g r o t t o 1 1

Peeve Farm
Breeding peeves for show, not just to keep as pets
Brian Tiemann
Silicon Valley-based purveyor of a confusing mixture of Apple punditry and political bile.

btman at grotto11 dot com

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Wednesday, July 4, 2007
14:24 - That didn't take long
http://nanocr.eu/2007/07/03/iphone-without-att/

(top)
I might have known that the first person to crack the iPhone's AT&T lock-in and provide the keys to turn it into a fully functional touchscreen iPod with wifi and no activation would be DVD Jon.

Via CapLion.

Back to Top

16 comments

1. Steven Den Beste - 18:47 Wed 7/4/2007 ( email | web )

Entirely too cool. I wonder if Apple's lawyers will take off after him? Or will The Steve grin and bear it?

Certainly after Jobs' diatribe against music DRM, an obnoxious effort to keep the iPhone locked up would be inconsistent, and possibly a pretty serious public relations own-goal.

2. Brian Tiemann - 18:54 Wed 7/4/2007 ( email | web )

Somehow I doubt Steve has any heartburn about whether people use someone other than AT&T (or nobody at all) for their carrier. All he cares about is that people buy the devices, whether they get utility out of the phone part of it or not. As long as this doesn't cause AT&T to pack up and leave, Steve probably could care less. (And for AT&T to pull out over something like this, well... that would be an interesting case to make to their stockholders.)

3. Mr. Lion - 19:13 Wed 7/4/2007 ( email | web )

I highly doubt The Steve will do much, or even care. There's an old interview floating around of his commentary on the Segway, in which he rightly trounced the "nobody can reverse-engineer this" argument with something along the lines of "they'll do it in weeks". He's no idiot, so if Apple didn't go to extreme lengths to prevent this sort of thing, it's relatively safe to assume they don't really care.

The only difference of note in that philosophy would tend to be FairPlay, as they're contractually bound by labels to keep it in effect. Though, rather than breaking out the lawyers they tend to just keep tweaking it every time it's cracked. No doubt, if anything, there'll be an iTunes update in a few days that'll close this hole if they really care to.

I also have to wonder what's in store for the iPod line, and if they have something like a wifi-only iPhone/pod in the pipe for a hundred bucks less or something to that effect. Damn if that wouldn't be on my shopping list, and cheese off all the iPhone hackers in an entirely Steveish way.

4. Steven Den Beste - 21:26 Wed 7/4/2007 ( email | web )

"...if they have something like a wifi-only iPhone/pod in the pipe for a hundred bucks less..."

The economics of the phone market are not as obvious as you might think. Most phones are sold at a loss; that's why you have to take a binding contract when you get it. Without that contract, the phone company would lose money, and that's not the business they're in.

Which is to say that a wifi-only iPhone might well cost more. We don't know that AT&T is subsidizing the price of the iPhone but it's likely. A wifi-only version of the iPhone wouldn't have any subsidy and could be a lot more expensive than you think.

5. Mr. Lion - 00:52 Thu 7/5/2007 ( email | web )

Sure, but this is Apple, not Moto or Samsung. They're seeing a 50+ percent margin on the phone, which has been reported quite widely.

By ditching the GSM radio and other chips of note, the unit cost would certainly go down, albeit not by a huge amount.

AT&T subsidizing the iPhone? That would turn everything I've come to know about Apple entirely on its head.

I suppose time will tell, but it's logical to assume that some of the GUI widgets are going to migrate to the iPod line at some point, and it seems to me that tossing a simplified board into the iPhone chassis would make more sense than rolling an entirely new setup.

6. cq - 08:00 Thu 7/5/2007

Industry analysts claim a 55% margin on iPhones

I'm quite sure that Apple would love to have their phones on every cellular network capable of delivering the quality-of-service that Apple expects. Given that this is their first phone product, having a single network to deal with simplifies things greatly, which is what you want for a 1.0 product. That being said, if someone hacks an iPhone and can get it onto Verizon or Sprint... no money out of Apple's pocket, and no support costs for that phone ever again (as you've thoroughly voided your warranty).

Hack away! No problem as far as Apple's concerned.

As for the details of the contract between AT&T and Apple, and whether Apple is getting a cut of the monthlies... no way to know, and no duty to disclose on either side. And really, does it matter? The price is 499 or 599, monthly plans are 60, 80 or 100, and that's that. If Apple is taking a 90% markup, then the iPhone price changes to... 499 or 599, plus 60-80-100 a month. The real question is not what it costs to make, it's what people are willing to pay :)

7. jh - 08:50 Thu 7/5/2007 ( email )

While this seems like a good idea, I'm with Mr. Lion.

I'd hold out for the IPOD version of this. Likely, it'll have a lot more capacity, and I just KNOW Steve is sitting in an office watching sales of this, and taking very keen notice of people who say things like:

"Well, I don't want a phone, but an IPOD like this with a bigger HDD would be awesome. And Wifi, and web.."

There's no reason why this thing can't be made into a Palm/WinCE killer. None.

In fact, there are plenty of reasons why this product should be made.. not the least of which is that an SDK can be safely opened there without threatening the "AT&T/Cingular" network with talks of Skype and VOIP.

It'd be a great place to test third party products , real ones, not just webapps.. for the Iphone.

8. Brian Tiemann - 10:58 Thu 7/5/2007 ( email | web )

JH, see, you capitalized "WinCE" properly, so I know you can do it... ;)

9. BillB - 10:58 Thu 7/5/2007 ( email | web )

Apple's margin is $200-$300 per phone - AND they get a cut of AT&T's monthly fee.

So I doubt there's any sort of subsidizing going on.

10. Steven Den Beste - 12:57 Thu 7/5/2007 ( email | web )

There appears to be some confusion. Let's make it a bit more clear by using an example elsewhere in the industry.

Nokia makes phones. Verizon sells Nokia phones. Nokia makes money on every phone they sell to Verizon. Verizon loses money on every Nokia phone they sell to the public.

Nokia has a reasonable markup on their product at the price they charge Verizon. Verizon sells the phones to the public for less than they pay Nokia to get them. The reason is that Verizon isn't in the business of selling phones; it's in the business of selling air time, and without a phone you can't use air time. So Verizon want's it to be attractive for customers to buy phones, so that it can sell air time to those same customers.

But in order to make sure that people don't buy Verizon phones and immediately take them elsewhere, Nokia also makes sure that Verizon can lock the phones so they only work with Verizon's network, and Verizon insists that customers who buy Nokia phones from Verizon also sign a contract.

That lock is known as a "subsidy lock" and it is Verizon who is providing the subsidy, not Nokia.

"Apple's margin is $200-$300 per phone -- AND they get a cut of AT&T's monthly fee." Entirely possible, and completely beside the point. No one said Apple was losing money on the iPhone. The question is whether the price you pay AT&T for an iPhone is greater or less than what AT&T pays Apple for it. The industry norm is "less", with AT&T subsidizing the price to make the product attractive.

11. BillB - 14:27 Thu 7/5/2007 ( email | web )

Apple stores and AT&T stores sell the phone for the same price.

I think that pretty much answers the subsidy question.

12. PlanetaryGear - 16:27 Thu 7/5/2007

the next thing that will work to bring the price down is volume and as they tweak the production process.

So an iPod built on the same formfacter doesnt have to cost the same as a first generation iphone. I am typing this on my new iPhone and I love it!

13. Steven Den Beste - 17:38 Thu 7/5/2007 ( email | web )

Apple stores and AT&T stores sell the phone for the same price.

I think that pretty much answers the subsidy question.


'Fraid not. It doesn't answer any question at all. If you buy the phone at an Apple store, you still have to get an AT&T contract for it, right? All this means is that Apple is an official reseller for AT&T. It doesn't tell us anything at all about the financial deal between AT&T and Apple.

14. jh - 18:47 Thu 7/5/2007 ( email )

s/Iphone/iPhone/g
s/IPOD/iPod/g
SHIFT-ZZ

15. Mr. Lion - 18:55 Thu 7/5/2007 ( email | web )

If you buy an iPhone at an Apple store, technically, you don't have to buy the contract. It's a brick until you activate it, either officially or on your own, but the buzz is you can terminate the contract inside of 30 days (or activate it on a monthly pre-paid), and the phone will work sans cell functionality, or sans contract in the pre-paid model.

I agree it's possible that ATT and Apple have a deal on the MSRP they're both selling the phones for, and the fact that they're both selling it at the same price doesn't really mean much so far as an agreement between them goes. However, it would be exceedingly un-Apple for them to go after such an arrangement, as such it would really surprise me if they did follow the Nokia/etc model.

16. BillB - 20:24 Thu 7/5/2007 ( email | web )

What we know:
Raw materials on the iPhone come to roughly $300.
8 Gig iPhone sells for $600. The high margin and big demand on this
item is the reason AAPL has spiked over 10 dollars a share
the last couple of days.

An item in high demand. In short supply.

Does this sound like an item in need of subsidy to lure customers?
It's not being sold at a loss. Far from it.

Does AT&T dictating price for an item Apple is manufacturing sound
like something that Jobs would ever go for?

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