Is AT&T Paying Apple $3 A Month For Every iPhone Customer?

The details of AT&T’s (T) iPhone revenue sharing pact with Apple (AAPL) are secret, but one thing is certain: It’s bound to be lucrative for Steve Jobs & Co. Piper Jaffray analyst Gene Munster issued a research note Thursday that puts some estimates on the AT&T-Apple revenue sharing deal.

According to Munster, AT&T is paying $3 a month per every iPhone customer already with AT&T and $11 per month for every new subscriber. If you add that up over the 24 month contract it adds up for Apple, which is also making money on the actual iPhone sale.

For calendar 2007 this deal adds 2 cents a share to Apple earnings. In 2008, the revenue sharing pact adds 15 cents a share. And 2009 has the real bang: 58 cents a share added to Apple’s bottom line.

Munster writes in a research note:

We believe the monthly revenue sharing involves $3 per month for service and data fees related to all iPhone users, and AT&T gives Apple an additional $8 per month for iPhone customers who transfer service to AT&T in order to use the iPhone (see reviews, galleries).

While Munster’s analysis may be off a bit it makes a lot of sense. AT&T would pay less to Apple for migrating existing customers to the iPhone. Yet AT&T would have incentives to upsell customers so it could gain revenue on the data plan.

Apple reports earnings for the quarter ending June 30 on July 25. According to Thomson Financial, Apple is expected to report earnings of 72 cents a share on sales of $5.28 billion.

Comments

[David Lentz:]

It should be noted that all this hullaballoo regarding iPhone revenue will be difficult to prove, in the absence of documents or statements from either AT&T or Apple as to what their financial arrangements are. The decision to treat iPhone revenue according to a subscription model means the income will be spread out over time in the reporting of it, and exact sources will be difficult, if not impossible to ascertain.

But the Apple's revenue should speak for itself, as they have many business segments that are robust and growing nicely, and the company does not long tolerate product lines that are not sufficiently profitable (e.g. -- the rumors of the Mac mini's impending demise).

While Apple's stock valuation may bubble over from time to time, the company itself seems to be in rock-solid shape, and capable of continued strong growth for as far as the eye can see.

2007 Jul 21 09:22 AM

[jmmx:]

Interesting.

Does Munster say higher rates for all "new" customers, or only for "transfering" customers? Perhaps all new customeres are considered tranfers.

I would also like to know if he is counting in increased Mac sales in his numbers. IDC (I think it was) just reported 26% increased Mac sales. The iPhone halo effect added to the iPod halo effect should spure sales even more.

I think we are on a roll!

jmmx

2007 Jul 21 10:28 AM