Apple’s retail stores will be an important element in selling the new iPhone cellular phone that Steve Jobs just announced at Macworld Expo in San Francisco. The ground-breaking phone will be available in June at Cingular’s 2,100 company-owned stores and kiosks, and at Apple’s 160 stores. The phones will also be available at both companies’ Web-based stores. Cingular is the largest U.S. cellular carrier, with 58.7 million customers. Selling the iPhone means that, before the June introduction date, Apple stores will be equipped with terminals allowing access to Cingular’s customer management software, and employees will be trained to handle the routine customer credit checks, credit card processing and phone activation tasks associated with selling a cellular phone. Many questions remain about how Apple and Cingular will share revenues from sales of iPhones and monthly service charges.
Apple authorized resellers will not be allowed to sell the new iPhone, and reportedly must meet certain qualifications to display and sell the Apple TV product. Cingular documents indicate that only the company-owned stores will be allowed to sell the iPhone, and not the 10,000 authorized agents.In addition to the premium phone cost, iPhone buyers will have to commit to a two-year voice and wireless data plan from Cingular. The cheapest voice plan is $34.99, and data plans for phones and PDAs range from $34.99 for 1 Mb of data transmission, to $49.99 for unlimited data. That would put the monthly cost of the iPhone at nearly $85 a year for unlimited data.
Cingular has over 241,000 national retail prepaid sales locations, but these outlets will also not be selling the high-priced iPhone. The company recently signed a 10-year agreement with Radio Shack to sell Cingular products and services. Radio Shack has 5,000 retail stores, and it’s clear they won’t be allowed to participate in the iPhone sales program.
Cingular continues to juggle integration of certain AT&T Wireless assets that it aquired in 2005, including retail stores. Cingular closed 600 stores during fiscal 2005 as part of their integration with AT&T, but also opened 130 new stores to provide better sales coverge.Cingular’s revenues from sales of phones, accessories and upgrades is about 11 percent of total revenues. However, the cost of equipment sales is about 15 percent of total operating expenses. That resulted in a net loss for the equipment sales operation during the quarter ending Sept. 30, 2006 of about $306 million.
The company’s annual report notes that some distributors purchase handsets and accessories from Cingular, nominally above cost. However, the company adds, “We generally sell handsets below cost to customers who purchase through direct sales channels, such as our company stores, as an inducement to customers to agree to one-year and two-year subscription contracts, to upgrade service or in connection with other promotions.”As a result, Cingular reports, “Revenues from equipment sales are more than offset by the related cost of equipment sales, resulting in a net subsidy to customers.”
More pertinent to its deal with Apple, Cingular says in its annual report that, as they continue to upgrade the network and introduce new data offerings, “We expect to see an increase in higher-cost, feature-rich handsets for both new and existing subscribers. As one of the largest purchasers of handsets in the U.S., we believe we will be able to purchase handsets at attractive volume-discounted rates.”
It’s not clear what type of agreement Apple and Cingular have signed or how they’re sharing revenues. Apple did not say if it is wholesaling the iPhone to Cingular for sales in their stores and authorized dealers, or if Cingular is charging Apple a fee for access to its computer network for completing purchases made at Apple stores. Also unclear is whether Apple will receive any portion of the monthly fees generated from sales made at Apple stores.
The retail stores will also have to cope with iPhone support, providing additional training to Geniuses on how to solve hardware and software problems with the phone, along with troubleshooting for Cingular’s network. This responsibility could be significant, since people who purchased their phones on-line or from Cingular could end up at an Apple store seeking a solution to their iPhone problems.
Sources have said the Apple will offer AppleCare service for the iPhone, indicating the level of satisfaction that the company apparently intends to maintain.In a related announcement, Synchronoss Technologies Inc. announced that their transaction management platform will be used for the activation and provisioning of iPhone customers by both Cingular and Apple. The company counts many cellular and VoIP carriers among its customers, including Verizon, Comcast, Level 3 Communications and Vonage. Cingular is the company’s oldest and largest customer, the Synchronoss says, and has forecast 2007 revenues at $100 million.
In a conference call, Synchronoss chief financial officer Lawrence Irving said that Apple was making a “substantial commitment” to insure the success of the iPhone. He said that non-disclosure agreements prevented the company from providing any other details of its deal with the two companies.
Read my complete review of the iPhone and Apple TV.
