On Sunday I wrote about the suicidal nature of the subsidies that carriers are giving to iPhone, and why it might be in their best interest to end it. I think the end of subsidies will come sooner or later, could be as early as next year.

Now, Brian X Chen of the Bits Blog on NY Times has also noticed the new found love that mobile carriers are showering on Windows Phone.

If it plays its cards right, Microsoft has a great opportunity to get a strong foothold as a third ecosystem in the very important North American mobile market. Microsoft has a lot to lose come this fall – with the risky and exciting move to Windows 8 and now Windows Phone 8 Apollo.

Update:

AT&T CEO shows off White Lumia 900 when asked about iPhone 5

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It will be an understatement to say that the U.S mobile market is one of the most important ones in the world – for its size, ability of the customers to pay for more expensive services, and the faster device refresh cycles.

In the U.S, carriers typically subsidize the handsets heavily to cajole their new and existing customers into long term contracts – to buy customer loyalty and more stable revenue streams. All subsidies are not created equal, and some come at a tremendous cost to the carrier. For example a typical high end smart phone running Android usually goes for a full retail price somewhere in the neighborhood of $500-$600 per unit, and they sell for about $199 with a 2 year contract with the carrier.

The unequal amongst equals is iPhone. The lower end 16GB version of the iPhone, with typically much lower specs than the greatest Android, goes for $650 to $700 at full retail. Yet iPhones are sold for the same $199 price with a 2 year service contract. Essentially, iPhones are subsidized to the tune of $450 to $500 per phone. Is anyone wondering why iPhone is one of Apple’s most profitable businesses?

It would be interesting put this subsidy in context of the another product that Apple sells to the consumers – the iPad. The lower end 16GB iPad with much larger display screen sells for a full retail price of around $500 and even the 4G version could be bought for just $629. So why are the carriers lining up to part with their profits for getting the iPhone on their network? Crazy thought, isn’t it? The usual explanation is that the most well paying customers want the iPhone and if the carriers don’t provide it, the customers would flock to the networks that do. There is certain merit to that argument, but the carriers should ask themselves – at what cost?

Take a look at the following chart and see if you can find the magic that iPhone exclusivity brought to AT&T’s share holders!

A miserable marriage.

In case you are still wondering, the answer is, it didn’t! AT&T is now scrambling to promote Nokia’s new sexy Lumia 900 devices as an alternative to hitherto most desired device – the iPhone. Grapevine has it that AT&T the launch budget for Lumia line of phones is a lot higher than what they spent on the iPhone launch. AT&T has even replaced the phone on some of their ads, even in those that don’t make Lumia 900 by name. In the Bay Area, I hear AT&T’s 4G LTE ad on the radio all the time always followed immediately by an ad for “beautifully different” Nokia Lumia 900 4G phone.


AT&T is not alone in expressing an interesting in promoting a viable flagship alternative to not just the iPhone but the plethora of Android handsets. Verizon joined the bandwagon recently during its earnings call. Verizon’s CFO, Fran Shammo, said the company wants a strong third software competitor in the mobile market. Hallelujah, for the late realization. He went on to add that “We’re really looking at the Windows Phone 8.0 platform because that’s a differentiator. We are working with Microsoft on it,”.

Is this a new recognition by the carriers that the partnership with Apple is taking them to the cleaners? It does, from the looks of it and if it is, this is good news for most parties involved – more competition amongst mobile platform will fasten the innovation in the industry, will likely to lead to better consumer products, lower prices, and, last but not least, happier carrier stock holders.

This is not to say Apple’s profit machine is about to come to a screeching halt. Far from it. First, the carriers are not yet announcing any reduction in subsidies for iPhone just yet, and even if they did, Apple still has a lot of the world left to derive its top line and bottom line growth from. Second, it is still too early to say that these new campaigns, new promises, and new strategies will amount to a hill of beans. While I am no qualified expert on financial matters, I am hopeful that Apple’s profit gold mine will continue to crank out nuggets. Apple as a company is in the zone. Momentum, either positive or negative, is a crazy thing, it can go on for a long time and will only stop when no one expects.

Two days after its reentry into the U.S market with the launch of its premier Windows Phone, Lumia 900, Nokia reminded investors that all is not well just yet at Espoo. Analysts eager to pass judgement without analysis were quick to pounce on the opportunity – to rain on Nokia’s parade – a seemingly successful comeback to the North American market(the new smartphone models topped the charts on Amazon at best seller phone  1 & 2)

Here is a small list of things that escaped analysts’ attention.

  1. It is no secret that Nokia’s traditional symbian smartphone business is in trouble. Analysts should not be surprised by this, but they were. The question is whether the new Lumia sales will move up fast enough to compensate for the decline in Symbian sales. They should not expect miracles in this department
  2. Lumia line was launched only a couple of weeks before the last holiday season, that too only in 6 countries. With major markets like the U.S and China held of until last week or so, the sales of the new line of smartphones running the beautiful WP Mango at 2 million units look very healthy and promising.
  3. Lumia has received very positive response from consumers and reviewers in general for its beautifully different design.
  4. AT&T is completely on board with the launch. I have been to a couple of AT&T stores, and Lumia had a prominent place in the store with signage all over the store walls. Unlike in the past with other WP devices, store employees were eager to sell you a Lumia.
  5. Nokia has a friend and ally with deep pockets – Microsoft. Microsoft and Nokia both need each other to succeed in the mobile market.
  6. Nokia’s hardware design capabilities are second to none.
  7. Nokia’s software capabilities are ages ahead of the troves of android phone set makers.
  8. There is only one line of smartphones in the market that truly differentiates in both hardware and software(materials, colors and functionality) all the other smartphones available in the market – Lumias.
  9.  It wouldn’t be much of exaggeration to say that Nokia has channels and presence in every single country on the planet. It also has established relationship with mobile carriers in these markets.
  10. If it takes a Microsoft acquisition to make it all work, Microsoft will do it.
  11. Microsoft now has fans – a rather unfair review on The Verge received 2500 comments,(when the usual comment for a blog entry is under 100), much of it coming from people who should be considered fans/well wishers of Microkia.
  12. People love an underdog who is capable, and that underdog is nowMicrokia. Think Different(ly)

While it is still early days in the transition of Nokia from Symbian/Feature phones to Lumia and, possibly, Windows 8 tablets, Nokia will not only survive, but is likely to thrive in the coming years.