Why does Apple alter its iPhone strategy between countries?

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In different countries, Apple has offered its iPhone in different ways. In the US, it started as AT&T exclusive although it is now also offered through Verizon (since earlier this year). In India, it is only offering the iPhone through Bharti Airtel and Aircel. It is facing investigation by the Competition Commission of India (CCI) over this arrangement.

In contrast, in Australia, if the iPhone was ever offered as ‘exclusive’ then it was only transitory as it is now (and has been for some time) available through the three carriers – Telstra, Optus and Vodaphone.

Why would Apple follow these different strategies?

In the case of both the US and India, when the iPhone was launched, the mobile networks in each country were relatively fragmented. India is discussed here by the Economist. So one theory is that Apple have targeted particular carriers to ‘help’ them increase market share and concentration in the mobile network market. This would make sense if the fragmented nature of the mobile market in the US and India reduced service levels to customers – and so reduced the value of the iPhone as a ‘complementary product’. On the other hand, a more competitive mobile carrier market assists Apple. Cheap mobile calls driven by competition mean more demand for the iPhone.

Of course, if Apple is deliberately trying to ‘organize’ the mobile carrier market to benefit its sales of the complementary product, this could be viewed as anti-competitive. Hence the CCI investigation. At the same time, it would benefit customers. Apple has an incentive to have the customers get the best possible prices and service from mobile carriers in order to maximise customer value of the iPhone.

The strategy is also risky. If Apple use exclusive offers to try and ‘pick winners’ in the mobile carrier market and improve customer experience, its competitors, using the rival Android operating system, can also benefit – without limiting customer choice. And my understanding is that overall more Android phones than Apple phones are being sold in the US (the article referred to is only for iPhone carriers – not all carriers).

On this view, Apple did not have to offer an exclusive deal in Australia as our mobile carrier market was already operating well with three national networks.

An alternative view relates to complementary inputs. When the iPhone came out in the US it was novel and radical. But it was not at all clear that it was going to be the huge success that it is today. Hindsight is wonderful, but at the time of the iPhone’s US launch, Blackberry had the corporate smart phone market sown up. So to maximize its chance of success Apple needed carriers who would invest heavily in promoting the iPhone – not just their network services. By choosing an exclusive arrangement, Apple tied together its own and AT&T’s incentives. AT&T had a big stake in the iPhone’s success as it was the only carrier that was selling it. So on this basis, Apple’s exclusive deal was a way to get ‘buy in’ and complementary investment from a carrier in an uncertain market.

This scenario also works in India. The smart phone market is dominated by cheap handsets in India (from  my own observation, Nokia has a big presence and Blackberry is strong in the corporate market). The iPhone is not cheap. So again, an exclusive deal may aid promotion of the (relatively expensive) iPhone as the two carriers (who happen to be the largest and one of the smallest) have an incentive to promote the iPhone as their ‘unique offering’.

And in Australia? Well, the iPhone launched here after its success in the US was clear. So maybe there was no need for a significant period of exclusivity to aid sales.

While it is interesting to speculate over Apple’s corporate strategy (and others will have other suggestions I am sure), the debate is more than academic. If Apple ends up in Court on Antitrust charges in India or elsewhere it will have to defend its actions. The above two arguments are those for the prosecution and the defence. Why exclusive arrangements?

Prosecution – this was a deliberate attempt by Apple to manipulate the mobile carrier market and limit competition to maximize its own profits.

Defence – this was necessary to assist Apple to gain sales in markets where its presence was weak and where it needed assistance from carriers (in terms of marketing and promotion) to be a successful competitor.

 

 

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