why Apple chose to give Cingular the exclusive on the iPhone?
Monday, May 21st, 2007This is all conjecture, but here’s my guess on why Apple chose to give Cingular the exclusive on the iPhone:
I’m guessing this is $800-900 device. The way these deals usually get done is the manufacturer has to make a deal with the carrier to sell a minimum X number of phones at a retail price that is palatable to consumers (in this case, $499 or $599 depending on the storage capacity of 4GB or 8GB), in exchange for the exclusive and being able to lock the subscriber up for 1 or 2 years. Cingular agrees to eat a few hundred dollars per device that they hope to make back by locking you into that contract, and for a device like this, enticing you to sign up for a $39.99 all you can eat data plan to go with the phone and whatever voice plan you choose. When they don’t meet their minimum X, they are generally sold off to secondary retailers and authorized resellers such as inphonic (wirefly.com) or Amazon.
If you read your Cingular contract carefully, you will see there is a replacement cost for your phone that will generally exceed the price you are paying by quite a bit.
Let’s face it, this will be a hot cingular iPhone, so I’m sure it wasn’t a hard deal for Cingular to stomach, even with the steep subsidy cost. Having an exclusive allows Cingular to control their profit or loss on the device. It’s good for Apple, because they can get distribution of their device at a retail price that is well below their cost while they work with their manufacturer on finding cheaper components to raise margins for their version 2 device.
Apple’s marketing plans clearly called for a device to be sold outside the U.S. (read the 10:48 comment at engadget that mentions Europe in Q4 07 and Asia in 08) - so that cut out Sprint and Verizon, whose CDMA networks aren’t very compatible with any other place except Korea. That leaves T-Mobile and Cingular, who have GSM networks. I’m sure they shopped the deal, but if i were doing this deal, I’d look at the demographics of both networks and probably arrive at the same conclusion.