Thoughts on Phones

Apple may well be on the verge of disrupting the U.S. cellphone industry again, finally achieving what they set out to do initially – controlling the sale of the device and the customer experience by breaking the carrier contract lock-ins.

On a recent episode of The Talk Show, John Gruber and M.G. Siegler discussed how the original iPhone was sold to customers at full price in an effort to disrupt the long standing tradition of US providers subsidizing devices in order to lock customers into long contracts.

While the original iPhone was a success it was too pricey to manage to disrupt the US carrier business, so subsequent models have been sold subsidized with two year contracts. It seems to me Apple is about to make a second attempt at disrupting the carrier subsidized business model with the rumored introduction of a more affordable iPhone model to be sold straight to consumers mainly from Apple's retail stores.

AT&T benefited from being the sole iPhone provider in the US market for the first few years. This time I believe T-Mobile, with their newly announced "Un-Carrier" strategy focused on non subsidized plans with unlimited data, stand to gain should this lower cost iPhone model be introduced in the US. The lure of a comparatively affordable monthly plan and the availability of a lower cost iPhone could turn a portion of the US cellphone market towards paying for device and plan separately in order to avoid being locked into contracts. This allows the customer to upgrade their device on their own schedule, a behavior which is common in large parts of Europe and elsewhere around the world.

If US customers start transitioning away from the contract model T-Mobile is the only larger provider currently giving them the opportunity to do so. Were I not locked into another year with my AT&T contract I would go for T-Mobile's Simple Choice Plan which includes unlimited everything for $50/month*. Unless the market changes significantly in the coming year chances are I'll do exactly that when my contract is up.


*The $50 plan includes 500 MB of data at 4G speeds, which should be enough for anyone who is on wifi frequently. After the first 500MB the data speed is throttled, but no extra charge is incurred.

DISCLAIMER: This is all speculation based on the prevailing rumors. I have no inside knowledge of Apple's business strategy.