3G iPhone Impact on AT&T and Verizon 14 comments
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The new 3G iPhone has changed the game plan for AT&T (T). AT&T is still the exclusive carrier in the U.S. and the iPhone comes with a 2-year plan, but AT&T will no longer be sharing subscription revenues with Apple (AAPL).
Instead, it would pay it upfront and offer the iPhone with a subsidy at an attractive $199 for the 8GB model, and $299 for the 16GB version. The subsidy ranges from $200 to $400 and is expected to hurt AT&T’s profits by $0.10 to $0.12 per share in 2008 and 2009.
However, AT&T will make up for this with a $10 per month increase in data plan rates and the increased sales, including, hopefully, new subscriber additions. Up until now, Apple has sold 6 million iPhones and with the 3G iPhone, it is easily expected to cross the 10 million mark in 2008.
In an earlier post we saw how the high-spending iPhone customers bring in an average $95 per month. AT&T could turn the subsidy into a strong marketing expense that gets them the cream of the high-spending cell phone customer base that the iPhone always attracts.
Although Apple wont be getting subscription revenue any longer, it still makes good margins, with Portelligent teardown reports suggesting a bill of materials of just $100 per phone.
With Verizon (VZ) announcing its plans to acquire Alltel for $29.1 billion earlier this month, competition in the wireless industry seems to be heating up. With this acquisition, Verizon will see its customer base going up to 80 million, compared to AT&T’s 71 million. AT&T would be losing its Number 1 position in the industry. The iPhone subsidy would seem like the right move in this scenario to catch up in subscriber-count. Verizon is also expected to be the exclusive carrier for Research In Motion's (RIMM) Thunder, which is supposed to be an iPhone competitor with touch screen and 3G features.
In addition, the iPhone subsidy is most likely to trigger another price war in the industry. Verizon would be under pressure to rival AT&T’s subsidy on Thunder. The Thunder is expected to be released in the third quarter and if it matches the iPhone price, AT&T might find it hard to take away Verizon’s customers, and will have to look elsewhere. Sprint (S) is likely to bear the brunt of it all.
It would be interesting to see who will emerge the winner in this race. The race between RIM and Apple spills over to their exclusive carriers, Verizon and AT&T. RIM has good track record of delivering strong products, so RIM-Verizon may offer AT&T-Apple a tough fight. What I also like about the situation is that there are at least two strong camps emerging, from which eventually consumers would benefit. Imagine how boring it would be if only Apple were playing in the major league?
AT&T is currently trading around $37 and has a market cap of $217 billion. The market is not reacting too well to its subsidy. Verizon is also trading around $37, but has a market cap of $106 billion.
Click here for a relevant Business Week article: "The iPhone’s Impact on Rivals"
Disclosure: None
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This article has 14 comments:
First off, Verizon has no such exclusivity agreement with RIM. I use a Blackberry on Sprint. You can get a Blackberry with T.
"AT&T is currently trading around $37 and has a market cap of $217 billion. The market is not reacting too well to its subsidy. Verizon is also trading around $37, but has a market cap of $106 billion."
Um... so what? Without shares outstanding, this is meaningless.
Actually, we didn't see any "HOW." We see a statement that they do - no justification for the claim anywhere.
In addition the euphoria of the iPhone has reduced much since the last years launch. It is still a great product, but trust me the Samsung Instinct, RIM and LG's new products are going to give a run for their money. Also Sprint is very agressively offering its $99 plan that is way better than anything AT&T or Verizon has to offer other than lots of in your face advertizing.
Actually, that trend is not a trend, but an event that has passed. You won't be able to buy an iPhone without signing up for service. Problem (from T's POV) solved.
"...trust me the Samsung Instinct, RIM and LG's new products are going to give a run for their money..."
I picked up a Sandisk Sansa a couple of weeks ago. It's a nice device; drag-and-drop, automatically arranges songs into menus based on tags, built-in FM tuner. And it has virtually no market share against the iPod. The iPhone has a cache that no other manufacturer will come lose to in the consumer market. The real test will be to see how much penetration into RIM's market AAPL can achieve.
"Also Sprint is very agressively offering its $99 plan that is way better than anything AT&T or Verizon has to offer..."
Well, sure - laggards often have lower prices. Sometimes it helps, sometimes it doesn't. In Apple's case, there have ALWAYS been lower priced options. PCs cost less than Macs. Zunes cost less than iPods. Wal-mart's online music store cost less than iTunes. What happens? Apple survives and thrives. Again and again and again.
Also, the average user doesn't pay close to $99/month. For many people, any plan that costs less is better. I'd sign up for the least expensive iPhone option, as would most cellphone users. AT&T currently averages $95 of recurring revenue from iPhone users - much more than their overall average.
Well - here is an interesting item:
"Ben Wood, director of research of mobile market watcher CCS Research, bullishly believes that Apple "is on course to smash its original target", predicting that the company will sell in excess of 30m iPhones over the next 12 months."
"Mr Wood argues that with its latest iteration, Apple has "taken an aspirational device and delivered it an affordable price point. The volume will be extraordinary." "
From:
www.telegraph.co.uk/mo...
WORST IS THE COMPETITION FROM ASIA, AND INDIAN-PARTICIPATING PHONE COMPANIES. IS RIMM BASED ON PARTICIPATION BY THE LARGE INDIAN POPULATION IN CANADA?
ANYWAY, APPLE HAS TO FACE STRONG COMPETITION.
"First off, Verizon has no such exclusivity agreement with RIM. I use a Blackberry on Sprint."
Yes they do. They actually have a lot of different exclusivity agreements with various carriers and their different devices. For example, the new 3G Blackberry Bold will only be available on AT&T at launch, and the Thunder (the one mentioned in the article), will be available exclusively on Verizon's network.
@User 191984
50% of iPhones are unlocked? Really? Where did you get that made up statistic? Neither Apple or ATT have released cold hard numbers on this, but recent estimates have put the percentage at about 27%.
Sorry, but I don't trust you, User 191984. Your analytic skills are blinded by price tags, as BS Detector has pointed out. Those who see Apple products as just hardware don't understand the Apple phenomenon, much less its customers. It's the overall experience that people purchase, which includes not just the hardware but also the software and the ease of use. The REAL ease of use, not some silly advertising bullet point that all hardware manufacturers claim. Apple's claims are the real deal.
For instance, I gladly pay twice as much for an Apple CPU because my time is worth money to me. LOTS of money. You look at a CPU purchase as a one-time investment; I see it as a long-term investment. You spend hours monthly, maintaining your cheapo Asian PC clone in an effort to thwart viruses, as if your time is worth nothing. I, on the other hand, have NEVER had to concern myself over such nonsense. Instead, I can spend my time doing my work rather than trying to keep this electronic "tool" oiled, greased, dustfree, and out of the sun.
So go ahead and buy your cheap junk hardware. I'm sure you'll be delighted with it. But Apple customers think on a different plane than you do.
@ User - Sorry, nothing I've seen to date that even comes close. All the manufacturers are on the bandwagon, offering bullet-points that would seem to compare their devices to the iPhone - "Touch Screen!" they cry, "Multimedia!".
But the proof is in the pudding - and there are infinite exercises to underscore this. Try asking the average consumer to change a setting on their BBerry. Most won't even know how to get into the "settings" area, let alone what 90% of the stuff in there is (WTF is a "Service Book" and why do I need a dozen of them, anyway?). There is not a task on the iphone, simple or advanced, that the average user can't figure out with 5 minutes hands-on the device.
"...but trust me the Samsung Instinct, RIM and LG's new products are going to give (Apple) a run for their money."
Well. Seems like you're not long Apple. As an exercise, post your comment on your fridge; date it; and then make sure you note the relative success of these phones and the iPhone this New Year's Eve.
IMHO Apple ought to be trading above 250 by then. Regards.
The word you're trying to use is "won't".
the real reason apple doesn't have virus problems is because hackers dont want to waste time writing code to attack maybe 20% of the computers in the US. hackers try to see how many computers they can infect with a virus...thats how the keep score.