The iPhone for Verizon in USA, means some more CDMA sales in Asia too

So the long-speculated CDMA version of the iPhone has arrived. Lets see what its potential is.

I have been monitoring the iPhone from long before it was even launched, and I gave the world's first international market opportunity analysis for the iPhone three days after it was announced and 5 months before the first model was sold, here on this blog in January 2007. That is so long ago, that AT&T was still known as Cingular at that time haha. Funny to see that I had the international footprint for the iPhone very accurately forecasted, haha, which is still very close to how Apple sells iPhones in 2010. In the blog analysis I clearly stated that Apple had to evolve the iPhone, and that a 3G/GSM version had to be offered first, before a CDMA version - exactly as Apple did in 2008. And now we have the CDMA version, which Verizon starts to sell in early February of 2011.

There are some differences in the iPhone 4 sold on Verizon. Technically it is a CDMA device, so it is not compatible with GSM networks and the Verizon iPhone users cannot use their iPhone in Europe and most of the rest of the world, for example. While CDMA forms a little over half of all mobile phones used in North America, GSM forms 90% of all mobile phones used worldwide, so outside of the USA, about 93% of the rest of the world uses GSM (and is compatible with the iPhone GSM variant, as sold by AT&T). The PR people of Verizon have said that the most accessories of current iPhone 4 owners should work but warned that some cases will not - suggesting that the casing of the CDMA version of the iPhone 4 will have some cosmetic differences, very likely related to the antenna, as Verizon does not want to experience a return of antennagate with its launch.

There may be some other differences, but for all practical purposes, for most buyers and normal customers, the outwardly appearance, the main specifications and the Apple look-and-feel will all be the same, that unless they put them side-by-side and carefully study the two, the iPhone 4 at Verizon will seem identical to the iPhone at AT&T.

USA MARKET IMPACT

The US market will definitely see a boost in iPhone sales as Verizon is one of the three big mobile networks with AT&T (and Sprint). T-Mobile the fourth biggest network is significantly smaller than these three. There are also many regional networks, so AT&T and Verizon together very roughly speaking account for half of all US mobile customers. Because AT&T and Verizon are on the two rival standards that most American phones use, it is easy to think that once Verizon releases the iPhone, it would double the sales in the USA. That will not happen. There will be significant growth yes, and Verizon will gain plenty of disgruntled AT&T iPhone users yes, and some Verizon users who had gotten an AT&T account just to have the iPhone will return to Verizon yes. But the total US market for the iPhone after Verizon will not be double that what it is today.

Lets take some known metrics to understand. First, the latest TNS survey of US consumers tells us that the current iPhone owners are the wealthiest segment of smartphone owners in the USA, with an average income of over 100,000 dollars. This means that for the typical existing iPhone owner, there is no financial burden whatsoever to consider a second phone and second account on a rival network. If the US consumer had wanted an iPhone, and earned more than 100,000 dollars annually, they could easily walk into an AT&T store, sign the two year contract and get a new, second phone, no matter what network their other phone was on. As my TomiAhonen Phone Book 2010 tells us, a fifth of US mobile phone accounts are multiple accounts meaning that one in four US cellphone owners today has two accounts (and in most of those cases, has also two phones). And these tend to be smartphone owners. So for example, a white collar worker in a well-paid job may have a Blackberry from work as the company phone, and then bought an iPhone as the personal phone. About one in four US mobile phone owners will actually have two active accounts. The iPhone has been around in the US market for 3.5 years already, so for most who 'really wanted it' (and could afford it) they had had the chance to get the iPhone. Even for those who were locked in long-term contracts (usually 2 year contracts) who had just signed a new contract a little before the original iPhone launched, has had now time to get a new contract, and would this year get another new contract, giving ample time to get the iPhone if they wanted it.

Note this is different from France or to a lesser extent Britain. I would not be surprised to find many analysts celebrate how greatly the iPhone sales and market share grew in France after the iPhone went from one carrier/operator to all three in France. France got the iPhone six months after it launched in the USA and only a year after Orange of France started selling the iPhone on an exclusive deal, the rival networks SFR and Bouygues both received the iPhone. So the ability for the rival networks to capitalize on 'virgin' iPhone users was far greater than it now is in the USA.

When I did my very deep regional analysis and preview just before the iPhone launched in 2007, in my Crunching the Numbers blog, I explained that AT&T could use the iPhone as a weapon to steal valuable premium customers from the rival networks. And we've heard repeatedly from AT&T that many of its iPhone buyers were new customers to AT&T, not just existing AT&T customers upgrading from featurephones to the iPhone. For example when AT&T reported on Q1 numbers for 2010, it said 33% of iPhone activations were new accounts, not upgrades of existing accounts. The strategy has worked very well for AT&T.

What is the US market in size? The US market is about a quarter of the world's smartphones, so it will end up at about 75 million smartphones sold for the full year 2010. Google's Android family of devices are currently the best-selling smartphones in the US market. Apple has passed Blackberry during 2010 and are now the biggest selling single smartphone brand in smartphones in North America. For Q3 Apple had 26% market share. For the latest 12 months (from Q4 of 2009 to Q3 of 2010) Apple has sold 14.5 million iPhones in the USA. Apple's total iPhones sold in the same period was 40 million. (Note that this is not the final of iPhones that Apple will sell during calendar year 2010, they will sell roughly 45-48 million iPhones which we will know when we hear the official Q4 numbers soon).

VERIZON IMPACT

So, the existing market was roughly 14.5 million for the latest 12 months. If we project that for full calendar year 2010, lets call it 17 million. That is up from 10.3 million for calendar year 2009 so the iPhone showed growth of 65% in the past year. Note this is slower growth than the iPhone did globally (85%).

Is there a market segment in the USA, which has customers on Verizon today, who want an iPhone and can afford it, and have not gone to AT&T. Of course there is. But note, of those customers who once were on Verizon (whether they are still there or not) who have over the past 3.5 years gone to AT&T to get the iPhone - I would argue this is by far the bigger part of Verizon's true iPhone-hungry customer base. They have already gone to AT&T, and a Verizon iPhone for those customerrs is at best a chance to win them back. Note, some will not shift, even if they would prefer the Verizon network (see below).

Will Verizon be able to steal customers from rivals with the iPhone, perhaps a bit, more from Sprint and Alltel (CDMA providers) than GSM providers AT&T and T-Mobile, but there is some potential for that. Again, AT&T has had plenty of time to do that, and securing those customers on long-term AT&T contracts, so it is not likely to be a big segment that Verizon can even hope to target. If AT&T has been capturing a third of iPhone users as new customers - mostly stealing from rival networks, that market was roughly 5.6 milllion US consumers. I would argue, that Verizon will not be able to match this level out of all customers taking an iPhone, Verizon will cut into AT&T's customer acquition yes, but its rate will be less. There will be early buzz about Verizon and an early spike yes, but if we look at the full year 2011, no, it will not be that big. There will be some who explicitly want a CDMA standard phone - for those the Verizon iPhone is the only choice. There will be some customers who are very 'loyal' to Verizon either in a real loyalty sense, or perhaps because of their phone number or Verizon is the telecoms provider at their employer, or in NorthEastern USA, the customer may be on a Verizon family telecoms plan with the fixed landline phones, etc. For those existing Verizon customers, there will be some segment of totally new iPhone customers who were not valid candidates to buy one from AT&T. I would argue this is far less than 10% of all new iPhone customers in 2011.

There will be some customers who hate AT&T and they will of course take the first chance to abandon AT&T and jump (often back to) Verizon. These are not new iPhone customers. This is for Apple moving money from one pocket to another. For the carriers in the USA, it will be typical churn and loyalty war between the networks. There will be offers AT&T will make to existing iPhone customers, to try to entice them to stay, and there will be penalties for leaving before the contract is completed. Most customers who want to abandon AT&T will wait until their contract period is done. So even for this total market, note that almost exactly half of them will not even be able to shift to Verizon during calendar 2011, half will do so in 2012 (of customers on 2 year contracts).

GSM ROAMING

But lets not forget the iPhone owner. At more than 100,000 dollars in annual income, the iPhone customer is the most affluent of any smartphone owners by their income level. These will more often than not, be in well-paying jobs, often jobs that involve international travel - or are wealthy American consumers who also like to take (and can afford annually) holidays abroad. The only one dramatic difference between the Verizon iPhone on CDMA and AT&T iPhone on GSM, is international roaming. The Verizon iPhone uses a standard that will work in many Asian countries and many Latin American countries (and Canada). It will not work in Western Europe, the Middle East, in Africa and Australia. Meanwhile the AT&T iPhone on GSM will work in every country in the world. So for most who do meaningful international travel - who have already used their existing AT&T iPhone abroad on GSM roaming - will know to inquire about the roaming, and in most cases (unless all travel is in Asia and Latin America) will not want to 'downgrade' to the CDMA version. Even if they hate the AT&T service, they will tolerate the iPhone on it, rather than go without the iPhone on most of their international travel trips.

So how much can we expect Verizon to take of the iPhone market in the USA? I think in the long run, the relative market shares should end up roughly mimicking their market shares of all cellular customers in the USA, so if these two similar-sized carriers offer the iPhone only (not T-Mobile, not Sprint) then they shold split the US iPhone market 50/50 - well after the contractual delays are overcome, so this would be much after two years from now. And I say only roughly, though, because AT&T has the first-mover advantage, and because AT&T offers GSM roaming. But lets say around year 2013-2014 we could expect Verizon to have perhaps 40% of all iPhone users in the USA, and AT&T to have 60%. Or maybe 45/55, something like that.

Meanwhile, how much can we expect the iPhone to keep growing in the USA? They grew 65% last year, slower than Apple did globally and slower than the global growth in smartphones and slower than the US market growth in smartphones. I think the high price of the iPhone (US readers, please remember the listed price of say 199 dollars on AT&T is not the real price you pay, the rest of the 600 dollar full price of the iPhone 4 is hidden in the 2 year contract, because of 'handset subsidy' you are actually buying a forced installment payment plan - with interest - and the 199 dollars you paid is only the upfront down payment) is starting to reach the market ceiling. Its obviously not there yet, but is nearing it. Meanwhile we now see very popular similar-design smartphones from HTC, Motorola, Sony, LG etc which mostly use the more popular Android operating system, and even RIM has introduced touch-screen versions of its popular Blackberry. The competition for the iPhone is much greater today, so its prospects for dramatic growth in the US market are not strong. Yes, there will be growth definitely, and it helps that the iPhone is now sold on two networks, but I do not see the iPhone growing strongly.

AT&T EFFECT

This launch is obviously bad news for AT&T. It has had a very long run in being the sole provider of the iPhone, but now that run is done. I think it is inevitable that AT&T will see more of a loss of customers to Verizon than any new customers it might attract to the iPhone. Some will be normal churn and loyalty, some will be aggressive marketing by Verizon, some will be 'customer revenge' for bad consumer marketings actions that AT&T has done in the past, etc. So I do believe that AT&T's total sales of iPhones will stall and start to decline. Almost all of the sales at AT&T of new iPhones in the next two quarters will be contract renewals, ie sales to existing customers, not new sales. Almost all new customers will sign up to Verizon now - many of those customers are of the type who explicitly did not want to sign with AT&T and waited for Verizon. So for AT&T I am modelling flat sales and gradual decline.

Recently we have seen AT&T activities to embrace new smartphones and this would mean that in AT&T stores, the emphasis of the iPhone would diminish, helping the Android based phones gain more sales in AT&T stores.

With all that, I model the US market to run about 50% growth in total iPhone sales for calendar year 2011, so about 24 - 26 million iPhone units sold. I would split the full calendar year 2011 to go about 15 million for AT&T and 10 million for Verizon. Nice sales yes, but remember, most of those 10 million that Verizon would be activating, would be former Verizon customers coming back from AT&T. (One caveat - I have separately been arguing that Apple must soon release an 'iPhone Nano' cheaper simpler version of the iPhone and release two new phone models per year. If Apple were to release the Nano model in 2011, then the total iPhone market globally would grow dramatically. This analysis of the CDMA iPhone with Verizon, is not considering the separate Apple option to release a Nano iPhone in this year).

Is this really good news for Apple? I don't think so. I think they could easily have sold 33% or 45% more iPhones this year with AT&T alone, without all the expense of the design and approval and support of a CDMA version. And it would have been far cheaper to release the same GSM version of the iPhone 4 with T-Mobile. Why not, if the exclusive contract with AT&T has run out? Is it really true, that T-Mobile doesn't particularly 'want' the iPhone? What do they know (from T-Mobile's vast European empire) that we don't? And why only Verizon on the CDMA standard? Why not both Verizon and Sprint? Again, doesn't Sprint want the iPhone? It seems a bit strange. At least in Europe like Italy, France, UK etc, and Australia, it was clear that all carriers/operators wanted the iPhone. I do think its a bit weird that only two of the four biggest US carriers sell the iPhone, in Apple's home market, its best-selling market after all. We have to monitor this space and try to find out why if AT&T's exclusive contract is out, why not all four (or five, or six) of the biggest US carriers are not launching iPhones. Or maybe we'll hear more deals when Apple announces its quarterly results later this month.

Clearly the US investors of Apple have been desiring to see the exclusive AT&T deal ended and have wanted to see the iPhone on Verizon. This is good news for Verizon, its clearly bad news for AT&T - but both of these were anticipated. But for Apple, in the US market, I don't see a meaningful bump in sales. Yes for one quarter or two, but even for the full year 2011, I don't see much impact. Not out of the US market. But maybe the gold is abroad..

WORLD SPLIT

I did an analysis of the regional markets of major smartphone platforms here on this blog a few weeks ago. Taking only the iPhone numbers, for the latest quarter for which we have global numbers, ie Q3 of 2010, I found that 39% of all iPhones were sold in the USA, 33% were sold in Europe and 28% were sold in the rest of the world. To understand the market sizes, the TomiAhonen Phone Book 2010 tells us that out of all smartphones sold, the USA and Europe both account for about a quarter, and the rest of the world accounts for half. If we use that split of markets, and use the rough estiamate of 47 million iPhones sold for full calendar year 2010, then it would be 18 million sold in North America, 16 million sold in Europe, and 13 million sold in the rest of the world.

EUROPE HAS NO CDMA

A CDMA version will not add any sales in Europe. So Apple's 16 million sales in Europe will not receive any boost out of this new variant to the iPhone 4. But Apple is seeing both growing competition from Android devices, the same effect as they saw in North America last year, Android is poised to grow bigger than Apple in Europe, led by Samsung's Galaxy class - Samsung is Europe's second-best-selling 'dumbphone' so every carrier/operator offers a vast array of Samsung phones including many Samsung cheaper touch screen featurephones. Meanwhile Europe is Nokia's home market and 'back yard' and Europeans have been eagerly snapping up Nokia's new N8, seen by the consumers as Nokia's answer to the iPhone - and are now awaiting the E7, which looks like the 'iPhone anyone would really want' ie it has a 4 inch touch screen but also the slider full QWERTY keyboard, that costs about the same as the iPhone 4 and Nokia is set to release the E7 this quarter. Apple's dramatic growth in global market share of smartphones stalled in 2010 as I first predicted on this blog and most major analysts have since confirmed. That was in early 2010, before the Galaxy S, before the Nokia N8, before the latest Blackberries, HTCs, LGs, Motorolas etc. The iPhone 4 was the hot phone in the summer of 2010. It is now looking increasingly tired and old in the European market. Expect Apple's sales in Europe to decline in the first half of 2010 and only show new growth with the next iPhone 4G expected in June of 2011. For the full year, I would expect Europe only to produce something like 30% growth and this CDMA and any future CDMA versions obviously does nothing to help there, in Apple's second biggest market. So for the full year we could see something like 20 million iPhones sold in Europe, and Apple's iPhone market share to decline there.

REST OF WORLD HAS SOME CDMA

So the rest of the world. The world's biggest mobile telecoms market is China. The good news is that China does have CDMA. The bad news is that China's biggest mobile operator, China Mobile, does not support CDMA. China's second largest operator, China Unicom, is the official iPhone provider on GSM, and its only the newest and by far smallest Chinese operator, China Telecom who operates a CDMA network. Apple has been struggling to sell iPhones in China, it is perceived as very expensive in the market where they have no handset subsidies and customers pay the full price for handsets (like over 80% of all customers in the world). So adding the smallest carrier in China will not do magical things for Apple.

What of Japan, Apple's best market in Asia? Well, there is some good news, some bad news. The good news is yes, there is also one CDMA operator in Japan, KDDI, which is slightly bigger than the current iPhone provider, Softbank, which runs obviously on the GSM evolution of 3G (Japan has no 2G networks left, they became the first country to go 100% 3G or faster last year). But Japan's biggest carrier/operator is NTT DoCoMo, as big as Softbank and KDDI combined. NTT DoCoMo runs the GSM evolution to 3G, so they could use the current GSM style iPhones, and NTT DoCoMo has expressed many times their desire to do so. It is not because the Japanese don't want to sell the iPhone, its the same problem Verizon had in the USA - its a contractual situation with the rival. Softbank has an exclusive deal in Japan. We do not know how long that lasts, but its very unlikely that the CDMA version of the iPhone 4 now, will help in any way in Japan.

What other markets have significant CDMA operations? India, South Korea, Indonesia, Taiwan, some Latin American countries and Canada. In most cases the CDMA carriers have already started their migration away from CDMA to GSM - like two of the three carriers in South Korea - so often the CDMA network is run by a carrier who already operates a parallel GSM network - and could have launched the original GSM standard iPhone already. And then, in the markets where CDMA carriers still operate, in most cases they are one of the smallest carriers and have a tiny slice of the domestic market, like in India, Indonesia, Taiwan etc. The total 'new' market opportunity for the CDMA variant of the iPhone is very small in the world.

PRICE PYRAMID BECOMES THE DECISIVE FACTOR

I have calculated the price pyramid for phones sold worldwide in 2009, for the TomiAhonen Phone Book 2010 and it tells us that in 2009, only 5% of all phones sold worldwide were in the price bracket of the iPhone 4. Even if we take next lower price bracket and assume we can 'upsell' current mid-priced smartphone owners in the roughly 300 dollar smartphone price bracket, and upsell them to the iPhone in the 600 dollar (unsubsidised) price range, the combined market size of these two premium phone segments is only 14%. What was Apple's total global market share of all mobile phones sold in 2010? We dont' have the final numbers, but in rough terms, the iPhone sold 4%. The Samsung Galaxy alone in Q4 is selling about 3%. Nokia's N8 as just one smartphone model from Nokia's range of several dozen, sold about 1% in Q4. Both are in the same price range as the iPhone 4. Then we have Blackberries whose average price is near 300 dollars and they sell another about 4% of smartphones. That price bracket is very tightly contested by several dozen global brands from SonyEricsson and LG and Motorola to Lenovo and Dell and ZTE. The competition is getting ever tougher for Apple as today every rival offers some touch screen based smartphones that are significantly cheaper than the iPhone, and in many cases offer at least some features now in early 2011, that are better than the iPhone 4 (bigger screen size, better camera, in-built slider QWERTY screen etc). The battle gets brutal at the top of the pyramid. In the US market it is not as clear-cut because American consumers are so wealthy, and the phones are subsidised. Apple itself admits, its easiest markets are those where phones are heavily subsidised (like the USA and Japan) and Apple struggles most in markets where there are no subsidies like in China and Italy for example.

With this, I do think there is a natural limit which Apple is already approaching. In 27 years of selling the inconic Macintosh PC, which has a magnificent history of technological innovations, the Mac has always been a premium priced PC, and its global market share has settled very close to the 4% market share of all personal computers sold. Now the iPhone is approaching that point in handsets (3.7% actually for calendar year 2010). All major markets have now launched the iPhone, so there are no major countries left that would still be 'virgin' territory for Apple to launch in.

Its CDMA version will help sell more in North America yes, but mostly it means return customers from AT&T back to Verizon, and because of the vast prevalence of multiple handsets in America, the impact will be modest, further dampened by the 2 year contracts, and Verizon further hurt by a poor international roaming footprint, in the wealthy customer segment. This is a good move by Apple to sell more in North America, and yes, they will sell more in the USA with both Verizon and AT&T than they would have done with only AT&T. This is a move that will be liked by its investors but it will more help Verizon than Apple.

For the rest of the world, looking at where most smartphones are sold, the CDMA version can only help in some major Asian markets. Europe, Middle East, Australia and Africa are not CDMA and Latin America is way too small as a smartphone market to really matter in the big picture. But in Asia the CDMA carriers are mostly the small ones in their home markets, always in countries where the iPhone GSM version has already been leaunched. If the iPhone is not selling well on several GSM networks after several years of sales in India for example, then a new CDMA version in 2011 will not move that needle at all in that market, for example. Same for Indonesia, Taiwan etc. Some markets may see a jump (China, South Korea, Japan) but in these cases, the exclusive contract situation is likely to be similar to what Verizon faced in the USA against AT&T.

So for the full year 2011, I am tentatively modelling in very round numbers that Apple will sell 70 million iPhones (plus minus 5 million) and would have roughly speaking 15% market share of smartphones and 4% of all mobile phones, very similar to their market share for 2010, ie their market share growth has indeed stalled from what it was still in 2009. This does assume that the next iPhone 4G has to be a very successful new phone again in June of 2011, similar to how successful the iPhone 3GS was in 2009 and the iPhone 4 in 2010. At that level the iPhone would be the second-best-selling smartphone (Nokia will sell in the range of 140 million smartphones this year, totally out of reach for Apple) but I will be revising my preliminary model for 2011 sales later in February, when we have the final numbers for all manufacturers and the total industry (including Apple's Q4 numbers) for the full year 2010. Does the CDMA version add iPhone sales, yes. Will it change the picture? Not much. What is the rough ratio of CDMA to GSM versions? About one in seven iPhones sold in 2011 will be a CDMA version.

Thats how I see it now, on January 12 in 2011. I will be monitoring the smartphones market on this blog in the continuing 'Bloodbath' series of smartphone market analysis blogs articles, and separately I will be doing a full analysis of Apple's iPhone performance for the full year 2010, when we get the final numbers from Apple soon.

For those who want more numbers and facts about the global mobile phones industry including smartphones, dumbphones, featurephones, installed bases, average sales prices, regional performances, operating systems, market shares etc - I have released my TomiAhonen Phone Book 2010, a 180 page statistical review of the handset industry just two weeks ago, with all end-of-year 2010 numbers and facts, including over 90 tables and charts. The eBook is available for immediate download and only costs 9.99 Euros. To see more (this is the only place to buy it) - see TomiAhonen Phone Book 2010.

Comments

[Lars]

Hi Tomi..

Good stuff as always.. wonder how their target market subs will react once they start to realize the CDMA platform (still?) has duplex voice-data issues. Basically, or so it would seem, there will be no "FaceTime" video chat with iPhone4 on VZW.. @_@

Cheers!

[Michael]

Tomi:
Thorough analysis - expected coming from you. A couple of things I'm waiting to see happen...

1. What will AT&T's reaction be. If they spend their ad money slamming Verizon's network and promoting their (AT&T's) line of phones, I believe that AT&T will lose between 5 and 7 million customers in 2011. AT&T needs to address the very vocal segment of disgruntled iPhone owners that get poor reception.

2. T-Mobile has been running ads that seem like a love affair with Apple. They are modeled after the old iPhone ads and talk about how the iPhone is a great phone on a terrible network. Perhaps Apple will get the message and begin selling through TMobile as well.

Lars - As FaceTime is WiFi based video calling, the VZW iPhone should work fine. It only needs the voice circuit to establish the connection, then hand it off to the data circuit.

[Don_afrim]

I don't see why ATT is going to sell more iPhones than Verizon, if anything I would think Verizon is going to sell more than ATT since it's No.1 carrier and has a more wide spread and reliable network. I think since Apple doesn't have an exclusive deal with Verizon they will soon announce the iPhone on all networks in the USA and start selling unlocked iPhones at Apple Stores just like they do world wide at the latest once the iPhone 5 4G (hopefully penta band) rolls out in June/July.

I project that once the iPhone is available on all networks in the US they will capture 50% of the US market while world wide their market share will grow to 20-25%.

[Phil W]

The problem is for Apple just to maintain its market share it must increase the number of phones it sells each year because the smartphone market is growing rapidly.

This will be difficult to do as firstly the Iphone will start to look out of date against the newer competition from various manufacturers and secondly because the most explosive smartphone growth outside of the US will be at the mid to low price bracket end in which apple doesn't compete.

The Eco system that Apple is building with the ipad, itunes etc is a good way to bind in existing customers, but isn't relevant to when it comes to attracting new customers.

For that reason I think talk of 20-25% is wishful thinking.

[Tomi Ahonen]

Hi Lars, Michael, Don and Phil

Good comments, will respond to each individually as usual

Lars - haha yeah.. Actually Facetime is WiFi based, so I think it won't matter (but am not sure, we'll need to monitor the techie blogs)

Michael - thanks! Its a shame sometimes living here in Hong Kong that I can't get access to the domestic marketing activities especially of those countries that I otherwise know very well, having lived there for many years and where seeing the local advertising would be particularly useful haha, like UK, Finland and yes, the USA (lived there only for 12 years haha). So yes, thanks, very good to know about T-Mobile ads and also yes, agree AT&T needs to tread very carefully with any war of words about network capacity.

Don - First on 'why would AT&T sell more than Verizon' - its most of all because of return business, the renewal contracts. There is considerable 'lazyness' by all mobile phone subscribers globally, in bothering to switch networks. We had for example the Swedish Regulator calculate it and found about 70% of all customers will not bother to consider rival networks when it is time to renew a contract. Now, we need to remember that networks in the rest of the world are far better than those in the USA, so the Swedish customer would not feel that the network quality (dropped calls, congestion, lack of coverage) would be a significant issue haha, but still, there is a proven measured factor where most consumers in such contractual situations will continue renewing with the current provider. Same with insurance, home electricity, cable TV, etc etc etc. So that is the primary reason, why it is pretty safe to assume that of AT&T's existing iPhone customer base, the majority will renew with AT&T. The fight between Verizon and AT&T will be more for those who switch networks from any network (including those of Verizon, and those of AT&T) and in that 'net' calculation, AT&T will initially lose significantly more (to Verizon) than what it can gain from all rival networks. And Verizon will initially gain far more defectors than it would lose any left on VZ who wanted an iPhone but were still stuck on VZ. Make sense?

On your forecasts, I appreciate your viewpoint, I do think you are vastly over-optimistic in your projections. For AT&T to capture 50% of the US smartphone market, they would have to use one phone to kick the butts of Motorola, HTC, Samsung, Blackberry and many others. Each of the rivals offers at least one clear 'iPhone Clone' model of similar form factor (think slab touch screen) and each offers many rival form factors, like the iconic Blackberry style - and many of these have very loyal user bases. I think 35% or 40% is a reasonable target market share for US domestic smartphone market - but it may well be less - less - because the US market is like all of the world's smartphone markets now, moving to lower cost smartphones.

So if the iPhone 4 and similar rivals (Samsung Galaxy S etc) are selling for about 199 dollars with 2 year contract, there will also be similar smartphones from LG or HTC or Motorola, with 3 inch touch screens and 5 megapixel cameras, that will cost maybe 49 dollars or even zero dollars for 2 year contract. That is what I mean. And globally obviously in most markets where phones are sold without subsidy, the iPhone 4 sells for about 600 dollars while similar touch screen smartphones sell for as little as 150-200 dollars in unsubsidised form today.

As to world growth for Apple, if you mean the CDMA version alone can generate 20% more sales outside of the USA, that is utterly impossible, sorry, the math does not bear it out. That would mean 7 million extra sales of CDMA iPhones in the next 12 months, above and beyond those sold to Verizon. Please understand, this will not happen. There aren't enough CDMA operators/carriers with any potential to sell that amount of smartphones in the rest of the world, outside of North America and Western Europe. That would be 60% more sales of just CDMA phones, in the market where Apple has been selling GSM variant iPhones of only about 12 million units per year. It won't happen, please understand how impossible the math is. But if you mean 'all iPhones including GSM and CDMA' then yes, 25% growth in the rest of the world is quite feasible, in fact, I model Apple to do better than that.

Phil - Very good points and we agree, yes the big growth is now in the lower end of smartphones by price, and Apple is abandoning that market to its rivals. There is a dangerous long-term effect to Apple too, in that, in that it now allows rival phone makers to get the users 'familiar' with their way of working, signing up to the Android or Ovi or other app stores, etc, and then 2 years from now when they upgrade, they will prefer the existing brand of smartphone and it will be far more difficult to steal those customers then, if they are already familiar with, and comfortable, using the touch screen form factor smartphones from a rival. What is perhaps even worse, for Apple, is how Apple is resisting most industry standard initiatives, no micro SD card support, no removable batteries, etc which are standard items with most rivals - and these will become barriers to switch to Apple in the future, by experienced users of a rival phone brand.

Also agree about the eco system, its a great way to bind existing customers, not very relevant in capturing rivals.

Thank you all for writing

Tomi Ahonen :-)

[Romain]

Hi Tomi,

I was surprised too that Apple invested in porting their iPhone to a technology with such a small footprint (globally, not only in the US) and, more important, that doesn't really have a bright future (if at all) since all carriers, including in the US, have settled on 4G technologies (LTE/WiMax) that have nothing to do with CDMA.

But maybe there's more going on behind the scenes: for instance, maybe it is part of a broader deal with Verizon, like a exclusivity on the future LTE version of the iPhone (most probably the iPhone 6, seems unlikely for this year's iPhone 5, or whatever they call it) ?

BTW Tomi let's make some predictions: what's your take on a CDMA version of the iPad ? Some rumors have conjectured it could be the next step...
I don't really see this happen, with Verizon's mobile hot spot feature you don't really need an iPad with cellular connectivity (unless of course your "primary" phone isn't on verizon)

Oh and one last thing: isn't it time we revisit our definition of a smartphone ? I mean, does the Nokia C5 really compete with even the cheapest Android or BlackBerry phone ? What proportion of Nokia "smartphones" really connect to the Web, or have apps installed ? I bet much less than other platforms.
I'd be interested to know Nokia's market share on the mid/high smartphone segment (ie, basically, smartphones with a QWERTY keyboard and/or a touch screen). Do you have any data on that ?

[Leebase]

Thanks for planting your flag. I think you misread the importance of the Verizon iPhone in the US. It has nothing to do with CDMA. The only important news is the end of exclusivity, and it was stated that Verizon does not have an exclusive agreement.

Let's pause to remember that Apple needed to change the business model for smart phones. The last thing the networks wanted was to become a "dumb pipe". In order to entice the networks to allow the iPhone to be the iPhone (no carrier apps, iTunes instead of the carrier music, etc.) they HAD to offer exclusivity as the carrot. If the iPhone had not taken off so spectacularly, Android would never have been able to follow. Android was the "chance to have the appeal of the iphone without having the iphone").

Back to the current story. Yes, the iPhone has a "rich people's profile". But there IS no price difference between the iPhone and it's competition in the USA. All the phones are subsidized. The expensive part is the data plan which all smart phone accounts are required to buy. There is no premium paid for buying an iPhone verses buying a Galaxy S phone. There has been a $100 option for the iphone since it's second year. And NOW, there is a $49 option. If an American consumer can afford ANY smart phone plan, they can afford an iPhone. So if any of your analysis of the US was based on the pricing of the iPhone affecting sales, you need to go back to the drawing board.

Everyone who wants an iPhone has NOT switched to AT&T. AT&T is the most reviled of all American phone networks. Yes, it could be said that the vast success of the iPhone is one of the reasons AT&T is reviled, but nevertheless -- your analysis is wrong about that. Even so, AT&T was signing up vastly more folks on the iPhone than Verizon was with their android phones. This in spite of Verizon's two for one android sales and "all smart phone's for a penny" sales. That's WHY Verizon caved to the iPhone in the first place.

There will be some canabilism for sure. I do not expect iPhone sales to double. You will find out, though, that for ever 3 iPhones Verizon sells, at most 1 will be a lost sale from AT&T.

Balancing out the good news in the US for the iPhone on Verizon will be the roll out of the 4G/LTE networks. There will be Android phones for these but no iPhones. And I doubt that even this summers iPhone 5 will support 4G yet due to batter issues. Android manufacturers are more than willing to put out phones with crappy battery life than Apple is.

I think you will find that carrier network loyalty (or at least loathing of AT&T) in the US has been a far greater damper on iPhone sales than your analysis has accounted for.

As for the rest of the world: 4%, really? You want to speak of the iPhone's percentage of all mobile phones and not just smart phones and then compare that to the Macintosh's percentage of the PC market? The iPhone has 3 to 4 times the percentage of the smart phone market than the historical percentage of the Mac in the PC market. And Apple has had no problem haveing a WONDERFUL business at that.

Lee

[Bob Shaw]

Tomi - As always thanks for a great analysis. It appears that we are reaching a point especially in the top segment of the smart phone market where the smart phones are becoming very comparable in terms of features and functionality. Also performance wise the differences are shrinking between them. I feel there is small preference for Apple if customers value more ease of use, the same for Blackberry if customers value more security and the same for Nokia if customers value more the hardware especially the camera.

I think we are going to enter the next phase of smart phone competition especially in the highest segment where customization to sub segments will be the basis of competition.

One thing that did not happen much with PC and will happen more with smart phones is going to be customization. The main reason is that PC does not have the power and memory constraints that characterizes a smart phone. So a vendor can load all the features/functionalities on a PC and a customer can pick and choose what to use out of it. So customization was not that important in PC. In smart phones no matter what segment, trade offs will have to be made in terms of what to include and what to exclude because of power, memory and other limitations. Secondly smart phone is more personal than a PC and anything that is more personal has more opportunity for customization.

Going forward the one size fits all mindset for smart phones will not work and the vendors ability to understand the needs of different sub segments and offer customize products for each sub segment will lead to competitive advantage.

Vendors like Nokia who have shown ability to customize will be at a competitive advantage. Already we are seeing Nokia do that with N8 targeted more at entertainment/general user market and the upcoming E7 targeted more at enterprise/business users.

Also going forward all vendors will have to adapt but Apple will have to adapt lot more than other vendors. Further any advantage that a vendor will generate will last for very short time and thus new advantages will have to be continuously generated at a faster and faster rate.

Lastly a separate point, as pre paid becomes more dominant among customers than post paid and competition amongst carriers become more intense, the carriers ability to hide the real cost of the smart phones from the customers is going to diminish. I think the halo effect of iPhone worked when customers had little or no choice in terms of alternative similar smart phones and the real cost of iPhone was hidden from them due to post paid plans. Once the cost of smart phones becomes transparent, I don't know how much premium, if any, will customers pay for iPhone compared to other similar smart phones.

[Leebase]

http://www.thedailyshow.com/watch/tue-january-11-2011/verizon-iphone-announcement

For those of you who don't live in the US, and don't understand just how reviled AT&T is, watch the very funny video I've linked to. It's from a popular comedy show, a "fake" news show, doing a send up on the Verizon iPhone announcement.

So, Tomi, when you are absolutely surprised to find out just how popular the iPhone turned out to be on Verizon...you'll understand.

Lee

[Baron95]

I think your analysis of the 2011 sales split between AT&T and VZ got the numbers about right, but for slightly different reasons.

Some here asked "What will AT&T do"? Wrong question. It is what they HAVE DONE already.

AT&T has:

1 - Become the exclusive provider in the US of the iPhone 3GS at a price of $49 - $150 cheaper than ANY VZ iPhone.

2 - Allowed many customers to upgrade to iPhone 4 up to 6 months ahead of their contract end date - re-locking them for another 2 years.

3 - Become the exclusive provider or arguably the best phone to date on the market - Moto Atrix.

---------------

Other items, you failed to consider. Most iPhone customers on AT&T are on family and friends plans and work plans (my case). I can not pick up and leave AT&T for VZ that easily.

Likewise, *A LOT* of VZ smartphone customers are on work plans (mostly on RIM, some on Windows and Android) or, again, family and friends plans. Many, many who wanted an iPhone could not pick up and leave VZ. So the pent up demand is HUGE. That is why is reserving a full weak exclusively for their existing customers to pre-order, than they open it to new users.

Another very, very large group of people, watched in horror, how abysmal Cingular/AT&T's network was. Particularly in the media centers of New York and San Francisco it is truly awful. Many iPhone potential buyers simply refused to go to AT&T.

----------------

Lastly, iPhone demand....

Arguably, the iPhone 4 was the only iPhone that was truly "complete" and highly desirable. You saw the huge spike in demand when it launched. I myself (not really an Apple fan) upgraded from 3GS (company paid) to 4G (out of pocket - first time ever buying a phone with my money).

So what can we expect in 2011? iPhone 3GS selling for $49 on AT&T and iPhone 4 selling for $199/$299 on both AT&T and Verizon. Similar story worldwide.

Then comes July. Most likely iPhone drops to $99 with the new models coming in, and then, assuming new iPhones are good, sales really go up to a new level.

Also, don't discount the iPad phenomenon. Smartphone buyers want their favorite apps (purchased or free) to work seamlessly on both the phone and the tablet.

That will be true for Apple and Android

It will not be true for Nokia. It will likely not be true in 2011 for WP7 and Rim.

So Apple and Android will take off in 2011 and will pull away from the pack even more.

[Baron95]

Bob Shaw said...."Once the cost of smart phones becomes transparent, I don't know how much premium, if any, will customers pay for iPhone compared to other similar smart phones."

What makes you think that the iPhone would EVER be more costly to make than other similar smart phones?

Apple develops one model/year with *HUGE* economies of scale. Apple is selling at a rate about 50M iphone 4s, 25M iPads and 80M iPodTouchs per year - these are all basically the same device (same OS, processor, connector, etc, etc). They NEVER EVER customize their devices to operators or countries - It is virtually the same.

Apple's cost advantages are *HUGE*. Contrast that with Nokia - 3 OSes, dozens of devices/year, each with different carrier crapware.

In addition, each device Apple sells, is another registered iTunes account with a credit card to buy Music, video, apps, etc - with Apple getting a nice 30% cut of ads or sales.

If Apple EVER needs to be in a price war, they will win. But guess what, they won't need to be. When you can only buy Beatles songs from iTunes. When Apple hs the best Phone/Tablet/PC synergy in the industry. When Apple has a well choreographed launch machine - tablet in the spring, phone in the summer, iPod in the fall, Mac in the winter.

Well, dream on - taking Apple on price - good luck with that.

Want to take on Apple? Do what Samsung did with Galaxy S or Moto is doing with Atrix and Xoom tablet. Get on a popular OS and leapfrog on features.

That is the ONLY way.

Nokia will never crack the US market with a device like the N8. Ever.

[Baron95]

Romain said..."was surprised too that Apple invested in porting their iPhone to a technology with such a small footprint (globally, not only in the US)"

That is because you don't understand Apple or Brand value development.

Apple would easily spend $1B, $2B, $3B to maintain/grow brand equity.

For the reasons I stated above (AT&T network quality and inability of some users to leave VZ), a large number of Apple customers, potential customers plus the press, etc were dissatisfied with the iPhone being only on AT&T.

The investment is minimal - replace the radio subsystem and change the length of the antenna cuts.

Even if Apple sold just 1M CDMA phones in VZ, they will gain so much good will and enhance their brand so much, it is a no brainer.

You are thinking in terms of costs or price - so is Nokia.

Apple is thinking in terms of value.

You will never get it.

[Phil W]

So Baron95,

"Apple develops one model/year with *HUGE* economies of scale".

So the fact that, according to IDC, in Q3 Nokia sold 110 miliion phones (of which 26.4 million were Smartphones) and Samsung 71.4 million phones compared with Apple's 14.1 million doesn't matter?

I'm afraid I struggle to believe that Apple can better Nokia or Samsung on component or production costs.

The N8 will sell bucket loads, but you are right there, not many will be in the US. I don't think Nokia really expects it to. Nokia is looking to the Meego devices to start the long haul back into the US market. It won't be easy and it won't be quick, nobody is expecting it to be.

[kevin]

Phil W,
If we're talking about large touchscreen display smartphones with 8GB or more of flash RAM, Apple is in the same class. If we're talking about anything else, then Apple is not in the discussion.

Nokia sold 26.4m smartphones, Apple 14.1m. But mentioned here because it is really relevant, Apple also sold about 8m iPod touch and over 4m iPad, so the volumes are similar.

The most expensive hardware components in a touchscreen smartphone are the flash RAM and the large 3.5-4.3" display, not the phone components. So the large number of non-smartphones sold does nothing for RAM and large displays, as even most of Nokia's smartphones don't come with 8GB of RAM nor do they have a 3.5"+ displays. So clearly, Apple does greater volume on both of those and gets discounts. Also, in exchange for Apple's assistance with capital investments, Apple received favorable long-term pricing. (I expect but don't know what discounts Samsung's chip or display units give to their mobile unit.)

In software, iOS is leveraged across the same Apple products and AppleTV, plus the far more expensive Mac line, as OS X is the base software and most of the Core was developed first for the Mac. MeeGo will not have that same base, though the Qt layer has a larger base.

[kevin]

Tomi,
- As usual, thanks for a comprehensive overview. Most important, if you could do something about the cost of international roaming, that would make GSM more valuable and make me very happy. ;)

Here are my thoughts on your piece:

1. The casing is changed because buttons on the side of the iPhone were moved, partly due to using a CDMA antenna and components. The gap on top of the iPhone have been moved to the left and right sides, near the top. The antenna gaps on the sides near the bottom, which were the focus of antennagate, remain exactly where they were on the GSM iPhone.

2. COO Cook explicitly pointed out that the Verizon iPhone is not exclusive. So I wouldn’t be surprised if there is a deal with T-Mobile – but not until later this year. From what we have seen so far, Verizon got no concessions from Apple – no logo, no pre-installed apps, no distributor limits, Apple warranty and service, iTunes Store, App Store – so I think Verizon probably did get a period of sales exclusivity. By the way, Sprint and T-Mobile combined have fewer subscribers than either Verizon or AT&T.

3. If AT&T alone could've gotten a 33% to 45% growth in iPhone for Apple, then with Verizon, Apple will certainly do more than 50% growth with iPhone. Not 90% but more like 65-70%, which is a difference of about 3m iPhones. Several reasons as follows:
-- Verizon’s churn rate increased from 3Q07 thru 4Q09. Then it started going back down. My interpretation is that Verizon customers who were willing to switch to AT&T for iPhone did by the end of 2009, and there aren’t very many left. Yet a Changewave survey in Nov 2010 found that 34% of non-AT&T customers would’ve bought an iPhone if it was on their carrier. As Leebase wrote above, AT&T is disliked by many non-customers, who would never switch to AT&T.
-- Verizon’s website went down several times on 1/11. Most observers think it was caused by iPhone visitors.
-- I believe Verizon agreed to Apple’s terms because they see that iPhone has been able to get people to switch carriers and sign up for data plans. It has been the main source of AT&T's growth. Now they get that boost and dent AT&T at the same time. Verizon's plan for a huge iPhone marketing campaign, replacing their Android spend, shows that they see iPhone as their big weapon for the next few months (until LTE phones arrive).
-- The cost of the data plans is still the key factor in smartphone uptake. The $15 plans which started in 2H 2010 will increase the number of smartphone subscribers as contracts turn over. On AT&T, iPhone garnered more than 80% of its smartphone sales, and on Verizon, which still has a low smartphone uptake, I would expect it to get at least 40% of its smartphone sales in the coming year.

Finally, for Apple, this phone is just a stepping stone to a Verizon LTE phone. Verizon will take 3 years to have LTE cover the US, so a Verizon phone must have CDMA as the fallback. Apple is ensuring that when the iPhone LTE arrives, it won’t have any trouble with the CDMA piece. As I've said before, Apple is not in a rush, because with LTE and faster processors, a smartphone will even more so a smaller personal computer.

[Phil W]

Hi Kevin,

I was very careful in my wording as Baron95 was implying that Apple was much better than everyone else. I can accept that Apple may be comparable and I think that is what you are telling me.

I haven't checked the RAM issue, but I will take your word for it. The display issue has some merit in that Nokia's smartphones have different sizes, but the quantities of each Nokia model will still be pretty significant and I would be surprised if Apple gets much more leverage than Nokia.

I also may be underestimating the impact of the OS costs, but I was focusing mainly on the BOM costs and the OS costs are essentially spread across millions of units aren't they. (Ok maybe not for Meego initially.)

The one thing I would have thought was in Nokia's favour is that it has its own manufacturing facilities. It does outsource as well, but I understand that all of Apple's manufacturing is outsourced.

[Phil W]

Again @ Kevin,

Just checked and the N8 has 16GB internal memory and the C7 8GB internal memory. The E7 will have 16GB of internal memory as well. The C6-01 only has 340MB.

Now if the rumours of 4Million N8s being sold this quarter are anywhere near true and then factor in the C7 and potential E7 sales (not on sale yet I know). That suggests that Nokia's purchase of RAM will be pretty significant.

As I don't know any real numbers and the E7 is vapourware until it actually goes on sale, I won't make direct comparisons with Apple's buy, but I would suggest the advantage is not as much as some people think.

[KDT]

Phil,

When it comes to flash memory, Apple has been the number one consumer since the iPod Nanos became popular (around 2005). For 2010, (guessing on the 4th calendar quarter), Apple will sell:

About 45M flash based iPods - 2GB - 64GB
About 48M iPhones -- 8GB - 32GB
About 14M iPads -- 16GB - 64GB
About 1.2M AppleTV's - 8GB

And a wild guess, about 4M SSD equipped MacBooks -- 64GB - 256GB

[Bob Shaw]

In terms of cost of components advantage, Samsung I think would be ahead of Apple and Nokia. Samsung has a large base of smart phones and dumb phones but more important Samsung makes component for other vendors like Apple, Nokia etc. My understanding is that Samsung is the biggest manufacturer of Displays.

[Leebase]

Why all this talk of Apple needing to cut their prices? We all know that they could, but they haven't had too. Tomis is just wrong that the only way to succeed in mobile is to have the largest market share. That may be all THIS blog is about, but that's not the real world.

Apple does not compete in commodity businesses. Not with Steve Jobs at the helm. The first thing he did when he returned was cut a bunch of product lines (like laser printers and digital cameras) where Apple added nothing to what anybody else in the industry did.

Apple is competing against Nokia, but Apple is not playing the same game Nokia is. Nokia, compared to it's normal competitors, is doing great. But Apple, playing a different game, has taken a huge chunk of Nokia's potential profits.

The iPod, iPhone, iPod Touch, iPad, iTunes, App Store, iBook Store, Apple Tv, Macintoshes -- that is Apple's game. Apple has developed an end to end "virtuous cycle" of interrelated products that all are highly profitable and work to enhance the sales of each other. Even Macs have seen their highest levels of market share than ever due to this vitual cycle spilling over onto them.

I realize, that like it's outsized mega-profits are not what this board is about -- all but the iPhone are also not what this board is about. Ok. Fair enough. But without at least considering these things, folks will NEVER understand Apple's game plan and will continually make absurd proclamaitions about Apple's demise in mobile.

Examples of absurdity: predicting Apple would be victim of a blood bath in 2010. Evaluating iPhone's sales quarter to quarter when Apple has an annual product cycle. Calling Apple's profits "temporary profits". Even AFTER the year that was, holding out hope that Apple would indeed be categorized in the "victim of bloodbath" category.

Let us remember that the prediction was that Apple at peaked 3Q 2009 at 17%. Even if Apple's 4Q numbers fall short of 17%, that will not change the fact that Apple's 3Q 2010 was 20%. You can never use any other quarter of the year to judge Apple's peak than the 3Q, the one that follows the introduction of the latest Apple phone.

Lee

[Phil W]

Thanks KDT, I wasn't adequately considering Apple's other products. So apple wins hands down for RAM buy.

Bob, I knew Samsung would be up there with the others for that very reason.

I just wasn't happy with the blanket assertion by Baron65 that in cost terms noone could compete with Apple. Knowing that Nokia has long been held up as a model of inventory and supply line management and given the sheer volumes of the components it buys, it has to be up there as well.

The discussion here has set me straight me that Apple has a strong position as well.

It would seem that all three companies have their own particular strengths.

Thanks Kevin, KDT and Bob for the debate.

[kevin]

Phil,
The models you mentioned were a negliglible part of the 26.4m sold in Q3 and will be a small part the 30+ million smartphones Nokia will sell in the Q4.

What about all the rest of the S60 smartphones - C5, other E-series, other N-series, 67xx, 6210, 58xx, 5730, 5630, 5530, 5250, 5235, 5230, 5228, 3250, etc?

In any case, people more knowledgeable than me have said Apple is the largest purchaser of flash RAM in the world. RAM experts claim Apple's actions move the price.

[kevin]

Phil,
One other thing: Outsourced production in China often is cheaper than using your own manufacturing facilities, depending on where they're located.

Apple does a huge amount of business with about 3 or 4 contract mfrs in China. Apple's cost of goods sold in 2010 will be about $45 billion, so just getting 2% is almost $1B in revenue.

[kevin]

@Bob,
Samsung makes huge quantities of components; they make Apple's A4 processor. That's not the question.

Samsung operates each of their units separately - with revenues and profits associated. So how much does Samsung semiconductors, or Samsung display charge Samsung mobile for the chips and displays? If the semi unit gives mobile a better price than they give Apple or Nokia, semi takes the hit, not mobile, and risks that Apple takes their huge buys and A4 to Toshiba or someone else, to get as good a price.

Anyone know how Samsung operates?

[Phil W]

@ Kevin,

Yes I wondered about the logic of my comment almost as soon as I had written it. I was thinking the outsourcing company would be adding a cut onto the costs to make its profit. But that is flawed thinking as the point is that these outsourcing companies are huge and focused on one thing which means they can do things cheaper. If it wasn't cheaper then why is Nokia playing with outsourcing at all?

A bit silly on my part, thanks for the comment.