This is a report published in Aug. 2009.

1. VisionArena Insight Report, Sept 2009 1
VisionArena Insight Report 2009
The Economics of Apple
iPhone Introduction (1)
- How can we know which Mobile
Operators does Apple prefer by
market?
By Brad Cho
For more information visit site
http://www.visionarena.net
Recently Apple shows its way that is pretty much differentiated with its competitors.
Since Apple announced iPhone 3G model in MacWorld conference, people outside U.S
always want to know if Apple will enter their living country and which mobile operator
Apple will choose at first.
Not surprisingly we can assume that Apple has its own ‘Strategic Calculator’ that tells
which partnership in specific country is the best choice for Apple.
Of course, Apple might be going to solve this problem case by case approach.
But Apple’s approach about the market always seems to be strategic oriented rather
than accidental.
In this report, we scan the some cases of Apple’s partnership with mobile operators. And
you will get some clues about the reason why Apple acted like that.
Some assumptions used in this report are
that
- Apple usually chooses right
partners of iPhone by market.
- Apple asks the partners to give
enough subsidies to iPhone buyers
as to reach the Apple’s price
guideline. (ex. iPhone 3Gs
16GB/32GB, each price $199/$299)
- The partners payback the
subsidies with customers’ 2yrs
added package price.
- 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.
The above assumptions don’t include
other variables like other money passed
between Apple and partner.
Then now the partner should make the
2yrs added package price to recover the
iPhone subsidies transferred to Apple.

2. VisionArena Insight Report, Sept 2009 2
VisionArena Insight Report 2009
It is just not to have lower ARPU (Average
Revenue per User) for their mobile
subscribed customers.
The partner can even make down monthly
package price to the BEP (Break Even
Point). The BEP of monthly package price
can be calculated as iPhone subsidies
divided by 24 (months).
Two types of mobile operators
A) A leading mobile operator with large
market share more than 50% in specific
country
B) A lagging mobile operator with small
market share in specific country
About the iPhone, interest of A is keeping
its market share. Interest of B is take a
market share from A. Both A and B want
to increase their ARPU and overall profit.
Two types of iPhone effect on profit
a) One is that the mobile operator’s
Average Profit per User is not decreased.
So selling iPhones to the mobile operator’s
customers usually make no problem.
b) Another is that the mobile operator’s
Average Profit per User is decreased. So
selling iPhones to the mobile operator’s
customers make overall profits decrease.
In this case, the mobile operator should
mainly focus on selling iPhones to not-yet-
customers.
The most important thing that affects
above two situations is ARPU itself.
That’s because other parameters like
iPhone supplying cost and selling price are
mostly constant.
So the higher ARPU is, the more Average
Profit per User after introducing iPhone is.
Now we can design ‘Strategic Calculator’
that Apple might have.
Possible compositions of each type can be
presented as 4 cases (2 by 2).
Case-I) Both with high ARPU – AaBa
- Apple will tend to have partnership
with both A and B because the
market is so mature and they can
sell iPhones to their own
customers.
Case-II) Both with low ARPU – AbBb
- First, Apple will tend to have
partnership with B because A
might not have strong motive
about market share and profit with
iPhone.
- After B achieves some sorts of
market win, Apple will expand its
partnership to A.
Case-III) A, market leader with high
ARPU – AaBb
- Apple will tend to have partnership
with A because A has superior
competitive advantage over B.
With more profitable structure A
can spend much more money on
marketing iPhone than B.
Case-IV) B, market follower with high
ARPU – AbBa
- Apple will tend to have partnership
with B because B has strong
motive about market share and
profit with iPhone.
To sum up, it is always a good choice for
Apple to have a strong partnership with
mobile operator that has high ARPU to
recover the opportunity costs like iPhone
subsidies.

3. VisionArena Insight Report, Sept 2009 3
VisionArena Insight Report 2009
But when there are no mobile operator
with high ARPU, Apple will choose one
with small market share because it has
more motive about taking market share
from its competitors.
Lastly, you may have a question about the
exact number of high ARPU that can
recover iPhone subsidies.
We can reference ARPU growth rate of
mobile operators after iPhone introduction
in U.S and Japan.
Each number is about 61% (ARPU $95 for
iPhone user, $59 for non-iPhone user) and
26% (Overall Data ARPU 1,490 Yen before
iPhone, 1,880 Yen after iPhone).
The number of ARPU which is a splitting
point between high and low ARPU is
around $50. (60% ARPU growth rate, $30
recovered cost)
Now that I suggested a ‘Strategic
Calculator’ that Apple could use, it is up to
you to try and apply its model to your
country.
<End>
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