Analyst: Apple Should Drop iPhone Data Contract

Ed Sutherland ()

Analyst: Apple Should Drop iPhone Data ContractIf Apple dropped the costly iPhone data plan, the move could earn Cupertino $7 billion and create a bridge between the iPod and iPhone market, an analyst suggested Wednesday.

“Apple’s more than 100 million iPod users give the company a huge opportunity to capture significant market share in the mobile device market,” Sanford Berstein’s Toni Sacconaghi told clients.

By dropping the required $70 per month data plan, Apple would break out of the limited smartphone segment and open the doors to an iPod touch userbase worth $7 billion in income and $4 billion in profit each year.

The key is transitioning hundreds of millions of iPod users during a time when the digital music player concept is aging. The analyst proposed two alternatives: an iPhone “Nano” with a focus on music or an “iPhone Touch.” Both would jettison cell phone capabilities, as well as GPS support.

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About the author

Ed Sutherland

Ed Sutherland is a veteran technology journalist who first heard of Apple when they grew on trees, Yahoo was run out of a Stanford dorm and Google was an unknown upstart. Since then, Sutherland has covered the whole technology landscape, concentrating on tracking the trends and figuring out the finances of large (and small) technology companies.

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  • http://www.cultofmac.com Leigh McMullen

    Proof once again that your typical “analyst”, might be “financially smart” but is otherwise dumb as a box of rocks, to wit:

    1) it isn’t “Apple’s” costly data plan, it’s AT&T’s costly data plan
    2) all smart phones have to have similar data plans, my blackberry’s plan is over $100.00
    3) without such a plan, the iphone “smart phone” becomes a regular “dumb phone” that can play music, no email, no mobile web, no nothing.

    Awesome idea…

    Here’s an idea, mister analyst, Apple could reduce it’s manufacturing cost for its laptop line by removing the screens. this would save as much as 30% off the cost of a laptop, thus opening up their product line to a much wider more mid-consumer level market, potentially increasing market share by 10 billion dollars or more.

    Look at me, I’m a freekin’ genius.

  • Ed Sutherland

    The idea has been kicked around for some time. The iPod is nearing the end of its lifespan and the iPhone is often spurned because of its expensive cell phone plan requirement. How to get one user to the newer platform: offer a less-expensive iPhone. How to most easily accomplish that? Drop the phone features, similar to the current iPod touch.

  • eric

    Echoing the two above posters, this is ridiculously dumb….”the iPhone’s data plan is too expensive, so lets drop the phone service”???? Seriously? Take the “phone” out of the “iPhone?” Are you sure Sanford Berstein didn’t have its email server hacked?

    There are options, given the economy, to change dynamics.

    1. Allow iPhones to be used without a data plan. Phone and Wi-Fi only.
    2. Support full VOiP services over the iPhone (or iPod Touch).

    According to this guy, Apple needs to come up with a non-phone iPhone that doesnt’ come with a subscription so that all those iPod owners have something fancy to buy when their iPods die.

    Like the iPod Touch.

  • WadeHM

    Um, is the iPod Touch data plan different than the iPhone data plan? The last time I looked at my bill the data plan was $30 a month, not $70

  • http://differentcomputers.com different computers

    This entire post and the second comment seem totally incomprehensible. If you drop the phone features from an iphone, it would just be a touch!

    Or is the analyst suggesting an iPhone with no data capabilities EXCEPT for wifi?

    I feel like I’m reading an article that was machine-translated.

  • Keith Thomas

    Is my understanding of the AT&T situation correct? Doesn’t the current deal between AT&T and Apple end in June 2009?

    If so, could there be some significance in the rumored iPhone announcement that goes beyond the next revision of the device? For instance could this article be foretelling something we may see in June?

  • Steve K.

    Hmmm…not exactly. Yes no data plan! I would prefer an iPod I could answer a call on. Just add phone capabilities to the iPod Touch and I’d be happy. WiFi for internet when available, but no data plan. That way I can keep my low cost phone plan and have an iPod I could take a call on. All in one device. Oh, and make it available for T-Mobile. I refuse to pay AT&T for anything.

  • suresh Kumar

    jeez……

    thats the whole point of the iPod Touch.

    The iPod Touch is designed as a perfect substitute for consumers who cannot afford the costly data plan that comes with the iPhone.

    The consumer gets 80% of the iPhone without being tied to a contract.

    Consumers who are using the iPod Classic/Nano/Shuffle have a choice:
    - upgrade to the iPod Touch
    - upgrade to the iPhone

    Apple has an advantage over other smartphone manufacturers — in todays costly economic client — they can defer future iPhone revenues by enticing consumers to the iPod Touch — eventually they will upgrade to the iPhone when they realize there is simply no point anymore of carry two devices.

    Game. Set and Match to Apple.

  • http://www.cultofmac.com Leigh McMullen

    To be clear: Weren’t picking on you Ed… we’re on the same team… just on the “Analyst” on whom you’re reporting…

  • sloane

    I agree with most of those who commented that this scenario seems..unlikely. Or at least, if Apple decides to go this route, I for one will take it as a sign that the company is headed downhill and sell my $20 worth of Apple stock.

    I do think, though, that it would make sense for Apple to perhaps establish a few different lines of the iPhone to better cater to customers–a fairly diverse group in terms of interest and needs.

    For instance, 33% of gaming downloads are now to iPhones, and Apple seems to be planning (according to an article on Wired and a few others) to devote a good portion of the muscle of the upgrade in the 2.x iPhone to a better gaming platform. This could increase their hold on gamers and perhaps teenagers, too, but I think this shift in focus could also result in isolating the greater portion of their market who isn’t interested in this.

    Brand expert John Tantillo named Apple last week’s ‘brand winner’ (Microsoft was named the loser), specifically citing the fact that Apple, unlike Microsoft, pays attention to its Target Market and what it wants.

    Tantillo also had a post a while back on women as consumers of electronics–and how companies such as Best Buy had ignored these consumers and had started to mend their ways. Apple would be wise not to make the same sorts of mistakes. A lot of us don’t care about gaming. And wouldn’t be convinced to buy an ipod touch repackaged as an ‘iPhone.’

  • samue23

    I just want an iPhone without a camera!
    I am still using a Blackberry 8700g with t-mobile.

  • Jeff

    “The iPod Touch is designed as a perfect substitute for consumers who cannot afford the costly data plan that comes with the iPhone.

    The consumer gets 80% of the iPhone without being tied to a contract.”

    I don’t know if I would say 80%. You would only be able to access the internet and make calls via Wi-Fi. I suppose for some people in large cities, that may be 80% of the iPhone. For me, it might be 50% – maybe.

    I’ll take my $70 phone/data plan, thank you. I can use the phone where I like.

  • Steve K.

    iPod Touch does NOT have “voice cellphone” capabilities. Add that so I can keep my plan with NO data contract and I’m in. Or just let my buy an iPhone with no data contract (and use T-Mobile).

  • Lucas

    1. the data plan is an ATT issue. Apple can’t do anything about that
    2. the data plan is $30 not $70.

  • tinman

    What they need to do is open the iPhone up for other networks. I would instantly buy 2 iPhones if I could run it on Verizon’s network.

  • robinson

    Instead of all these confusing analyst permutations, just sell an unlocked iPhone! Or AT & T should make it available again with the GoPhone, pay as you go service.

    Many of us would like an all-in-one device: camera, phone, PDA, wifi browser, & media player. The Touch lacks the first 2 (or 3 if you use Palm’s PIM programs as the standard). The iPhone provides all 5 (well 4, again as its PDA functions are weak), but it also saddles us with a very expensive 2-year contract.

    There is a middle group in the market– those of us who would like a phone & camera added to the iPod Touch! We want an Apple iPhone device, but w/o a 2-year contract and w/o needing always available web/e-mail access via 3G or the cell network; hence we have no need for a data plan.

  • Casey

    Another thing not considered for the iPhone 3G is coverage area. My are doesnt have 3G coverage and 2G is hit and miss, but to have the Iphone i still have to pay the full price for less product