Windows Phone's Secret Weapon: iPhone Carriers
Microsoft may be gaining a powerful set of partners to help Windows 8 become a success -- AT&T and Verizon Wireless, who need leverage against Apple's onerous demands for subsidies for every iPhone the carriers sell.
Computerworld reports that AT&T and Verizon are both eyeing Windows Phone as the smartphone platform they can promote to push back against Apple demands for high subsidies and royalties. (See also "Smartphone Face-Off: Seven Phones Put to the Test.").
Yankee Group analyst Katie Lewis wrote in her blogthat one reason that one reason that carriers including AT&T and Verizon are backing Windows Phone is that
"Mobile operators are sick of taking orders from Apple...iPhones are occupying an increasingly dangerous share of mobile operators' smartphone sales. In 2011, iPhones represented half of AT&T's smartphone sales, and now that Verizon has recently voiced a similar shift in sales, the companies' fears of an Apple takeover are growing stronger."
Tero Kuittinen, a mobile analyst and vice president of Alekstra, echoed that when he told the New York Times:
"There clearly is a danger now that iPhone is going to get a stranglehold of the U.S. smartphone market, and I don’t think operators are crazy about that."
The larger the share of the market that Apple owns, the higher the subsidies it can demand from carriers. Those subidies eat into carrier profits and fatten Apple's bottom line.
You'll likely be surprised at just how sizable those subsidies are. Computerworld notes:
Apple's demands for subsidies in order for a carrier to sell an iPhone are legendary. U.S. carriers heavily subsidize all smartphone hardware, primarily to entice new customers to buy a two-year service contract that costs more than $1,700 over that period. The iPhone 4S with 16GB sells unlocked from Apple for $649 (useful on many GSM carriers with a separate contract), but Verizon, AT&T and Sprint sell it for $199.99 with a two-year contract.
Beyond that, Computerworld notes, Apple also gets a portion of the monthly revenue that carriers get from each customer who buys an iPhone, and it's a hefty cut, as much as $600. And that number is on top of the subsidies for the phone itself.
Given all that, it's no surprise that AT&T and Verizon would see Windows Phone as a possible savior. Microsoft badly needs Windows Phone to succeed, and it also doesn't have the same leverage to demand high subsidies and monthly royalties.
Verizon is particularly interested in pushing Windows 8 phones when they hit. Reuters reports that Verizon CFO Fran Shammo hopes to use Windows 8 phones as leverage against Apple. He told the news service:
"We're really looking at the Windows Phone 8.0 platform because that's a differentiator. We're working with Microsoft on it."
If the carriers truly do get behind Windows Phone, that will be a big turnaround. They are notorious for doing a terrible job of promoting Windows Phone devices at their retail outlets. The phones often aren't prominently displayed, and the salespeople don't go out of their way to recommend them.
If Verizon and AT&T do make a concerted effort to push Windows Phone, it may finally breathe life into the struggling operating system. As the release of the Lumia 900 shows, Windows Phone devices are just as good as iPhones and Android phones -- but by itself, that's not enough.