The T-Mobile REVVL, a smartphone created and marketed only by T-Mobile US, illustrates another new element of the firm’s strategy. Few tier-one U.S. mobile service providers in the post-monopoly era have had big success selling their own created devices, something that is true for fixed network providers as well.
We can argue about why that is so, but consumer electronics markets are tough, fast-moving, contain many elements of fashion and design and are volume-dependent. For all those reasons, it is difficult for a mobile carrier to create the right product and gain acceptance.
But there is one area where a tier-one carrier arguably benefits: when it is attacking incumbent service providers with a value approach, and looking for competitive edges. That is true for Reliance Jio in India, which markets its own designed phone, and now for T-Mobile US.
Value is the pitch in both cases. Reliance Jio has attacked the market with a “better network, much lower cost” pitch, and the 4G phone created and sold by Reliance is offered for “zero” cost when consumers buy certain service packages.
That value approach also is key to the T-Mobile US strategy as well. The introduction of its first phone will be designed to appeal to value-oriented buyers who want features similar to the high-end devices, but without the price tag.
And though it might not be a big driver, the shift into devices can be viewed as a way of moving up the stack in terms of value, as the share of internet ecosystem revenue to be claimed by devices could well be bigger than the share earned by internet access services, as a percentage of total revenue, by perhaps 2020, according to A.T. Kearney forecasts.
Just how big a value statement this is can be gleaned by expected retail prices for the coming Apple iPhone 8, which might list at retail for $1,000 or more (depending on memory). The T-Mobile US REVVL now sells for $125, purchased upfront, and even less on a monthly payment plan and the unlimited usage plan.
As with the Reliance Jio attack, the device sells for an order of magnitude lower than comparable devices.
That, in turn, fits with a larger trend within the communications business, namely a relentless trend towards lower prices per unit, over time, despite the ability of Apple to defy gravity.
In 2012, some would argue, ecosystem revenue was disproportionately earned by the access providers. Other estimates peg the device segment revenue as larger than access revenue since 2008. But few would dispute the argument that the share of ecosystem revenue earned by access providers has dropped over the last decade or so, with shares earned by content and apps, as well as devices, growing share.
Beyond all that, devices sometimes play a huge role in driving access subscriptions. Note for example the advantages AT&T reaped when it was the sole U.S. distributor of the Apple iPhone. When first launched in the U.S. market, the iPhone was offered exclusively on the AT&T network. By early 2011, after exclusivity had ended, AT&T still was benefitting from the period of exclusivity.
Nobody knows yet how big a deal the REVVL will prove to be, but it might be a huge stimulator of account switching to T-Mobile US, given the value (relatively high feature content, very low price).
For those of you who think developing market price trends are not relevant for developed markets, this launch argues otherwise.
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