery

Is there a solution to this? How about integrating the 3rd party carriers (boost, virgin) that are able to offer shorter terms and more pay as you go models? Can’t someone in China produce some i-android ripoff that they could sell to the american market at much lower price points? This could be like napster allowing “illegal sharing” of music breaking the music world’s business model wide open… Pretty far fetched, but something is going to give. This is obviously a “publish, then filter” idea….

12 01 2010
alvins456

Good point about how phone makers are doing most of the marketing than the phone carriers. I also think this is just one aspect of the Google vs Apple competition to have the best phone, application store, browser, and the largest advertising outlet on mobile phones.

Check out my blog post:
http://alvins456.wordpress.com/2010/01/12/week-2-kelly-mcivor-google-enters-the-mobile-world/

Thanks for the post!

13 01 2010
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