|"I believe, perhaps too optimistically, that somewhere along the line a tablet from someone other than Apple will gain success in various business applications, whether as a point of sale terminal, an inventory recorder, or some other uses."|
It looks like there might be some pushback starting in the phone arena, major carriers like Verizon are now charging for phone updates and their management is starting to make some noise about supporting the WIN8 platform by carrying those phones.... It is in their interest also to break the AAPL grip. It has really put the financial hurt on Sprint, for example....
Sprint bets the company on iPhone
October 03, 2011
With the new iPhone coming out this week, Sprint Nextel Corp. is finally expected to gain access to a device it has long coveted--but at a staggering cost.
The No. 3 wireless company is making a multibillion-dollar gamble that Apple Inc.'s gadget will be the ticket to a turnaround, even though Sprint Chief Executive Dan Hesse told the board in August that Sprint would likely lose money on the deal until 2014, according to people familiar with the matter.
If Sprint has bet right, the iPhone will be the device that finally breaks the company's half-decade-long slide and keeps much larger rivals Verizon Wireless and AT&T Inc. from running off with the bulk of the wireless industry's subscribers and profits. If it's wrong, the iPhone deal will saddle the company with a costly albatross at a time when it is already stretching to manage an expensive network upgrade and cover debt payments.
New details, not previously reported, give a rare look at Apple's closely guarded dealings with carriers, and reveal just how high the stakes are for Sprint.
Hesse told the board the carrier would have to agree to purchase at least 30.5 million iPhones over the next four years--a commitment of $20 billion at current rates--whether or not it could find people to buy them, according to people familiar with the matter. In order to keep the price people pay for the phone low and competitive with rivals, Sprint would be subsidizing the cost of each phone to the tune of about $500, which would take a long time to recoup even at the high monthly fees iPhone users pay.
Directors debated what they had just heard. Some worried the payoff would be too long in coming. One member questioned whether the multiyear deal might outlast the iPhone's popularity. To sell that many iPhones, Sprint would have to double its rolls of contract customers, convert all of them to the Apple device or a combination of the two.
"This is a bet-the-company kind of thing," said a person familiar with Sprint's decision-making. The projected hit to the company's operating income is "staggering," the person said.
The board ultimately signed off on what the company internally called the "Sony" project, concluding Sprint couldn't compete otherwise. Directors figured, "How can we pass this up? We have to have it," the person familiar with the matter said.
Apple is expected to unveil its newest iPhone at its Cupertino, Calif., headquarters Tuesday. Carriers like Sprint, which people familiar with the matter have said will get the new phone, are expected to announce their plans to carry the device later in the week. Verizon Wireless, which is a joint venture of Verizon Communications Inc. and Vodafone Group PLC., broke AT&T's exclusive hold on the U.S. market for the phone in February, but Sprint remained out in the cold.
The lack of the iPhone is "the No. 1 reason customers leave or switch," Hesse said at an industry conference last month.
Sprint spokesman Bill White declined to comment. Apple spokeswoman Natalie Kerris said the company doesn't comment on "rumors and speculation."
The details of Sprint's deal lay bare the leverage Apple has won with carriers, which before the advent of the iPhone essentially dictated terms to handset makers. Apple isn't singling Sprint out. It also requires its other carriers to make long-term volume commitments for the iPhone, people familiar with the matter said.
What distinguishes Apple's deals from those struck with other handset makers are their scale and a tendency to have the committed volumes grow larger over time, the people said.
The practice of locking in long-term, high-volume deals fits with Apple's habit of locking in components for its devices well in advance. It also sheds light on how Apple can be confident about future sales as Steve Jobs steps back from the company he helped found.
That Sprint would accept such costly terms highlights the pressure the company is under to get its roster of contract customers growing again. While the company has stemmed the revenue declines and subscriber losses that followed its disastrous 2005 merger with Nextel, it is much weaker financially than its larger competitors and hasn't posted a full-year profit since 2006.
Sprint's weakness makes shouldering Apple's terms riskier for the carrier than for its rivals. Sprint's stock has lost more than 80% of its value since the iPhone hit the market in June 2007. Its debt carries junk-bond ratings. The carrier had more than 52 million subscribers at the end of the second quarter, but many of them were pay-as-you-go customers who typically don't buy the most advanced devices. That compares with 106 million subscribers for Verizon and nearly 99 million for AT&T.
It isn't inconceivable that Sprint could sell the 30.5 million to 32 million iPhones under its commitment to Apple. AT&T and Verizon together sold nearly 12 million iPhones in the first half. At that rate, Sprint could hit 32 million iPhones by capturing a third of U.S. sales.