Just how might an Apple iPhone change the world of mobile phones and music?

The mobile phone world mirrors the alliance between Intel and Microsoft in an interesting way. Where both of those companies once heavily relied upon each other to sell software and hardware, and still do to this day despite AMD’s rise up the ranks of microprocessor goodness, the mobile phone world sees phone manufacturers and mobile phone operators closely working together to get mobile phones into the hands of customers at heavily subsidised rates.

We all know about the zero dollar plan (or low dollar plan) to get customers signed up to a two year contract, locking you in to make all of your calls through that mobile operator. Of course you can leave at any time, but you’ll usually have to pay some kind of pay-out penalty which is often at least a couple of hundred dollars to make the change painful enough that you won’t want to move.

Now Apple is threatening to come into this market and change the dynamics of this cosy relationship. Why? Because the mobile phone operators don’t want to work with Apple.

Again, why? Because mobile phone operators also have music stores, and why would you buy music from the store you access through your mobile phone, at rates much higher than Apple’s US 99c per song, when you can just buy from iTunes direct?

Of course, unless Apple announces otherwise at January’s Macworld, Apple still needs you to buy your music from a PC and transfer it to your Apple iPhone that way. This transaction cuts out the mobile operators altogether.

Mobile operaters usually charge at least double what Apple charges for each song. It’s a bit like the pricing for a 15 or 30 second ringtone – you can pay at least US $2 or more (usually more) for a ringtone that only has a small fraction of the same song you could buy on CD, from iTunes or another digital music store at much cheaper prices.

So, which mobile operator would want to shoot themselves in the foot and offer Apple branded phones? Well, despite Cingular doing this previously with Motorola’s ROKR phone which had Apple’s iTunes software inside, the phone itself flopped.

Partly because it was nowhere near as sexy as a real iPod, and partly because there was a 100 song limit imposed by Apple. Even Motorola putting iTunes into the RAZR V3i hasn’t really whet too many people’s appetites – everyone’s been waiting for a real Apple iPod phone/iPhone.

There has been talk of Apple starting up an MVNO – a mobile virtual network operator. Richard Branson’s ‘Virgin Mobile’ works this way in different countries, piggybacking onto someone else’s network, buying airtime in bulk at a lower price, selling it to consumers at a higher price, and funding the whole operation from the profit in between.

The thing is, does Apple need to bother doing this at all? While there are only 50m iPods sold, compared with billions of mobile phones being sold at 1000 per minute worldwide, Apple has carved out for itself a large chunk of the portable music market, without having to offer any subsidies whatsoever.

Can Apple succeed? And what about competing mobile phone manufacturers?

If Apple’s iPhone is as seductively good as the iPod is itself, consumers will want to buy them at full price by the squillions.

They’ve done it with the iPod, why wouldn’t they do it with an iPod phone, especially if the phone bit is as good as the iPod bit? It’d be a major worldwide success.

Already the idea has struck fear into the hearts and minds of companies such as Nokia and Sony Ericsson.

Both offer music capable phones, with Sony Ericsson heavily pushing their Walkman branded phones, with a massive TV, print and online campaign touting their Walkman music cred in their very nice smartphones. Nokia has also gone into overdrive with their N-series phones, with their latest N91 model offering 8Gb of storage space and Bluetooth A2DP stereo streaming capabilities.

There are more doubters. At an article from Brighthand, we learn that Palm’s CEO, Ed Colligan, is not too worried about Apple entering the mobile phone market. He told Brighthand that “We’ve learned and struggled for a few years here figuring out how to make a decent phone. PC guys are not going to just figure this out. They’re not going to just walk in.”

That said, it seems that Apple just ‘walked in’ to the mp3 player market, after keenly observing the dismal success of mp3 players up until the introduction of the iPod.

Of course even the iPod itself didn’t take off until a PC version of iTunes was released, but aside from a colour screen, more storage and the ability to play photos and video, the iPod’s basic design has effectively stayed the same. With Apple have keenly looked at music mobile phones and have publicly stated so. If there’s anyone that can ‘just walk in’ to the market… it’s Apple.

The big question is… can they do it without mobile operator support and subsidies, with customers walking into Apple stores and authorized resellers and just popping their existing SIM card into the iPhone?

That’s the $64 million dollar question. One thing’s for sure: the Apple iPhone will not be music to everyone’s ears, and that’s just the way Apple likes it.

Related:

iPhone Dev Team strikes back at Apple’s threats

Over 60% of iPhones potentially have bad batteries

French unlocked iPhones are actually locked?

Apple can unlock iPhones through iTunes

Ballmer blindly dismissive of iPhone’s popularity

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Entry was posted on Saturday, November 25th, 2006 at 7:45 am under Apple, Cell phones, Media players, Storage, Technology, Web2.0.

Read more entries by Alex Zaharov-Reutt.
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