The iPhone may be great for Apple (AAPL), but the huge subsidies it requires makes it terrible...

The iPhone may be great for Apple (AAPL), but the huge subsidies it requires makes it terrible for carriers, laments Nomura. Verizon's (VZ, VOD) incremental service margin easily outpaced AT&T's (T) until it began selling the iPhone, and AT&T's actually turned negative in Q4. Meanwhile, Sprint's (S) upcoming Q4 report is expected to show "over 800 bps of margin contraction."

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Comments (12)
  • mogando
    , contributor
    Comments (313) | Send Message
    What margin contraction? The carriers are raping people left and right with $20 unlimited texting and $30 data plans.... on top of the voice plan


    Sure the subsidy is way higher these days, but when you factor the 2-year contract, they're only subsidizing ~$19 per month for the iPhone, which is less than most data plans ALONE
    30 Jan 2012, 01:57 PM Reply Like
  • SA Editor Eric Jhonsa
    , contributor
    Comments (1167) | Send Message
    The issue is that the iPhone's average subsidy is a lot higher than the subsidy for most Android phones. The reason being that carriers can play Android vendors off each other to gain better pricing, but have no such option with Apple if they want to carry the iPhone.


    As a result, an Android user paying $70/month in service fees will likely be more profitable to a carrier than an iPhone user paying $70/month, even if they both paid the same subsidized price for a phone (say, $199). But carriers have decided this is better than the alternative (not carrying the iPhone), which would lead to subscriber losses.
    30 Jan 2012, 03:08 PM Reply Like
  • mogando
    , contributor
    Comments (313) | Send Message
    exactly... all those so-called flagship android phones that are on-par with iPhone 4S quality are frequently asking for $299


    but they also forget that iPhone users tend to be richer segment of the population, meaning more frequent international travel that generates roaming fees at obscene margins, so i don't think the ARPU of iPhone and Android are identical


    I have little empathy for the carriers for crying crocodile tears
    30 Jan 2012, 03:20 PM Reply Like
  • brendanguilford
    , contributor
    Comments (57) | Send Message
    "but they also forget that iPhone users tend to be richer segment of the population"




    "meaning more frequent international travel that generates roaming fees at obscene margins"


    This is in no way whatsoever a major concern in the telecom industry.
    1 Feb 2012, 11:57 AM Reply Like
  • muoio
    , contributor
    Comments (2924) | Send Message
    Try $600 per device....and there will be a new one in a year....


    You may be a bit is AAPL that is ripping you off.....not T, VZ, and S.


    When the consumer of this stuff realizes just who the bad guy is they may just turn in all those Iphones.....


    I am long on T and VZ....the day of reckoning is not far off.


    For everyone.
    8 Mar 2012, 03:02 PM Reply Like
  • Bizlitgroup
    , contributor
    Comments (4) | Send Message
    "This is in no way whatsoever a major concern in the telecom industry."


    Huh? I beg to differ. Data, features and other services are where carriers are making a killing on the subscribers willing to pay for such things.


    The bigger carriers want the "richer segment of the population" because they pay for the "extras" without whining. I can attest to the fact that the financially successful people I know have Apple products for the entire family (two to four iPhones, iPads for everyone, and those ultra thin/light notebooks).


    In contrast, my struggling friends (one couple making $360,000 annually, but with an elite grade school alone costing $25K annually, mortgage, 401Km etc., they don't have much money left over every month) have Android-based phones that may be a high end handset but they watch the monthly bill.


    AT&T is a good example of what Mogando says. When AT&T tried to acquire T-Mobile, it was well known that AT&T did NOT want T-Mobile subscribers as part of the deal.


    This was because T-Mobile customers are cheap, that's why they are with T-Mobile, what Deutsche Telekom likes to call "value conscious subscribers." AT&T did not want these people because it knew they would want the cheapest plans on AT&T and not buy any "extras."


    In fact, AT&T agreed with Deutsche Telekom, and it was OK with, an estimate that 8 to 10 million T-Mobile subscribers would NOT be signing up with AT&T on the acquisition being completed. Because AT&T wanted T-Mobile's spectrum and taking out a competitor (leaving it free to charge higher prices for services and extras), AT&T was clicking its heels at the thought of hiking prices. (Which it did anyway.
    9 Mar 2012, 01:06 AM Reply Like
  • CareerTrader
    , contributor
    Comments (2) | Send Message
    so dont use a cell phone...problem solved.
    14 Apr 2012, 02:31 PM Reply Like
  • johnofarizonaoregon
    , contributor
    Comments (291) | Send Message
    What kind of smartphone do you use, which is obviously not an iPhone?


    What price do you believe an iPhone should sell for, to allow profit to the manufacturer? Somebody has to pay the price or they won't be manufactured... I don't understand why you assert that Apple is "ripping ... off" anyone who chooses one of the phones they make, instead of a Blackberry, Android, etc.


    Apple was the pioneer to implement what most people want in a smartphone and all the others are busy trying to emulate what Apple did, while taking advantage of not having to spend the R&R money, as Apple did, developing from scratch.


    I've used Blackerry, Droid, and now iPhone and iPhone has been worth every penny and more, in comparison to the other experiences. The Windows phone will never tempt me, even if the cellular carriers were to subsidize it 100%.
    1 May 2012, 12:51 PM Reply Like
  • smartin619
    , contributor
    Comments (7) | Send Message
    Verizon benefits. I would have left for AT&T to get the iPhone 4.
    30 Jan 2012, 02:55 PM Reply Like
  • muoio
    , contributor
    Comments (2924) | Send Message
    They will all benefit not just VZ...
    8 Mar 2012, 03:05 PM Reply Like
  • Bizlitgroup
    , contributor
    Comments (4) | Send Message
    I've always said that getting the iPhone is a lousy business decision for a carrier. All a carrier is getting is the prestige of carrying the device, but the numbers sure don't work out.


    Witness Sprint who just got the iPhone. If I recall correctly that move cost Sprint $15 billion over four years, in guarantees to Apple, that is, what Sprint will pay Apple for the iPhone. That is INSANE.


    Poor cash strapped T-Mobile, it can't afford to pay that kind of money to get the iPhone. TMOUS certainly does not have that kind of coin, and Deutsche Telekom is losing money. Worse, on the acquisition failing, DT told TMOUS that daddy is NOT giving TMOUS any money, so TMOUS has to pay its own way.


    That means, of course, pappy is not about to give TMOUS $10 to $15 billion just to get the iPhone, especially since T-Mobile getting it would be a fourth top-four U.S. carrier getting it. As I said before, there's only so many iPhone customers to go around, and I think the iPhone's saturation point has been reached. In other words, T-Mobile, and even Sprint, getting the iPhone is not going to add to the bottom line all that much.


    Personally, I have said for the past year that by 2014 the U.S. wireless business model will vanish, the majority of people going prepaid. That will bring the end of handset subsidies, ridiculous data plan pricing (e.g., AT&T's artificially low $15 200MB monthly data plan that assures overage charges), and money-grab talk limits.


    The American consumer is wising up, they pencil things out at the beginning of a wireless deal and they see that a handset subsidy is no different than a $200 to $300 loan. Even the least sophisticated consumer figures out that it is not a wise financial decision to pay $900 to $2000 "interest" on that loan (the difference between a $45 Straight Talk prepaid unlimited plan and $110 AT&T plan with 2GB data and 450 talk minutes).


    Bottom line: Carriers won't have to worry about what handset subsidies are costing them. IMO the wireless business makes for a lousy investment until the shakeup ends and the dust settles.
    9 Mar 2012, 12:51 AM Reply Like
  • Saibus Research
    , contributor
    Comments (1184) | Send Message
    We disagree that the iPhone and smartphones in general are bad for wireless carriers. Here is our analysis:
    1 May 2012, 09:09 PM Reply Like
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