AT&T Branding, iPhone and Revenue Sharing

[MacRumors]

GigaOM provides some details from UBS Investment Research from the latest AT&T investor meeting.

From it, we find that AT&T is going to be using the iPhone launch as a "branding event and increase its advertising around the product to cement the AT&T Mobility name in the market." Apple, of course, is expected to be marketing the iPhone aggressively as well.

The report also reinforces what was previously hinted at -- that the iPhone does not appear to be subsidized by AT&T. This means that AT&T may actually make a small profit margin on the sales of the iPhone.

This benefit, however, may be outweighed by the monthly revenue sharing that Apple reportedly insisted on. Exact amounts are not available, but a portion of the AT&T monthly subscription plan for the iPhone is reportedly going back to Apple. Depending on how much that portion is, AT&T could even see a decline in monthly revenue for each existing customer that switches to the iPhone.

Details are scarce, of course, and the article states that "revenue share might be different for new customers vs upgraded subscribers". Regardless, AT&T is certainly banking on attracting new customers with the iPhone launch.

[epochblue]

That's fine....as long as my iPhone doesn't say "AT&T Wireless" anywhere on it (not that I expect it to).

[PlaceofDis]

i still find it interesting that Apple is getting a part of the monthly cost. and i wonder if it has to do with some expense on Apple's side of things. Upgrade rollouts and such on their Servers? hard to tell. Apple is definitely shaking up the phone market like never before though.

[arn]

Originally Posted by epochblue

That's fine....as long as my iPhone doesn't say "AT&T Wireless" anywhere on it (not that I expect it to).

From what I read, Apple also made sure the terms allowed only on-screen branding... no physical branding of the device.

arn

[epochblue]

Originally Posted by arn

From what I read, Apple also made sure the terms allowed only on-screen branding... no physical branding of the device.

arn

I don't love the idea of on-screen branding either, but at least that wouldn't completely ruin the physical aesthetics of the device.

[nagromme]

Can you imagine the TV and media blitz that Apple PLUS AT&T will be bombarding us with? I already see a ton of AT&T ads and quite a few Apple ones. Combine the two and the remaining seven people who haven't heard of thee iPhone are sure to find out...

Originally Posted by epochblue

I don't love the idea of on-screen branding either, but at least that wouldn't completely ruin the physical aesthetics of the device.

Not so bad if it's just that tiny status line we've seen at top left. A big animated AT&T startup logo would be annoying--but I'd deal as long as it only happened on a true reboot, not every time you woke from sleep.

[milkmanamok]

Apple is providing direct customer support, and at their last quarterly earnings call they also highlighted an accounting change for the iPhone that they will be providing software updates, possibly even feature upgrades, on an ongoing basis.

Originally Posted by PlaceofDis

i still find it interesting that Apple is getting a part of the monthly cost. and i wonder if it has to do with some expense on Apple's side of things. Upgrade rollouts and such on their Servers? hard to tell. Apple is definitely shaking up the phone market like never before though.

[Max Payne]

So Americans pay for an unsubsidized mobile phone and they also have to pay for monthly fees to Apple. I think this is a rip off.

[dontmatter]

Originally Posted by PlaceofDis

i still find it interesting that Apple is getting a part of the monthly cost. and i wonder if it has to do with some expense on Apple's side of things. Upgrade rollouts and such on their Servers? hard to tell. Apple is definitely shaking up the phone market like never before though.

A couple of options I can think of. The cell phone industry is notoriously harsh on cell phone makers- phones are considered to be worth far less than they cost to make. Because of that it's hard to sell more expensive phones that actually make a profit and are distinctive. Clones come out fast and pressure to reduce prices is so great that a hip phone can't last long, because soon everybody will have one, etc.

Apple could be trying to boost the asking price for a phone to change this situation, while still getting money. Further, by keeping the price artificially high, they keep the phone exclusive, desirable, and thus, profitable, for much longer than would otherwise be the case. Apple sees the cell phone as a threat to the ipod buisness, so they've decided the good position to be in is to make music player phones themselves- but they want to keep the ipod's prices in these phones, not typical phone prices.

Another, much simpler option is that apple thinks people will use the iphone and it's web services more than AT&T thinks people will, and so apple sees more revenue from their portion of the service plan than the phone subsidy is worth, while AT&T sees the opposite.

[pgwalsh]

Originally Posted by Max Payne

So Americans pay for an unsubsidized mobile phone and they also have to pay for monthly fees to Apple. I think this is a rip off.

Apple will be supporting the applications and hardware and if you've read other rumers there will be ongoing additions to the applications. Money isn't generated out of their butts, so taking a bit of the service fee will help cover costs.

[Clive At Five]

This further goes to show how skilled Apple is at strong-arming "partners" into getting a fabulous cut from a deal. Not that I'm complaining or anything, but it's a bit of a bully-esque thing to do. The shareholders like it, I'm sure.

-Clive

[noriyori]

Originally Posted by dontmatter

The cell phone industry is notoriously harsh on cell phone makers- phones are considered to be worth far less than they cost to make. Because of that it's hard to sell more expensive phones that actually make a profit and are distinctive. Clones come out fast and pressure to reduce prices is so great that a hip phone can't last long, because soon everybody will have one, etc.

Apple could be trying to boost the asking price for a phone to change this situation, while still getting money. Further, by keeping the price artificially high, they keep the phone exclusive, desirable, and thus, profitable, for much longer than would otherwise be the case. Apple sees the cell phone as a threat to the ipod buisness, so they've decided the good position to be in is to make music player phones themselves- but they want to keep the ipod's prices in these phones, not typical phone prices.

good point. I don't think apple wants to see what happened with the razr, starting out as an exclusive "high-end" expensive ($300+) and now they seem to be giving them away with happymeals...

[05elstonc]

Arn do you have a copy of the UBS report? I would love to read the enitre thing.

[PlaceofDis]

Originally Posted by milkmanamok

Apple is providing direct customer support, and at their last quarterly earnings call they also highlighted an accounting change for the iPhone that they will be providing software updates, possibly even feature upgrades, on an ongoing basis.

totally forgot that they'd be handling support

[bretm]

Originally Posted by Clive At Five

This further goes to show how skilled Apple is at strong-arming "partners" into getting a fabulous cut from a deal. Not that I'm complaining or anything, but it's a bit of a bully-esque thing to do. The shareholders like it, I'm sure.

-Clive

Errrr no. Bullying would be someone like MS or Blackberry or Palm saying we want half the profits on usage of phones with our mobile OS on it, or we're not going to permit those phones to work on your system. The service providers would have no choice or lose customers.

Apple creates the newest most innovative thing out there and market's it's terms to a single provider, giving both companies a unique opportunity to stand out via good design and demand. That's not bullying. If the terms weren't profitable then they wouldn't be accepted and cingular would've told Apple to go pound sand. Apparently a few providers did.

[CoreWeb]

Originally Posted by dontmatter

Apple sees the cell phone as a threat to the ipod buisness, so they've decided the good position to be in is to make music player phones themselves- but they want to keep the ipod's prices in these phones, not typical phone prices.

That's a good point. $500 seems expensive for a phone, but not so much for an iPod. I wonder, if Apple did not introduce the iPhone, but instead introduced a high-end 4GB and 8GB widescreen iPod with WiFi internet access, widgets, multi-touch, and camera, etc (but no phone), and they marketed it as a high-end iPod... would $500 seem so high then? After all, iPods did once upon a time cost the same.

And the iPhone is that product, plus a phone. So on reflection, the price doesn't seem so high after all.

[iowamensan]

I remember when the first iPod Photo came out - it was $599. This phone price isn't crazy for first of its kind.

[tobor68]

i think a lot of people forget that the iphone isn't a phone. i'm sure most of the public will think of it as a phone purely because of the name. it is a handheld computer. think newton only cooler.

as far as revenue i'm sure apple is getting a percentage of the monthly that's comparable to the percentage at&t is getting on the hardware. at&t wouldn't sign on if they thought they were gonna lose money in the long run.

the one thing i think most people will overlook is that this device will be updated on a regular basis. what cell phone manufacturer actually updates their software for older phones? no one. that means the iphone will actually be cheaper in the long run for the consumer. a device is considered disposable if it's life is only 2yrs (which most portable devices are designed to last).

i've had the same sony ericsson t616 for 3-4 years and it's getting really long in the (blue)tooth. the software never fully worked with my provider (fido/rogers) the buttons are wearing out and sony's software only works on a PC. blech. (thank the maker for Phone agent!!)

i foresee people holding onto their iphones for at least 4-5 years. they may upgrade in 3 years but i doubt it. how long have you owned your ipod (if you have one)?

[j26]

Originally Posted by Max Payne

So Americans pay for an unsubsidized mobile phone and they also have to pay for monthly fees to Apple. I think this is a rip off.

That model would be likely to go down like a fart in a spacesuit in Europe.

People don't spend a lot on a phone, unless it's unlocked or prepay.

[voodoofish]

Originally Posted by dontmatter

A couple of options I can think of. The cell phone industry is notoriously harsh on cell phone makers- phones are considered to be worth far less than they cost to make. Because of that it's hard to sell more expensive phones that actually make a profit and are distinctive. Clones come out fast and pressure to reduce prices is so great that a hip phone can't last long, because soon everybody will have one, etc.

Apple could be trying to boost the asking price for a phone to change this situation, while still getting money. Further, by keeping the price artificially high, they keep the phone exclusive, desirable, and thus, profitable, for much longer than would otherwise be the case. Apple sees the cell phone as a threat to the ipod buisness, so they've decided the good position to be in is to make music player phones themselves- but they want to keep the ipod's prices in these phones, not typical phone prices.

Another, much simpler option is that apple thinks people will use the iphone and it's web services more than AT&T thinks people will, and so apple sees more revenue from their portion of the service plan than the phone subsidy is worth, while AT&T sees the opposite.

I think that's quite an american way of looking at things, and the fact motorola let their razor phone become so cheap meant they lost margins and are now struddling. for years nokia has kept it's most expensive 8xxx series (currently 8800 Sirocco Edition, which I don't think they make a US version of - it's an update to the 8800 which they did make a US version of) prices high - ie. they don't really fall over the product lifecycle. Even though the phones are heavily subsidised (£575 [$1,145] without a contract vs. £200 [$399] with an average price contract) the carriers still sell them. There are also far more Nokia N-series phones (which are the range full of multimedia and are generally expensive to buy without a contract) in Europe than American too and alot of carriers promote them heavily, presumably because they think lots of people will use the multimedia features to MMS one another and the 3G feature to watch TV/other services that the operators here try to sell but people don't generally want to buy.

So i think the idea of an expensive/feature rich phone is not necessarily so revolutionary, but perhaps the revolution is in bringing it to America, where consumers are more price sensitive? It will be interesting how Apple bring the model to Europe though - people here tend to be more willing to pay more for calls than the US but less for their phones - not that they want cheaper (as in cheaper without a contract) phones, just they want heavily subsidised phones, and because they often pick a network based on it, handset prices have remained low despite the operators trying to move to more US pricing (ie. handset less subsidised but lower monthly fees).

[rtdunham]

Originally Posted by bretm

...and market's it's terms to a single provider...

keep that up, and the nation's apostrophe supply will quickly be depleted.

[Xtremehkr]

I'm glad Apple is taking the steps necessary to make sure the iPhone is a success, but where are the updates to existing lines?

[Rocketman]

Originally Posted by Macrumors

This benefit, however, may be outweighed by the monthly revenue sharing that Apple reportedly insisted on. Exact amounts are not available, but a portion of the AT&T monthly subscription plan for the iPhone is reportedly going back to Apple.

Since *I* scooped this some time ago I say, "now what"?

Rocketman

4-25-07 Message #29
http://forums.macrumors.com/showthre...=299734&page=2

[strangelogic]

Originally Posted by voodoofish

So i think the idea of an expensive/feature rich phone is not necessarily so revolutionary, but perhaps the revolution is in bringing it to America, where consumers are more price sensitive? It will be interesting how Apple bring the model to Europe though - people here tend to be more willing to pay more for calls than the US but less for their phones - not that they want cheaper (as in cheaper without a contract) phones, just they want heavily subsidised phones, and because they often pick a network based on it, handset prices have remained low despite the operators trying to move to more US pricing (ie. handset less subsidised but lower monthly fees).

I think their concept is - this isn't a phone primarily. Others have said it, but it bears repeating. The now-familiar iTunes interface which will get everything you want back and forth to your advanced wide-touch-screen iPod which also has - email, web-browser, wi-fi, basic digital camera - and oh yeah, phone (400 minutes a month that I don't use - I use my tmo SDA and send/receive emails and the web browser at least as much as the phone features if not more).

Many people in this country have paid more for less usability -- in devices that were not even phones.

I personally look at the feature set, and if the build quality is there, and it's as easy to use as it looks - I think this is a bargain price for this device.

[spookje]

Who cares about the iPhone anyways. I dont want to depent on the thrills of Apple for the content of the phone. As long third party companies can't write applications or content in general for it. I am not having ANY interest in it.