Business World

Monday 5 December 2016

Apple's 'bank' intent is clear: it is coming for the operators and their market

Published 13/09/2015 | 02:30

Apple will now let people pay (Apple) directly for a brand new unlocked iPhone in monthly instalments, over 24 months, instead of doing the usual 24-month operator contract.
Apple will now let people pay (Apple) directly for a brand new unlocked iPhone in monthly instalments, over 24 months, instead of doing the usual 24-month operator contract.

What was the biggest development from last week's Apple launch? Was it the new iPhone 6S phones? Was it the new giant iPad Pro? Or was it the revamped Apple TV device?

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If you're a mobile operator or a rival phone maker, it was none of these things.

If you're an operator or rival phone firm, by far the biggest announcement was Apple's new banking initiative.

If you missed it, here's what Apple announced: it will now let people pay (Apple) directly for a brand new unlocked iPhone in monthly instalments, over 24 months, instead of doing the usual 24-month operator contract. In other words, to get the latest iPhone 'for free' on a 24-month plan, you now don't have to go near a mobile operator for the actual phone.

One reading of this might be that it moves Apple closer to having a nascent banking side to its business, like Volkswagen or Dell (each of which now has a banking licence).

But for the moment, it's a huge move within the mobile industry. It's starting in the US. But operators over here will be on red alert: Apple is pointedly trying to take over the primary relationship with phone users that operators are used to owning.

On one hand, this is potentially great news for consumers for a couple of reasons.

First, you generally save a lot more money if you buy a handset and a mobile contract separately. On Irish operators, for example, deals featuring the same minutes, texts and data are between €80 and €350 cheaper over 24 months if you pay for them as sim-only arrangements with the iPhone handset bought up front.

Right now, the main reason that people don't take advantage of this saving is the initial up front iPhone 6 payment - a hefty €700. But if you can now pay for this rump in monthly bits (around €32 per month, according to Apple's initial US plans), why would you pay more to the operator for the same service?

So operators may soon have to compete on more relevant issues than who has the latest iPhone in stock. That probably means more emphasis on network coverage, mobile data quality and customer service, issues that should improve our mobile choices.

Apple's financing move could also force phone-makers to up their game. If manufacturers now have to compete more on the quality and brand of the handset rather than a particular subsidy deal they strike with an operator, that should lead to better and more innovative phones.

It may even open up the range of phones that we have to choose from. Under the current subsidy model, the vast majority of Irish phone users pick one of the handful of mobiles available from Irish mobile phone operators. That means that few of us ever get to try out great alternative devices, such as the new OnePlus Two, Huawei Mate S or Nexus phones. These manufacturers lack either the money or the will to get bogged down in network operator relationships under current market practices.

Even still, it's going to lead to some reality checks among big Android manufacturers.

Although most phone makers like to claim that their handsets are unique and have their own brand, how many are really considered premium, distinct devices? Samsung, Sony - and even HTC - might claim that they have built up brands. But all privately concede that the iPhone's brand stands alone as one that moves huge popular demand.

Now, these companies will have fewer sales allies in places such as phone retailers, whose sales staff are sometimes more likely to recommend Android phones than Apple ones because the margins and commissions are higher for retailers on Android handsets.

This isn't the first time that Apple has tried to insert itself between operators and their customers. It has previously sniffed around the idea of 'soft sim' capability for its iPhones. This is the idea that you wouldn't have to deal with an operator at all. Instead, you could just buy an iPhone and it would work when you switched it on, based on separate contractual deals Apple had done with operators itself. (Not unlike the way Amazon's 3G Kindle has worked for years.)

That hasn't happened, perhaps because it really would be a step too far for mobile operators to take: it would spell commodisation for them in a way that could sink their core value.

For the foreseeable future, we'll continue to buy our iPhones in Ireland on 24-month operator contracts.

But Apple has served its clear intent across the ocean. It's coming for the operators.

Sunday Indo Business

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