Munster on $10 iPhones, $30 TV subscriptions, moving beyond AT&T
Gene Munster. Photo: Piper Jaffray
No cheap, mass-market iPhone — ever. A deal with Verizon or T-Mobile next summer. And a $30 – $40 subscription TV service on iTunes that could compete with cable TV within the next year.
Those are some of the predictions offered by Piper Jaffray analyst Gene Munster in a note to clients Monday that addressed 14 "unanswered questions" about Apple (AAPL). The exercise has become an annual tradition for Munster and can be a useful way to catch up on the news, although some of his answers are more surprising than others.
The three this year that interested us had to do with cheap iPhones, the end of AT&T (T) exclusivity and competing with cable television:
Will the iPhone remain exclusive at AT&T for the foreseeable future?
We believe Apple is slowly transitioning each country into which they sell the iPhone to a multi-carrier model. In other words, we expect Apple to add new iPhone carriers in the U.S. within the next year (likely with a new product launch next summer) … [Munster doesn't name carriers, but Verizon (VZ) and/or T-Mobile (DT) would be the logical candidates.] In France, the company now enjoys dramatically higher market share (in the 40% range vs. about 15% in ROW) than in countries with exclusive carrier agreements (such as AT&T in the U.S. where the iPhone has market share in the mid-teens). We believe Apple is seeing the increased unit sell-through more than offset the slightly (~10%) deteriorated economics per unit involved in non-exclusive agreements.
Will Apple ever make a cheap, mass-market phone?
We do not believe Apple will make a basic phone, or feature phone, to compete with rudimentary $10 models like those that dominate the cellphone market in India. … The screen resolution and all the apps made for the current iPhone 3G, 3GS and iPod touch also represent a barrier to Apple creating a smaller, cheaper device, one that likely could not run the apps developed for the current devices, and eliminating one of Apple's key features of the iPhone.
Would Apple ever consider a subscription video service through iTunes?
We continue to believe that Apple will eventually offer a monthly subscription for iTunes TV shows accessible on Apple TV, iPods, iPhones, and Macs/PCs. Apple could leverage its deep library of content with many network and cable channel content owners to provide unlimited access to a sub-library of its TV shows for a standard monthly fee ($30 to $40 per month). Such a product would effectively replace a consumer's monthly cable bill (~$85/month) and offer access to current and older episodes of select shows on select channels. While timing on the launch of such a product is very uncertain given the negotiations that would need to take place, Apple may work to launch it simultaneously with a new version of Apple TV, or updated Apple TV software within the next year.
Are there actually $10 phones in India? I somehow cannot find any source for that on the net. Nokia's cheapest phones are more like $35, and Nokia is dominating India. I wouldn't be surprised if the ASP for a mobile phone in India was something between $50 and $100.
The question that Munster poses is somewhat fuzzy.
Will Apple ever do a feature phone? Probably no (unless they've completely saturated the smartphone market and want to cash in on their brand, see iPod shuffle).
Will smartphones some day be as cheap as feature phones are today? Certainly.
Will Apple remain right in the center of the smartphone market even as prices go down? Certainly.
As I said, I don't know what those $10 phones Munster is talking about are supposed to be, but in a couple of years there will certainly be iPhones available for less than $100 (without contract).
Janet, where is your source for those 2 million phones sold in the UK and France? Or are you talking out of your ass?
By the way, France went multi-carrier just this April. If one took Q2 data for France one would count a lot of extra iPhone sales due to pent-up demand from SFR and Bouygues customers. Italy or Australia would be better markets to study.
@cynik,
Munster's whole argument is that by selling the iphone through multiple carriers — magically Apple would sell more than double the number of iphones (from 15% to 40%). He specifically states that the "increased unit sell-through more than offset the slightly (~10%) deteriorated economics per unit involved in non-exclusive agreements".
The whole problem is that looking at UK and France — Apple sells the same 2 million iphones. So there is no "increased unit sell-through" in France. His whole argument is garbage.
I don't follow the logic that says France has a small smartphone market and therefore the percentage market share held by Apple cannot be related to the fact that it is open to all carriers.
Why?
So what if france has a small smartphone market? So? How does that affect the correlation between market share and the iPhone being open for competition between carriers?
I'm about to go to war (in court) with Swisscom because they thought having a monopoly on the iPhone allowed them send me bills that were twenty times the average mobile phone bill.
In my opinion, the exclusive deals have created a perception amongst carriers that they can charge huge fees, absolutely ridiculous fees, and get away with it.
Now I refused to pay the exorbitant bills, because I'm a lawyer and I don't put up with large corporations who breach contract and try to bully me. But I have also given up the use of my iPhone on the Swiss data network. Essentially, I have quit the iPhone, because of the carrier's monopoly.
I think there are hordes of folks like me, who refuse to be bent over by carriers who think they have a license to print money and rob iPhone users. I think it is a fact that carriers have hurt Apple customers, and Apple has wised up to that fact, and they are going to do something about it.
And yeah, I know you can get an iPhone with Orange in Switzerland as well. Funny how their prices are the same as Swisscoms, and funny that both deals were made on the same day, under the same terms.
Apple are going to ditch AT&T, folks. Sell. SELL! SELL AT&T!
Ha. I hope they die a slow death, the parasites.
It we have Itunes TV on wireless phones, the following will most likely occur, Wireless carriers would have to spend even more than they are now to keep the pipes flowing (continual back haul relief), the Content providers would need to help offset the cost of the wireless back haul and or we would have the wireless companies charging for the additional presure on back haul. Bottom line some one has to pay for the bandwidth. Inclosing, in all honesty, I don't think the goverment and or the common individual realizes the efforts and cost required to keep this data moving for both wired and wireless broadband…. THe current infrastructure is in the 100's of billions of dollars.
I don't think Herman Munster knows what he is talking about, the iphone will go non exclusive, but on T-Mobile as Apple will not make a CDMA version (very limited demand outside the US), in particular because in the future VZ and AT&T will eventually both be on the same technology – LTE, however VZ has a long road to get there.
The iphone is selling out in Australia for one simple reason, because people buy them unlocked and send them to other countries.
If you sit in the sales tax rebate office, you'll see loads of people claiming the sales tax back on iphones. One dude I saw had dozens.
"to compete with rudimentary $10 models like those that dominate the cellphone market in India. … " this is exactly the kind of retarded attitude that has made us lose the competitive and technical edge we enjoyed over the past century. Munster, open up your eyes and wake up to the reality. The reason why iphone hasn't achieved any success in places like India and China is merely because of the contract model. People in these countries truly own the phones and are not tied up to cellular operators. It's called "freedom". Ask Nokia or for that matter ask Apple!
http://news.bbc.co.uk/2/hi/business/6960520.stm
I'm kinda loss about Gene coz i'm not sure whether this guy is an analyst or a spin doctor or a tech guru or a guy who came from the future lol 
@JPO,
First few weeks of the new iphone launch — every country has iphone shortages. Doesn't mean a thing.
Munster's math doesn't make any sense at all. If you look at Europe's iphone sales data — Apple sells approx the same number of iphones in UK, Germany and France. That makes sense because UK, Germany and France have approx the same population size.
Apple sells 2 million iphones in UK and they got a 15% smartphone market share in UK. Apple sells the same 2 million iphones in France and they got a 40% smartphone market share in France.
The math only has ONE solution — the smartphone market in France is much much smaller than UK.
So if Apple starts selling iphones to multiple carriers in the rest of the world — it won't move the smartphone market share a single bit.
@Janet
Well for one thing Australia is totally sold out of iPhone 3GS's. So market share is hard to achieve if there is nothing to sell – though you can surmise it's a hit down under.
http://www.xsellize.com/showthread.php?t=54374
There also has been stories out there that Mac's computer share is growing significantly in Australia. Halo effect?
@Premal
And I would hope that the FCC would step in and limit the cable companies in this endeavor – or the consumer unifies against these crooks.
The cable companies will still get the broadband fees (which I can see them increasing them incrementally over time to recoup lost revenue).
I beleive Verizon's next gen (4G) network will be LTE which is a completely different band, radio etc than its current CDMA Qualcomm. More so it will be using the same LTE that AT&T will be upgrading to as well. So if i am not mistaken you should be able to use same phones on the 2 carriers.
Munster is talking out of his ass.
There are other countries where the iphone is basically sold by every carrier in the country — like Australia and Italy. For sure, if the iphone was capturing 40% of the Australian smartphone market — we would have heard and read about it (especially because Australians are English speaking).
Secondly, in every single news report about the iphone sales in France — they are on par with UK and Germany sales (since they have about the same population size). Even if Munster is right that the iphone is capturing 40% in France's smartphone market — it only means ONE thing, the French smartphone market is vastly smaller than every single industrial country in the world.
It is very simple math — for example, if both UK and France both sell 2 million iphones and they both have the approx the same population size —- and the iphone has only a 15% market share in smartphone in UK but 40% market share in smartphone in France. Then there is only ONE math solution — the French smartphone market is much smaller than UK and the rest of the industrial world.
@ Premal
There is no "might" in download caps – Time Warner has already tried this, as has Comcast. Popular outcry, and questions from lawmakers and regulatory bodies have slowed this move, but the cable companies want it to happen. Meanwhile, they advertise unlimited digital phone service. Maybe those will get capped too.
I have to say, I am unimpressed with Munster's predictions this year. The multi-carrier approach, I agree with, but so does the rest of the free-thinking world.
But I think that there will be a cheaper iPhone at some point. Note that I do not expect a "basic" $10 phone. But I wouldn't be surprised by the current phone eventually working down to $40-$50 range. Seems like an easy way to get people into the Mac family.
As for the subscription plan for AppleTV replacing a consumer's cable subscription, I am strongly hesistant. Especially if he thinks is will come out in the next year or two. Just not feasible. And as little a market as AppleTV has currently, I think it is at least two product generations away from having the influence that would be necessary for this business model to work.
I would certainly love to see a subscription service for itunes content and al carte pricing to add network and premium channels. I would dump my cable in a heartbeat for that service. I'm so tired of paying for 200 channels of crap when I only watch about 10 of them.
If Apple is going to attempt a subscription service to iTunes TV, they will first have to address the choppy frame rate issue that is plaguing Snow Leopard when users try to use FrontRow.
If Apple does decide to offer TV Shows on a subscription basis….
Here's what I think cable companies might do –
They (cable companies – Comcast, FiOS, Time Warner..etc) might start putting download caps to Internet usage. Also, it will give rise to tiered pricing with bandwidth limitations to compensate for the loss of Cable TV subscribers. If more people in your neighborhood start watching TV shows on the internet, it might also affect your download speeds which might reduce the fun of watching TV shows on the internet….
Does Munster think Apple will make a phone for Verizon's current network or the next generation network?
AT&T has had a great strategy with the iPhone. Require a data plan and then don't invest in the capacity to deliver what customers are paying for. Nice.
@Tom Ross,
I had been using historical iphone sales data between UK and France — much of the period is a single iphone carrier. But pent-up demand really doesn't tell you much in the long run.
Yes, I agree that studying Italy and Australia is a lot better — that's why I mentioned that in my initial post.
What we have here Munster has long term data from multiple iphone carriers in Italy and Australia — but chose to not use tham because the iphone in those countries is nowhere near the 40% market share. Hell you could look at Russia which has been a disaster for all the iphone carriers.