What Is Eating iPhone 3G!

According to an estimation, the overall cost of the 8GB iPhone 3G should have been around Rs 19,200 in India, which is Rs 11,800 less than what it is priced at now!

Saturday, August 23, 2008: Well, it did not take much for converting an Aha! into an Alas! for Indian iPhone fans. The job is well done by the two telecom operators, Bharti Airtel and Vodafone, by making the much craved iPhone 3G too expensive for most of the Indians to even think of buying one. Priced at Rs 31,000 for the 8GB model and Rs 36,000 for 16GB, the iPhone 3G cannot be digested by majority of Indians. But this is the price at which the two models are being sold in India, and that is getting much of the media attention in a negative manner. Everyone knows that India is a cost-sensitive country. Then what forced Apple and the partners, Airtel and Vodafone, to commit such a mistake and give a 'hooting' start to the iPhone in the country.

Well there is no doubt that it is one of the most revolutionary devices ever made. It has also changed the rules of the telecom world, and Apple deserves all the pats on the back, but too much of patting might give it a backache. A good toy it is, cool features it has but at the same time there has been so much written criticising the basic feature that the iPhone lacks. If that was written in ink, even the water of Ganges would be insufficient, so we are not going to waste any more disk space on jotting them down, you can read it here. What we are trying to find, based on independent analysis and estimations, is why is the iPhone so costly in India?

What the iPhone Costs To Apple
Apple’s second-generation 8GB iPhone 3G is expected to carry an initial hardware Bill Of Materials (BOM) and manufacturing cost of $173, according to a preliminary 'virtual tear down' conducted by iSuppli Corp. Apple mostly earns from hardware and less from services, so the margin between cost of hardware and price of the product plays a critical role in Apple's balance sheets. But the cost of electronics components continues to reduce so the cost of manufacturing on the iPhone will also come down. So it is expected that the initial cost of the iPhone will come down, if Apple doesn't add new hardware to it. There are slim chances of that, as the next iPhone 3G may also feature a 160GB hard drive -- thus giving Apple another hype tool to say the iPhone 3G is 160GB now!

Steve Jobs is well respected for his awesome talent in the design of the devices as well as finding way to keep those products as 'eye candies' for users. The kinds of interface and experience Apple devices give, one can easily call Steve Jobs the most innovative and charismatic wizard of the technology world and there is absolutely no match for him.

But everything returns to users. In India, users are not happy with the pricing of the iPhone 3G. However, we need to keep in mind that the price of other high-end phones is also in the same slab. Nokia N96, for example, is also priced at Rs 36,000 for 16GB model in India, but there is a lot of additional hardware in that; for example, the 5MP Carz Zui Lense and a secondary camera.

Going by the estimates of iSuppli, even if you keep the cost of software on board the iPhone 3G and other accessories as $100, the total cost comes to around $273, which means Rs 11,500 (at the today's conversion rate of Rs 42 per US Dollar) and if you include 30 per cent (approximately) of duties, the cost of the iPhone should be around Rs 15,000. Before you growl, let's make things a bit more complicated.

The device which comes closest to being the iPhone is iPod Touch. There are some differences between iPod Touch and iPhone 3G, and the difference includes phone capability (GSM chip), 2MP camera and some apps. The cost of the 8GB iPod Touch in India is Rs 15,000. Even if you keep the cost of the two hardware components and additional apps at around $100 (which according to iSuppli should be $17 for HSPDA digital baseband and $7 for camera), the cost of the 8GB iPhone 3G should have been around Rs 15,000 plus additional Rs 4,200 which comes to around Rs 19,200. So, where is the remaining Rs 11,800 going? That is the approximate cost of the iPod 60GB in India.

Who is eating in between: Bharti Airtel, Vodafone or Apple? This is one question everyone is mute on. However, a report published in CIOL says that Airtel has no say in the cost of the device and everything is coming from Apple.

US vs Indian Price
People are comparing the price of the iPhone 3G in US with that of India. Thus suggesting that it should have been priced at around Rs 8,000. This comparison is not fair. The iPhone 3G in the US and other countries is available on contract basis, and the cost is being covered by the services, which eventually ends up making it even more costly than a non contractual iPhone 3G.

It was quite clear that neither Airtel or Vodafone would want to burn their fingers or pockets by subsidising the iPhone 3G in India and then recovering the cost through services. If they keep the price low and expect the cost to be recovered by services, then you need to see the VAS market in India at mid level, which is not too much. The users who can not afford the present price of iPhone will not have deep pockets to avail such services, thus loss to operators. Also those who can afford those services, don't care much if its expensive, they would buy it for being in the elite group of iPhone owners. Also since there is no 3G service in India, the operators can not promise much on that front.

iPhone On Loan

Everyone is 'trying' to help you buy an iPhone. Now, even banks like ICICI, AXIS and Barclays are offering 'loans' for buying the iPhone 3G in India. In a country with per capita income of Rs 33,000, it seems quite disturbing to see banks offering 'loans' for a phone which costs Rs 31,000. These people who need 'loans' to buy iPhone may never be able to afford to but any application from App Store and keep on missing critical features like sending SMS to multiple users. Using the iPhone will not be anything less than a nightmare to them, especially when they learn that they can't even replace the battery on their own and will have to go to Apple and shell out something around Rs 4,000-Rs 5,000 to get a new battery.

Coming back to the point of subsidising the iPhone, the two operators would have learnt a lot from Reliance who swallowed a bitter pill by subsidising its phones and selling it at Rs 500. People bought it and then, threw it away. Reliance never recovered the cost.

So, the iPhone in India remains unsubsidised. Despite being available at non-contract cost, still there is a contract. You can only use Airtel or Vodaphone, with the iPhones you brought from their stores. So, while the operators get additional benefit of being the exclusive providers of iPhones, users get nothing but a big hole in their pocket, and what seems to be falling out of those pockets is the expensive iPhone 3G. As far as the price is concerned, it appears Apple is in control.

Who Is Eating iPhone In India?
But, why is Apple doing so? Has it failed to understand the Indian market or it wants its most hyped product to be kept away from the hands of the middle class users and put it in the hands of affluent users only. But, will the iPhone price be reduced in India after such a response from the market? And if we do expect some reduction in price, will the early buyers, who have already bought it, would get any compensation? If not, they must be praying, let the cost remains the same so that they could be amongst the few proud owners of the iPhone 3G in India. And that clearly opens room for Nokia to keep its dominance in the market. In a scenario like that, it would not take Nokia or other players to bring in some iPhone 3G killer in India, Apple and the partners are already doing a decent job of eating iPhone in India!

Courtesy: EFYTimes.com