iPhone

Apple’s record-setting quarter and what it means for telecom

Telecom is a hard-knock life sometimes, like this week when Apple announced its most profitable quarter EVER. No small part of that smashing success is the 7.4 million iPhones sold in the quarter. Of course, in the U.S., AT&T benefits from those new iPhone users since they use AT&T’s 3G wireless network.

And then there’s Google. Last week the Android-backing company also crowed about increasing its net profit for the third quarter, declaring the recession almost over.

Meanwhile back at the network, while things are looking up, those in traditional telecom circles are talking about how to stem plummeting cost per bit and wondering if they can make a buck deploying 4G LTE networks.

So what does all of this iPhone success mean for wireless operators? For starters, Verizon hasn’t negotiated to also sell the iPhone, apparently, because its new ads are promoting the “Droid,” an Android 2.0 phone that may be supplied by Motorola (one of the Android mobile operating system’s original backers). And so we may be in for a new season of handset wars, which can be dangerous business, according to our telecom guru Tom Nolle. The weakness with the iPhone is the stress it’s putting on AT&T’s 3G network, Nolle reminded us. When Verizon moves to 4G LTE and introduces the Droid, both Apple and AT&T could face more heat.

Apple’s slice of the app store pie

I’ve reported that wireless service providers aren’t seeing much direct app store revenue, so when I came across an article in yesterday’s Wall Street Journal on Apple’s cut of the app store, I read with great interest.

According to Sanford Bernstein analyst Toni Sacconaghi, Apple’s 30% commission could net them $150 million this year, the Journal reported. Not bad, but small potatoes compared to the $2.8 billion the iPhone’s hardware revenue earned in the 6 months to March. The Journal suggests that much of that latter revenue is indirectly derived from the app store, however, because the 50,000 apps iPhone offers provide a compelling advantage for many users over the 2,000 apps RIM’s BlackBerry App World offers, for example.

The figure that struck me the most, however, was R&D spending: RIM spent 6.2% of its 2008 revenue on R&D, with Microsoft, Palm, and Motorola each spending 12%-15% on R&D. Apple? Just 3.4%, yet they’re still hailed as the innovation leaders.

Looks like in Apple’s case you can have pie and eat it, too. Even better, it’s the third-party developers doing the baking.

Related Reading:

• AT&T aggressively pursues app store agenda
• Dear gadget hounds: Wireless networks more than their phones
• Mobile app stores deliver little direct revenue but are critical for ARPU

DOJ aims at AT&T, Verizon but is much at stake?

For telecoms, the jury is out on Obama, but the judge might soon stroll in for them: The Wall Street Journal reported that the Department of Justice (DOJ) has begun an investigation into whether service providers are abusing market power, as part of a strong anti-trust stance the administration has been generally taking.

But do carriers, wireless and landline alike, really have much to worry about? The initial media flurry makes it sound like Attorney General Eric Holder just wants his (and everyone else’s) iPhone on Verizon or any other network of their choice, and if that’s the goal, the end result will likely be negligible. Carriers like Verizon have promised open networks already. Are they dragging their feet? Absolutely, but if there’s anything to make telecoms look nimble, it’s the pace of federal bureaucracy. This is, after all, the same government that just found time to confirm the new FCC head Julius Genachowski a little over a week ago, despite sterling credentials and little pushback.

By the time device/network independence is mandated, and the government figures out exactly how bad it will muck it up, service providers will be on LTE and WiMax, both of which have promised the exact same model of device independence. In the meantime, as BusinessWeek’s Stephen Wildstrom reports, U.S. technical standards and implementations make it almost impossible for users to switch their phones across networks willy-nilly anyways, and if they do, they are likely to be rewarded with greatly reduced performance.

So what is it that Holder, and Sen. Herb Kohl (D-Wis.), want from telecoms? The Wall Street Journal’s article is maddeningly scarce on details, but we’ll take a close look at the major players involved over the next few days as we try to parse exactly what the battle brewing between AT&T, Verizon, and the DOJ could look like.