The Economics of Apple iPhone Introduction (2)

VisionArena Insight Report, Sept 2009 1

VisionArena Insight Report 2009

The Economics of Apple iPhone Introduction (2)

- What will be an iPhone Package

Price Plan of mobile operators in

Korea?

By Brad Cho

For more information visit site

http://www.visionarena.net

Recently there are many rumors about iPhone release in Korea. It is due to the fact that

Korea is the calm latitude from iPhone, as distinct from other major mobile leading

countries.

The mobile operators like KT (Korea Telecom) and SKT (SK Telecom) don’t provide

enough information about iPhone release for their customers. And moreover, they

hesitate its way to introduce iPhone to Korean market because they have a concern

about its explosiveness and impact on traditional ecosystem and profitability in Korea.

In this report, we scan the real cases of mobile operators’ price plan combined with

Apple iPhone. And you will get basic forecast for iPhone package price plan of mobile

operators in Korea.

Some assumptions used in this report are

that

- The forecasted price plan assumes

that mobile operators include all

expected amount of ARPU in one

price plan.

- The target model for calculation is

iPhone 3G, 16GB once sold at

$320 in Japan.

- The partners should give an

amount of $800 to Apple as

supplying cost of one iPhone

device.

- ARPU is equal to profit. So we

don’t take into account about the

real cost mobile operators ought

to pay.

- It doesn’t separate Voice and Data

ARPU. So the number means the

total ARPU per month.

Some constraints of report are that

- The number and fact I referenced

sometimes different for different

sources. So the real number might

be slightly different with the

number used in this report.

- The forecasted number assumes

some direction of mobile operators’

action. But in real world they can

act more aggressively or

conservatively.

iPhone cases in other countries



Then we will look at the cases of other

countries in which iPhone were released

from now on.

AT&T (USA)

AT&T is the first mobile operator that sold

the Apple iPhone and its exclusive

agreement with Apple will be end next

year.

There are some rumors that Apple sits on

the negotiation table with Verizon these

days. So it is uncertain that AT&T can

extend the exclusive agreement with

Apple to 2011.

iPhone selling price with 2yrs

binding and subsidies

3G 8GB/16GB, each $99/$149

3Gs 16GB/32GB, each

$199/$299

ARPU comparison between iPhone

users and non-iPhone users

iPhone user: $95 / month

non-iPhone user: $59 / month

Softbank Mobile (Japan)

Softbank is the first mobile operator that

sold the Apple iPhone in Japan and

Mr.Son, Chief Officer led the negotiation

with Apple to catch up with NTT Docomo.

When iPhone was released by Softbank in

July 2008, the market record was not as

good as market analysts expected. It

might be due to some reasons like

content coverage relatively inferior to

Docomo’s i-Mode, non-English native

countries’ pain point and slow device

problem.

After iPhone 3Gs was released recently in

Japan, customers want iPhone more than

ever because of its fast performance and

enriched functionality. A survey from

Kakaku.com tells the interesting fact that

iPhone sales account for 55% of total

smart phone market in Japan.


binding and subsidies

3G 8GB/16GB, each

$213/$320

3Gs 16GB/32GB, each

$126/$252 (11,520

yen/23,040 yen)

*ARPU comparison between

iPhone users and non-iPhone users

iPhone user: $128 / month

(11,694 yen / month)

non-iPhone user: $46 / month

(4,273 yen / month)

*There is no public announcement to

reference for iPhone user ARPU. So the

number was made by estimation with

below data.

- Softbank’s ARPU = 4663 yen

- Softbank’s subscription users = 19

million users

- The number of iPhone sold = 1

million

- Data ARPU change before and

after iPhone: before = 1,490 yen,

after = 1,880 yen

If we believe that iPhone user’s ARPU

include monthly iPhone device

installments, then it should be decreased

by $10~$15 per month.

China Unicom (China)

China Unicom will be the first mobile

operator that sells the Apple iPhone in

China in October this year.

It is said that iPhone 3G (8GB) will be sold

at $365 with 2yrs binding agreement.

The number of China Unicom’s

subscription users is about 141 million

recently.




binding

3G 8GB/16GB, each

$365/Unknown

ARPU

Non-iPhone user: $6.1 /

month (41.7 Yuan / month)

Price estimation and Korea facts

To remind again, some assumed numbers

will be used as below.

- Apple provides iPhone to mobile

operators at $800/device.

- User must pay $320 for iPhone 3G

(16GB).

- Mobile operators should give $480

subsidies to their each iPhone

buyer.

- The iPhone user should pay more

than $20/month to recover the

subsidies. ($20 = $480 subsidies /

24 month)

The mobile operators will not want

migrating to iPhone decrease their

already-been customers’ Average Profit

per User.

The mobile operators will want to make

not-yet customers to their own customer

even if profit is zero at early years.

SKT/KT (Korea)

In Korea, there are two candidates, SKT

and KT, to introduce iPhone to Korean

market among three mobile operators.

ARPU (All)

2008/4Q: SKT $36 (43,665

won), KT $33 (39,721 won)

ARPU (Data Only)

2008/3Q: SKT $7.5 (9,050

won), KT $5.8 (7,036)

Data Revenue to Total Service

Revenue

2007: SKT 27%, KT 14%

Forecasting iPhone package price in

Korea

As described previous section, the iPhone

user should pay more than $20/month for

2 years to recover the subsidies,

marketing cost of mobile operators.

So mobile operators’ iPhone package price

for already-been customers could be

current ARPU plus $20 per month.

Monthly package price of SKT

= $56 (67,200 won)

Monthly package price of KT =

$53 (63,600 won)

The device installments are not included

in package price above.

The package price for not-yet customers

can be the same as already-been

customers.

But aggressive operator can minimize the

profit for increase market share in Korea.

For example, new customers can get free

iPhone with $33, monthly fee and 2 years

binding agreement. (Monthly fee $33 =

iPhone device cost $800 / 24 month)

In real situation, the monthly fee for new

customers can range from $33 to $56.

And the monthly fee for old customers

can be more than $53/$56.

Is it feasible price in Korea?

We can also have more analysis about

whether Korean customers would like to

accept the iPhone package price.

The simplest approach is to compare

some indicators among countries.



In the perspective of ARPU-to-GDP and

ARPU increasing ratio, the analysis data is

as below

<Source: VisionArena 2009>

The relative high ARPU ratio between

iPhone user and non-iPhone user is

USA: 61.0%

Japan: 178.3%

SKT: 55.6%

KT: 60.6%

The relative iPhone user’s ARPU to GDP is

USA: 1.0 (base line)

Japan: 1.8

SKT: 1.4

KT: 1.3

The estimated numbers are usually

located between USA case and Japan case.

So the package price could be accepted to

customers in Korea.

The prices in this report assume including

all the cost that customers should pay. No

invisible cost will be an important

marketing issue in Korea.

All the estimation of package price plan

can be differ in real world. But you can

reference it as a expected iPhone package

price to customers in the future.

<End>

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Criteria USA Japan SKT KT

1) GDP per person 45845 34312 19751 19751

2) ARPU (iPhone User) $95 $128 $56 $53

3) ARPU (non-iPhone User) $59 $46 $36 $33

4) ARPU ratio 61.0% 178.3% 55.6% 60.6%

5) iPhone ARPU per GDP 1.0 1.8 1.4 1.3

4) = { 2) / 3) } - 1

5) = USA is the base point 2072.2

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