Style and substance

Two interesting data points on how wireless consumers seem willing to pay more for style, especially when it’s wedded with substance:

1) A survey conducted by J.D. Power and Associates of roughly 20,000 mobile phone owners in the US showed the average price paid for a handset has increased by $9 over the past six months to $101. Furthermore, the number of consumers who reported receiving their phone free-of-charge dropped to 33%, from 36% a year-ago. Not sure what the margin of error is for this study, but nonetheless, both of these belie the notion that US wireless customers will not pay for phones.

Both these changes are attributed to increased smartphone sales. Given that smartphones are essentially mini-computers with GPS functionality, the purchase is easy enough to rationalize by comparing with the reference price for a separate handheld PC or GPS navigation device (say, $99).

2) Rubicon Consulting, a consulting firm, asked iPhone owners “When you got your iPhone, what model of mobile phone, if any, did it replace?” Respondents answered as follows: (a) Windows Mobile phones (14%); (b) Blackberries (13%); (3) Palm (7%) devices; and, da-DAH, (d) Motorola RAZR (24%). Thus confirming the notion that Apple has eating Motorola’s lunch.

In its Q1-2008 earnings results, AT&T announced that it had 2.5M iPhone customers, paying, on a monthly basis, double AT&T’s regular ARPU of $50. Back of the envelope math would indicate that:
– 600,000 of those had been Motorola RAZR customers;
– 350,000 were Windows Mobile customers;
– 325,000 were Blackberry users;
– and 175,000 had switched from Palm handsets.

RIM shipments continue to grow, indicating that they, too, are eating somebody’s lunch, or that the overall pool of smartphone users is increasing.

While AT&T has indicated it will no longer split revenues with Apple with the 3G iPhone launch, the above ARPU numbers indicate that even with a haircut of up to 30% going to Apple, the iPhone has driven a net ARPU increase of $20-$25 per month, if not more. Assuming AT&T will eat a subsidy of around $200 with each 3G iPhone shipped, and further assuming a reasonable cost-of-service for iPhone customers (given that data usage from iPhones is over an order of magnitude higher than AT&T’s average, cost-of-service should be higher), the phones should pay for themselves in under a year.

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