iPhone and Cell Phone Market Dynamics

CNN Money offers a good breakdown of the current dynamics between cell phone carriers and cell phone manufacturers. It also discusses the options Apple may have in introducing a cell phone to the U.S. market, and how it may upset the current balance of power:

Today, phone companies heavily subsidize handsets in exchange for long-term commitments from customers. That Nokia phone you got for free from Cingular obviously cost the phone company something - probably hundreds of dollars - to buy from Nokia. Cingular, in the meantime, can make all kinds of demands of Nokia: It can ask for special packaging, prominent logo placement, etc.

Device manufacturers reportedly don't like this system in that it devalues their phone, and gives them less control on how to market its phone and accessories. The author feels that Apple's entry into the market could convince consumers to pay a premium for their cell phone.

As well, Apple has a retail presence already in place which could serve as a distribution channel for the mobile phones should they decide to offer their own mobile virtual network operator (MVNO) by reselling airtime from another carrier. While this concept of Apple as an MVNO has been primarily speculative, one UBS analyst reported last week that they "believe Apple could launch a branded wireless service in 1Q, purchasing wholesale network service from Cingular."

Finally, another option is one that was hinted at by Kevin Rose. The concept of an "unlocked" phone is more popular in Europe and Asia, but customers can buy a phone independent of service and buy service in the form of SIM cards from Cingular or T-Mobile. This concept, however, is less familiar in the U.S. and could introduce some confusion to the consumers.