AT&T is loosing money on the iphone big time

[djrobsd]

This is part of their press release

The company anticipates potential dilution to earnings per share (EPS) from this initiative in the $0.10 to $0.12 range this year and next, with a 2008 adjusted consolidated operating income margin of approximately 24 percent and a full-year 2008 wireless OIBDA margin in the 39-40 percent range. As recurring revenue streams build without any further revenue sharing required, AT&T expects the initiative to turn accretive in 2010.

So, this means that after all this hoopla, AT&T will not begin to realize any actual profits from the iPhone subscribers until 2010. Of course, by 2010, all the people who have iPhones now will want to buy the latest model and AT&T will again have to subsidize them, so I'm not sure where they are getting their assumptions, but I find it crazy that the deal is completely WIN for Apple, and loose for AT&T. Now wonder why Verizon told Apple to F* Off!

Of course, Verizon was foolish for doing so, since they will be loosing a lot of subscribers on July 11, including me, someone who has paid them $130 a month for the past 23 months. Yes, what a great coincidence, my 2 year contract is up on the same month the new iPhone comes out! YAY!

 

[gkarris]

Not really.

They are hoping to get more business with a subsidized phone. They will be getting more per month also since they don't have to share with Apple and the 3G Data plan is an extra $10/month over the EDGE plan.

 

[ert3]

You do realize that AT&T makes the money back pretty quick right?

also the general state of the US economy (or the perception of) I doubt that the iPhone is the only cause.

 

[benlee]

Your thread title makes no sense. You have no support for your argument. Why would they agree to a deal when, as you state, "they are loosing money big time"--so much so that someone who has no idea about our financial status says so."

They are likely to draw in: (1) new customers (2) switching customers (3) new to data customers (4) Those thinking of switching (5) $15 -$20/month more for existing iphone customers

It will take time for those numbers to come in and be accredited. They are a company who invests in the long term. Are they going to be up on July 11th? No. Are they "losing money big time"? NO.

 

[stateofmind]

$15 dollar increase in iPhone rates, should lessen the blow

 

[djrobsd]

Your thread title makes no sense. You have no support for your argument. Why would they agree to a deal when, as you state, "they are loosing money big time"--so much so that someone who has no idea about our financial status says so."

They are likely to draw in: (1) new customers (2) switching customers (3) new to data customers (4) Those thinking of switching (5) $15 -$20/month more for existing iphone customers

It will take time for those numbers to come in and be accredited. They are a company who invests in the long term. Are they going to be up on July 11th? No. Are they "losing money big time"? NO.

I don't need to make any arguement. Just go ask ANY of your friends with an accounting background. A dilution in earnings per share of 10 to 12 cents is HUGE for any large corporation the size of AT&T. AT&T's last year EPS was $2.06. Subtract 10-12 cents from that... Multiply it by 5,941,000,000 shares outstanding, that means a 712 million dollar hit on their bottom line just for the iPhone.

Pretty sweet huh? Check out GOOGLE for more helpful financial information.

And yes, I do understand in the long run that it could be a big plus for AT&T, but if you look at the hit for the next 2 years, that's VERY substantial! They are gambling, and I'm sure it will pay off, but what if, say 2 years down the line, Apple decided to open the iPhone to ALL carriers and not just AT&T? OOPS! Or, what if, 2 years from now, one of the other companies such as Nokia or Motorola get their head out of the sand and make an iphone killer? OOPS!

 

[.Andy]

AT&T certainly need to tighten things up.

 

[Love Juice]

data going up $10 and to get texts you have to pay additional $5. over a 2yr span of each contract, i think they will do just fine.

 

[benlee]

Pretty sweet huh? Check out GOOGLE for more helpful financial information.

If only GOOGLE helped out with common sense.

Your post said they were losing money big time. You made no mention of a short term scale when you said that. So your numbers do not mean anything outside of that context.

As the poster above alluded to, they are just shifting the cost over to the higher data costs. I'm sure this business model works much better for them ;as they know the iPhone draws customers to At&t to sign up for high cost data plans because Apple has sold them on it. It is like free advertising for At&t every time there is an iPhone commercial on.

They will gladly take the relatively small hit now for a likely big pay off in the not to distant future.

 

[FarSeide]

You are an idiot if you think that at&t did this knowing that they will lose money. They will make more than enough from all the new customers from Verizon, Sprint, TMobile etc and not having to cough up money to Apple for revenue sharing.

its all thought out and planned.

 

[djrobsd]

You are an idiot if you think that at&t did this knowing that they will lose money. They will make more than enough from all the new customers from Verizon, Sprint, TMobile etc and not having to cough up money to Apple for revenue sharing.

its all thought out and planned.

Again, it's all based on ASSUMPTIONS. The assumption that Apple won't go to those other carriers once their exclusive contract with AT&T is up (and something tells me it must be getting closer now that the revenue sharing model has been cancelled!), and also assuming that some other company like LG or Samsung doesn't come out with an iphone killer.

Another interesting thing to add to the mix is potential future lawsuits on the exclusive carrier agreements........ I know those lawsuits haven't held up in the past, but it's only a matter of time before someone figures out the perfect arguement and wins in court.

 

[agbot]

They are gambling, and I'm sure it will pay off, but what if, say 2 years down the line, Apple decided to open the iPhone to ALL carriers and not just AT&T? OOPS!

Um, Apple is only 1 year into a 5 year exclusive contract with AT&T.

Also, do the math, it's not that difficult. Over a 2 year contract AT&T will make more per customers with the 3G iPhones. The lower entry price (and to some degree the tighter policies to attempt to reduce unlocking in the US) will bring a lot of new customers in the fold. It's called Return on Investment.

With every single iPhone 3G AT&T subsidizes they'll get more than their money back over the life of the contract. Factor in SMS overages and all other late fee crap, and they'll make out even more per customer on the whole. If you cancel your contract early, you pay the outrageous termination fee. How can AT&T possibly lose a single dime per phone in that equation?

It seems like everything you are saying contradicts your rants against AT&Ts financial sense in this decision in the first place. Also, 2010 is only 18 months away (when AT&T expect this to start showing in the black).

 

[OzExige]

You are an idiot if you think that at&t did this knowing that they will lose money. They will make more than enough from all the new customers from Verizon, Sprint, TMobile etc and not having to cough up money to Apple for revenue sharing.

its all thought out and planned.

Crap!
I didn't even know you were allowed to call an idiot an idiot.
Have I missed something?