iPhone: Freshman Year in the Wireless Business

Implications: How well is iPhone Doing? Does Apple understand the wireless industry business model or trying to re-invent it?

Analysis: Apple's recent price cut for iPhone was the first real-world reality-check for the industry's newest handset maker.  The wireless industry, despite its enormous size, growth rate and economic impact, is controlled by relatively small group of influences.  Most significantly, handset subsidies paid by the carriers not only effect but dominate the balance of decision-making and power in the industry.  Even though an analysis of popular handset pricing history shows consumer acceptance of very large reductions, the laddering of price has always been tempered by rebates, increased manufacterer participation in concessions and increased service terms committments.  In short, the carriers controll the equipment pricing because they ultimately [indirectly] pay for the handset thorough initial and ongoing subsidies. 

Although Apple has managed to create a first-class handset, garnered an enviably large group of seemingly price-insensitive early adopters and partnered with a top carrier, the honeymoon will soon be over. Churn, defective handsets, sub-standard network performance and continually downward-drive consumer handset price/value pressure will force Apple, for the first time, to react to forces they cannot control or dominate through form factor innovation, or in this case, for lack of being the superior network.

Wireless handsets, no matter how fancy, are a commodity and the business model puts the subsidizer and consumer at the top of the food chain, not the handset manufacturer, at least for now.