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Apple has cut prepaid distribution deals with Sprint’s Virgin and Cricket and the initial reaction is to dismiss the moves because few users are going to shell out the cash for an unsubsidized iPhone. On further review, Apple’s prepaid deals are likely just the beginning of a move to a new distribution model. Distribution 101 dictates that the more units you produce the lower the cost of goods falls. If you assume that Apple cuts more prepaid deals around the world it could harm rivals with just limited success. This case was made by Barclays Capital analysts on Monday. They were focused on Apple and its impact on carrier subsidies—a bane for wireless players—and what happens if the iPhone follows an open distribution model. Barclays analyst Ben Reitzes lays out the case: Our checks indicate that Apple’s deals with prepaid players (Sprint’s Virgin Mobile and Cricket) are likely only the beginning of Apple’s efforts to expand via partnerships into the open distribution and prepaid markets in the US and internationally. The mid-tier smartphone market has been the fastest growing niche of the smartphone market in recent quarters. The most successful vendors in the mid tier are Samsung, Nokia, Huawei, ZTE, and RIM. Much of the ~225mn unit mid tier smartphone market is at or below $200, and much of the ~1bn unit feature phone market is at or below $75. Even limited share gains (prudent given Apple’s $350-$400 price point) could eat materially into the growth markets for rival vendors. This could add $4.70 to our CY13 Apple EPS estimate of ~$54. The emphasis from Reitzes boils down to the midtier smartphone market and the total addressable market. For instance, Nokia has had success in the mid-range market as has Huawei. Today, Cricket is offering an iPhone 4 for $400 and an iPhone 4S for $500. Virgin is going with $549 and $649 for the iPhone 4 and 4S, respectively. IF there’s volume on these deals, however, those prices are likely to fall. Initially, there’s a mental hurdle to clear with this effort. Prepaid subscribers are often subprime credit material. How are these people going to shell out $400 or more for an unsubsidized iPhone? That said, Apple can leverage its brand and make inroads. If you assume all phones will be smartphones, Apple has a huge shot to get some serious volume. Here’s a look at the fallout in an open distribution iPhone game: Postpaid carriers. At least in theory, postpaid carriers—AT&T, Verizon and Sprint—could scream a little less about iPhone subsidies. Some customers would go the prepaid route. The only wild card would be Sprint, which is paying up front to distribute the iPhone. Apple. Clearly, Apple gets a larger total addressable market and can garner more volume. Rivals look over their shoulders. Samsung, Nokia, Huawei, RIM and ZTE all do well in the mid-tier smartphone market. These phones go for less than $200 a pop, but iPhone could be very disruptive if it can hit lower price points and be in the pricing ballpark.. We are high quality suppliers, our products such as China Nicd Nimh Battery Charger , China Carbon-zinc Batteries for oversee buyer. To know more, please visits Rechargeable Nimh Batteries.
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