Wow, iPhone Subsidies Make Device Unprofitable for Carriers

[CA]

By Tarmo Virki, European technology correspondent

HELSINKI (Reuters) - Heavy subsidies shelled out by telecom operators around the world to lure consumers to buy an Apple iPhone have done nothing to increase profits, and have even dented them in some cases, a research report showed on Monday.

"According to the research we have conducted on the operators, not one of these have increased their market share, revenue, or their earnings as a result of introducing the iPhone," Strand Consult says in the report.

"On the contrary, some operators have sent out profit warnings because of the iPhone," the Copenhagen-based wireless consultancy said in report scheduled to be published this week.

Cupertino, California-based Apple released its first iPhone in mid-2007, and it quickly became a consumer phenomenon thanks to its unique design and ease of use.

In its June quarter Apple sold 5.2 million iPhones. This compares to 268 million phones sold globally by all handset manufacturers.

But not everyone has profited.

"We have not found one operator which has created shareholder value with iPhone," Strand said. "When looking at the numbers we can't see the iPhone effect -- a lot of competitors are actually doing better."

AT&T Inc, iPhone's exclusive carrier in the United States, said in June its costs to sell the new version of the iPhone would be similar to those for the original 3G iPhone, which pressured its profits last year.

SingTel, Southeast Asia's largest phone firm, has reported falling profits due to iPhone launches, saying the iPhone alone hurt operating profit margin by 3-4 percentage points.

TeliaSonera, the top operator in the Nordics, has launched the iPhone with large marketing campaigns in all Nordic countries, but it has not helped it to boost market share or lift revenues per subscriber (ARPU) according to Strand's report.

TeliaSonera's ARPU in Denmark has declined from 212 Danish crowns to 168 crowns over last two years, twice the pace of ARPU fall of Sonofon whose ARPU in first quarter was 205 crowns. Its market share is unchanged from two years ago.

In Sweden TeliaSonera has lost one percentage point of market share in two years, and its the lowest ARPU carrier among top firms, with ARPU falling to 179 Swedish crowns in the first quarter.

Operators have heavily subsidized iPhones, hoping to reap benefits later, but as Apple moves away from exclusive deals operators are seeing their window of opportunity close, Strand says.

"Operators are definitely looking for alternatives to the iPhone that return more value back to the operator," said Frank Meehan, chief executive of INQ Mobile, a phone making arm of Hutchison.

Strand's report says other handset makers are starting to catch Apple, whose latest model is very similar to original 2007 iPhone, and noted several small operators have started to successfully court iPhone customers of other operators. (Reporting by Tarmo Virki; Editing by Rupert Winchester)

http://www.reuters.com/article/techn...57G3MX20090817
http://www.intomobile.com/2009/08/18...-carriers.html

In the report we take a close look at the 10 largest myths about the iPhone:

1) The iPhone drives data traffic into mobile operators networks
2) The iPhone helps operators attract new customers
3) The iPhone is good business for mobile operators
4) The iPhone is dominating the mobile services market
5) App store is a huge success that has revolutionised the services market
6) There is money to be made by developing applications for the iPhone
7) It is iPhone customers that are generating the majority of online mobile surfing traffic
8) The iPhone has a large market share
9) The iPhone was the first mobile phone with a touchscreen
10) The iPhone is a technologically advanced mobile phone

[XFF]

According to analyst consensus, AT&T expends about $375 in subsidies per iPhone sold. That's more than twice the subsidy typically provided to a new or upgrade-eligible customer. In addition, AT&T repeatedly made special exceptions regarding early upgrade eligibility for iPhone customers. It's not necessary. iPhone is popular enough as it is, there's no need for AT&T to hang out the giant carrot.

To me the solution is really simple: stop with the damn subsidies or at least bring them in line with the normal $100-$150 subsidies. In exchange, stop with the special treatment for iPhone, special data plans, special requirements, special MMS blocks, all that nonsense. Subsidize it like any other phone, charge for it like any other phone, and treat it like any other phone.

[cokeman73]

According to analyst consensus, AT&T expends about $375 in subsidies per iPhone sold. That's more than twice the subsidy typically provided to a new or upgrade-eligible customer. In addition, AT&T repeatedly made special exceptions regarding early upgrade eligibility for iPhone customers. It's not necessary. iPhone is popular enough as it is, there's no need for AT&T to hang out the giant carrot.

To me the solution is really simple: stop with the damn subsidies or at least bring them in line with the normal $100-$150 subsidies. In exchange, stop with the special treatment for iPhone, special data plans, special requirements, special MMS blocks, all that nonsense. Subsidize it like any other phone, charge for it like any other phone, and treat it like any other phone.

I couldn't agree more. Make the subsidity the same. Also quite forcing a data plan. Let the consumer decide & reap the data cost. Charge a monthly fee for visual voicemail if the data plan is not added. All these rules & requirements
make for bad business.
If it keeps going the way it is no carrier is going to want to sell the iPhone. Which may not be a bad thing. Let Apple sell the iPhone the same way they sell iPods.

[mulletwireless]

Did anyone pay attention to were the artical posted above was written? It appears to be from the heart of Nokia country! The iphone has made a lot of money mostly for Apple at the expense of the carriers. Now as they make the new generation of iproducts such as new mac with built in 3g data cards, new ebook type devices, and new ipods with data built in will make Apple a big player in the wireless business. But without Apple and the iphone were would handset be? They brought something new and other phones makers either reacted like Rim, HTC, Samsung, and Nokia or lost a lot of market share like motorola, Sanyo, and Sony Ericsson!

[FormerRuling]

. The iPhone drives data traffic into mobile operators networks
Certainly does for AT&T, given our own numbers
. The iPhone helps operators attract new customers
Almost the majority of new iPhone customers came from other carriers.
. App store is a huge success that has revolutionized the services market
Given that every single phone maker and their grandmother is trying to make an applications portal now I'd say at least someone believes it to be true lol.


And I don't even like the phone :\

[FL1134]

..iPhone is popular enough as it is, there's no need for AT&T to hang out the giant carrot.

To me the solution is really simple: stop with the damn subsidies or at least bring them in line with the normal $100-$150 subsidies. In exchange, stop with the special treatment for iPhone, special data plans, special requirements, special MMS blocks, all that nonsense. Subsidize it like any other phone, charge for it like any other phone, and treat it like any other phone.

What came first: the demand or the subsidy?

I couldn't agree more. Make the subsidity the same. Also quite forcing a data plan. Let the consumer decide & reap the data cost. Charge a monthly fee for visual voicemail if the data plan is not added. All these rules & requirements
make for bad business.

If it keeps going the way it is no carrier is going to want to sell the iPhone. Which may not be a bad thing. Let Apple sell the iPhone the same way they sell iPods.

I say let the carriers choke on that bad apple. Carriers have no business being in hardware. It is not surprising that the same terrible business strategy was replicated across the globe. Keep unprofitable subsidies high and force ridiculous data plans. Hopefully customers will start looking towards unbranded, unlocked handsets.

[RF9]

According to analyst consensus, AT&T expends about $375 in subsidies per iPhone sold. That's more than twice the subsidy typically provided to a new or upgrade-eligible customer.

The iPhone brought millions of first time data users to AT&T (coming from feature phones.)
$360 per year in data fees alone for one year. More if you count messaging plans for which people often upgrade to for the iPhone.

If a typical phone has half that subsidy and the person does not subscribe to data or pays for $10 or $15 data, then that's $0-$120-$180 per year in data.

I'm not sure the iPhone isn't profitable, at least to AT&T.

But I'm with you. Start treating it like a normal phone. Offer standard subsidies and stop the special requirements.

[RogerPodacter]

I don't really understand the actual article. It claims all these bullet points, but it just kinda says them as fact without proof or explanation. And hell i'm a nokia fanboy, but i certainly see how good the iphone is and what its done to the industry.

[Really_Annoyed]

What came first: the demand or the subsidy?

First gen iPhone was not subsidized. Thing sold pretty well, or so I heard.

I say let the carriers choke on that bad apple.

I see what you did there...

[CA]

I don't really understand the actual article. It claims all these bullet points, but it just kinda says them as fact without proof or explanation. And hell i'm a nokia fanboy, but i certainly see how good the iphone is and what its done to the industry.

To see the full report you need to fill out the form, there is a link in the second URL. But I'm guessing you won't like it and it might raise your blood pressure.

[RF9]

First gen iPhone was not subsidized. Thing sold pretty well, or so I heard.

It did. But when the iPhone 3G came out at $199 there was huge increase in sales. It's unclear to me how much had to do with the app store, exchange support, and 3G support, and how much had to do with price. I think both had a profound impact. I've also heard that the new $99 price point has driven a lot of new sales since June (though most of the time people are upsold to the 3Gs, when they came in for the $99 3G.)

[walkguru]

it only cost 175 bucks to make it.

[RF9]

But I think Apple sells it to AT&T for closer to $500? I think the carriers are the ones footing the bill here.

[walkguru]

wow thats just crazy!!

[RF9]

Apple is a high-margin hardware company. That's exactly what they do and why they have $5 Billion in cash in the bank. They don't do low profit margin.