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Slow but steady: How the iPhone is changing the phone industry

Dan Moren | March 11, 2013
Every time Apple enters—or seems to even think about entering—another market, we’re barraged with noise about how the company should, or must, or can’t reinvent this industry. Why all the attention? Because Apple has a remarkable track record of having reinvented industries before, and the reward for a job well done is—surprise—another job.

Smartphones arent just a niche product anymore; they now make up an overwhelming percentage of the handsets that the carriers sell. According to Verizon, 87 percent of postpaid devices sold by the carrier in its most recent quarter were smartphones; both Sprint and AT&T reported the same statistic at 89 percent. And the iPhones a big part of thataccording to Verizon, 53 percent of its smartphone activations in 2012 were some model of Apples handset, and Verizons iPhone sales are lower than AT&Ts.

Customers clearly want smartphones, and taking measures like throttling their data usage or breaking out features like tethering and messaging into additional costs is tantamount to the carriers cutting off their nose to spite their face. Or, to paraphrase an old favorite: The more they tighten their grip, the more customers will slip through their fingers.

In truth, the carriers have run up against the fundamental problem of their business model: They own the streets, but they dont make the cars. And other than paying their taxes to make sure they stay open and pothole free, people dont really care much about their streets.

Think about it. Few, if any of us, really love our wireless carriers, any more than we love the roads we drive on. When carriers and streets work, we dont think about them; when they dont, we start concocting ways to switch to other, better maintained avenues.

Freedom, thats what I need now

Imagine that you didnt have to deal with the illegalities and technical finagling of unlocking your phone and taking it to another carrier. The competitive landscape sure starts to look a lot different in this not-unreasonable fantasy world: Carriers will have to work harder to differentiate themselves, and that means offering more to customers, whether it be options like unlimited data, cheaper costs for adding on features like tethering, more cost-efficient family plans, or other incentives.

This seems to be what T-Mobile has up its sleeve, though the company hasnt yet disclosed all the details of what its contract- and subsidy-free future looks like. But I imagine that both its rivals and consumers will be watching the experiment with interest.

Right now, the state of the industry reminds me a bit of the slide we saw with Digital Rights Management in the music business just a few years ago. The snowballs rolling downhill, momentum is growing, and it seems only a matter of time before it achieves critical mass and bowls over the established players.

And just as Apple started that ball rolling with the abolition of DRM (on music, anyway), the companys done the same here, if more subtly. Steve Jobss proclamation that Apple was going to reinvent the phone may have been overtly aimed at consumers tethered to their BlackBerries and dumbphones, but it was also a message to the carriers that their days of influence were numbered.


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