Analyst report: iPhone Not Profitable for Carriers, some carriers disagree

Discussion in 'iPhone' started by Ntombi, Sep 8, 2009.

  1. Ntombi macrumors 68030

    Ntombi

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    Bostonian exiled in SoCal
    #1
    Interesting article on readwriteweb.com that I read through NYTimes.com

    Thoughts? I tend to side with the last paragragh; the truth is somewhere in the middle. I know I wouldn't be with AT&T if not for the iPhone, and they get their subsidy's worth from me. But I also know that they've spent tens of billions of dollars upgrading the system nationwide.
     
  2. freediverdude macrumors 6502a

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    Dec 26, 2006
    #2
    I agree that yes it costs iPhone carriers more in infrastructure, but I have a hard time believing they are losing money on millions of customers with $30 a month data plans. And I doubt that the majority of people who got iPhones previously had a $30 a month data plan like a blackberry, either. But that's just my opinion. I know I went from a prepaid el cheapo phone to the iPhone, because it was the first phone that I felt was worth paying the data charges for.

    Edited to add: And, yes AT&T is spending many billions this year on network upgrades, but that's because they know that the future of phones is with phones with data. It's not solely for the iPhone users. In the future all phones will be using a lot more data.
     
  3. kdarling macrumors demi-god

    kdarling

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    #3
    ATT did lose profit for the short term, something like 3/4 billion dollars put out in subsidies since launch. That's cash that's now drawing interest in the bank for Apple, instead of being used to beef up the network.

    ATT said it would take until the end of this year to start seeing those subsidies being finally paid off via customer plan income.

    As for the "benefits", of course carriers are going to put the best light on their decisions. Phrases like "best sales day" are empty of real meaning.

    It's also questionable as to whether the ARPU actually goes up, when they've had to spend billions increasing 3G network coverage.

    If the customers actually stick around for decades, that helps.
     
  4. nehunte macrumors 6502

    nehunte

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    #4
    Of course they're making money on the damn iPhone!! Who are we kidding here. They lose a lot of money on selling the device itself. But they're doing well on the data plans and texting plans. They just spent $38 billion beefing up infrastructure to better support the iPhone. AT&T has fought like crazy to keep the exclusivity of the iPhone. I HIGHLY doubt they'd fight that hard to hang onto a phone that is losing them tons of money. So, any notion that the iPhone loses the carriers money is ludicrous.
     
  5. kdarling macrumors demi-god

    kdarling

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    #5
    Yes, of course they hope to make money over the long run by getting people to switch to ATT and sign up for long contracts.

    In the meantime, spending $18 billion a year to improve and expand the network to handle more iPhone users, comes out to about $1600 per iPhone per year. (Simplistically assuming the upgrades are for iPhones)

    That's why ATT is desperate to hold onto exclusivity... because it will take a few more years to pay for the huge short term investments. Any users that leave for a different carrier, can't contribute towards that payback.
     
  6. Rodimus Prime macrumors G4

    Rodimus Prime

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    #6
    I can beleive that. The iPhone is not the cash cow everyone makes it out to be. It also makes since why Verizon said "thanks but no thanks" to the iphone. Verizon saw it for what it was worth and was not willing to give it up.

    On AT&T the iPhone has a $400 subsidies compared to a max of a $250 on other smart phones. That means AT&T has to basically pay apple a $150 more dollars for each iPhone it sells this on top of any extra revenue it has to share with Apple. On top of that the iPhone uses 4 times as much data as other smart phones which reduces the extra money made off the data plans even some more. Lets not forgot AT&T had to pay huge amounts of money to upgrade their network and they want the iPhone long enough to at least pay that off.

    I also see AT&T was short sighted in the subsidies on the iPhone and agree to such a huge one. It is only a matter of time before the other big players in Smart phones (RIM, Nokia and Samsung) say we want the same deal. They will start complaining about how they can not complete with the iPhone unless they get the same price deal. iPhone is a $600 phone which is $50 more than the Blackberry Bold and yet the iphone sells for a $100 less. Not exactly fair for Rim is it.
    When Apple leave AT&T with a carrier lock I can expect the subsidies cost to be reduced to go in line with the other smart phones so the iPhone would go up a $150 in cost and apple would lose its revenue sharing. Those are extra premiums AT&T pays to be the excessive carrier right now.

    What is the worse thing Apple could do pull the iPhone completely from AT&T then what is apple going to do. Verizon is the only other network that can really hold an exclusive iPhone deal and they already said no. T-mobile is not big enough and lacks any real 3G coverage. Sprint just does not have the network.

    Like it or not Apple still needs AT&T more than AT&T needs Apple.
     
  7. nehunte macrumors 6502

    nehunte

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    #7
    Why are you only breaking it down to just iPhones? They have more than just iPhones on their network. These upgrades are for the whole AT&T wireless community. iPhone customers may see the greatest use out of the expanded 3G, but the company is also putting towers up where there wasn't cell signal before, therefore expanding their calling area.

    I completely agree with you that AT&T sees the bulk of it's profit coming long-term with the iPhone. There's no arguing that point. But, I don't think they're losing money in the first couple years of an iPhone owner. They lose money on the initial purchase because Apple is insane and charges AT&T WAY too much for the phone. But, at $30/month for the data plus the texting charges that nearly every iPhone owner has, they're making the money up pretty quick. But once again, I have zero proof of this, so this comment is worth as much as you've paid to read it.

    EDIT: Saw afterwards that you mentioned you only talked about iPhones for simplistic reasons. Ignore my comment about that then.
     
  8. SFStateStudent macrumors 604

    SFStateStudent

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    #8
    "Apple's iPhone Not Profitable for Carriers?" I have to agree with this one, b/c Verizon, Sprint and all those other non-iPhone carriers are on the outside, looking in.....:p
     
  9. FearNo1 macrumors 6502a

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    #9
    Good point. The question is whether at+t is willing to pony up more $$ to keep iphone exclusive...assuming the rumor of the contact expiring soon is true...

     
  10. Rodimus Prime macrumors G4

    Rodimus Prime

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    #10
    Real question will be if apple pushes to hard. AT&T might say no. Not worth it and raise the iphones price so to speak. More reduce its subsidy to $250 like the other smart phones.

    All Apple could do is pull the iPhone from AT&T but then were would it go?

    Verizon is not going to pay the same deal as AT&T and they might only be willing to offer up a $300 subsidy and no revenu sharing

    T-mobile - very limit 3G and limited network
    Sprint - limited network and they can not afford the same subsidy AT&T gave so no go there.

    If anything AT&T might want to take back more on the excursive contract because they feel they gave Apple to much.

    Lastly remember the carriers do talk among each other. They all know what the others are planning and have a good idea what the deal AT&T and Apple have.

    I am going to laugh when people here start bitching and moaning about the iPhone price jumping $150
     
  11. CalBoy macrumors 604

    CalBoy

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    #11
    I'm not so sure about the claim that iPhones aren't good for business. Even if ATT doesn't make a great deal off of the data, there's still the fact that the iPhone line still needs a voice plan, and most likely a text messaging plan.

    Sure iPhone users may download more apps than other smartphone users, and we undoubtedly use the internet more overall, but we are also forced into paying a relatively high minimum. Many iPhone users, what with WiFi and their home networks, likely remain under $30 in usage even if they had a lower priced plan.

    ATT also has the advantage of being able to steal whole families from other carriers even if the other lines aren't iPhone lines (after all, it only takes one iPhone user to convert a family of four to ATT).
     
  12. Abyssgh0st macrumors 68000

    Abyssgh0st

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    #12
    Since when are subsidies count as "hidden fees?"

    That's when I stopped reading.
     
  13. Rodimus Prime macrumors G4

    Rodimus Prime

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    #13
    they do when they have to pay an extra $150-$200 then the other smart phones they sell. This is on top of any revenue sharing with apple they have to do. It could easily be that for every iphone a carier sells they have to pay apple $600-$800 per phone by the time it is replaced again.
     
  14. Abyssgh0st macrumors 68000

    Abyssgh0st

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    #14
    I know this. I work in retail.

    But it isn't a "hidden fee" to billion dollar corporations.
     
  15. Revelation78 macrumors 68000

    Revelation78

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    #15
    Really, because when I worked for AT&T there were plenty of phones that had a higher subsidy than $250. Would AT&T have offered the same price for the iPhone had it not been for Apple ensuring the generous subsidy, probably not. Initially, the price wold have been higher and actually reaching a lower price point within 6-10 months.

    And.. For the other guy that claims Verizon was "smart" enough to see that the iPhone would cost too much to carry - yeah right! Verizon didn't want to give up control of the handset to Apple. The very moment that the iPhone is fair game for other carriers, trust me, you'll see plenty of commercials advertising the iPhone on Verizon when it finally becomes available.

    Verizon will make concessions to Apple this time to get the iPhone. Anyone remember that Verizon survey last year that asked previous customers why they switched? EVERY question had the iPhone as a possible answer. Verizon is still kicking itself for not picking up the iPhone when it had the chance.
     
  16. kevink2 macrumors 65816

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    Nov 2, 2008
    #16
    I can see where the customer who upgrades the iPhone to another as often as possible will be much less profitable. But consider the new customer who came for the iPhone. He may decide not to upgrade to newer models later. Either stay with current one. Or get tired of it and get different phone. Many of these will just stay with iPhone. So profitability goes up later.

    At some point the iPhones will have to be cheaper from apple. Components go down in price.
     
  17. CalBoy macrumors 604

    CalBoy

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    May 21, 2007
    #17
    Isn't this precisely what ended up happening with the first iPhone? The initial price was $600 but by December of 2007 it had dropped to $400.

    I think that depends on what Verizon gets out of the deal. If Apple wants to retain ATT and pick up Verizon, Verizon has a much lower incentive to provide good concessions.

    It seems ironic that Apple can make more money off the iPhone when its user base remains restricted.

    Not always. Apple does tend to use the best equipment possible whenever possible. The Apple pricing model has never involved lowering prices but rather upgrading technology. The same seems to apply to the iPhone.
     

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