With the same subsidy? Or are you thinking of the consumer pay full price? If that is the case can't the consumer already buy the phone without a carrier attached but at the unsubsidized price?
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The iPhone is a nightmare for carriers
- Thread starter AppleScruff1
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With the same subsidy? Or are you thinking of the consumer pay full price? If that is the case can't the consumer already buy the phone without a carrier attached but at the unsubsidized price?
That's not a good model. That only leaves them 4 months out of a standard 2 year contract for profit. Also, I don't know about AT&T, but my carrier allows the upgrade price at around 18 months into the contract. They just got the iPhone a couple of months ago, so they may have changed that one. Still, those are very slim margins.
That doesn't make me feel very confident. "Is counting on" doesn't sound like they are certain of that. If the upgrades don't cut their costs in half, they are in big trouble and may well not make it.
I really wish we could follow the European model. Just let me buy a phone and give me a data plan. Sadly, most people in the US would never buy a phone that cost $500 or so.
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The best thing the iPhone ushered in for me was affordable and relevant data plans.
Prior to the iPhone arriving, I remember getting far less data on offer than we get now. Now I'm enjoying unlimited data for a very affordable sum and the iPhone has played its part with UK carriers in that.
For that, I am thankful for the iPhone.
The best thing the iPhone ushered in for me was affordable and relevant data plans.
Prior to the iPhone arriving, I remember getting far less data on offer than we get now. Now I'm enjoying unlimited data for a very affordable sum and the iPhone has played its part with UK carriers in that.
For that, I am thankful for the iPhone.
I'd argue the carriers are the main problem with the iPhone.
I'd rather pay full price of the iPhone and have the carriers increase service, improve value, and lower price to woo me (like most of the rest of the world), than be stuck in the Gillette razor model of the U.S. cell phone service provider industry.
I'd rather pay full price of the iPhone and have the carriers increase service, improve value, and lower price to woo me (like most of the rest of the world), than be stuck in the Gillette razor model of the U.S. cell phone service provider industry.
The carriers are supposedly paying $650 for the iPhone 4S and subsidizing $450 of that cost. If the consumer paid full price from Apple, like they can do now, they could choose their carrier of choice. Then the carrier would make it's profit from the service and wouldn't be "losing" money on each phone sold. If this were to happen, sales of the iPhone would drop like a boulder. Of course Apple has all the safe guards in place so that they don't get hurt at all. What I question is why a carrier would even want such a low margin phone that taxes their network so heavily?
How did the carriers let themselves enter such a lopsided business agreement? That is what makes no sense to me.
They're making profit the whole time. It just takes that long to ALSO pay themselves back for the loan they gave the customer for the phone. Different thing.
After it's paid off, of course, then they're making even more profit... and relatively few people leave after two years are up.
That's why it always makes sense to get an upgrade (assuming you're staying with your carrier as most people do) even if you just plan to sell it and keep using your old phone. You might as well get something for your money.
You can do that. It just makes less sense in the US if you plan to stick with a carrier for a while, since they're charging you for a subsidy whether you used it or not.
I gotta disagree as there will always be a niche for "dumb" phones, less feature phones.
E.g. my grandma only uses her phone for calling, she can't (doesn't want to learn) texting nor surf the web. What would be the benefits for her of a smart phone over something like this?:
Can't this be said for any phone that is subsidized? Almost every phone, not all, but a lot of them are subsidized, I wouldn't be surprised if their loses all around. If you were to say that about every phone, I think they industry would come to a stand still. I know I wouldn't pay 5-700 for any phone on the market. I don't care who makes it. Not going to happen.
I wouldn't be surprised if the phone generates the income off the contracts.
Ah, ok. That makes more sense. As much as I would like it, our different networks in this country mean that everyone can't just buy unlocked phones. That doesn't work with CDMA. My carrier is CDMA, and I would love to just be able to bring in my own device, since their selection sucks.
The article states that the carriers pay more for the iPhone than they do other phones. Apple doesn't sell to them wholesale. And a little know fact was when AT&T first got the iPhone, they had to pay Apple $10 per month for each iPhone in service for the duration of the 2 year contract. Why would a company fight to sell a product when the odds are stacked against them? I'd really like to know.
Maybe they saw something that will pay off rather big for them in the long run. Say two to three years down the road.
That deal was only for the first iPhone, which was sold the first year without a subsidy for the customer... because Apple took both the full retail price AND the allocated subsidy money.
You see, since we as customers were getting charged for subsidies in our plans anyway, Apple cleverly made a deal to take the monthly amount that would've normally gone to the customer in the form of a cheaper upfront phone payment.
ATT didn't care, since they already had that monthly percentage earmarked for subsidies. No extra skin off their nose. Just the customer's.
The reality of the situation is that Apple, because of such strong consumer demand for their products, is able to strong arm anyone they do business with (be it part suppliers, manufacturers or cell phone carriers) and their partners live on the hopes that the expense of doing business with Apple will eventually be outweighed by the profit/prestige of doing business with Apple. Whether or not this is sustainable for the long haul is the question. Welcome to the new Apple Tax.
Not to make this thread any more inflammatory, but this is basically the same thing Walmart does in the retail space. They squeeze their suppliers to the point of little to know profits.
W/regards to Sprint's CEO, does anyone expect him to not publicly be optimistic? I mean, do you actually think he's going to come out and bitch about the $15 billion hail marry pass to save the company? I don't think so.
Lethal
What was the "old" Apple Tax?
I guess the world has a pretty vivid and consistent imagination then. Or maybe its you.
AppleScruff1 said:
An iPhone costs about $900 (£700) unlocked. When I got my iPhone it cost £300 on a 24 month contract at £45/month. They cross sold me a sim free deal for my girlfriend with data, texts and calls for £15/month, meaning over the 24months they will make £1440 - £1040 at least prfot over the subsidy. On top of this I am likely to stay with my carrier (Vodafone uk) due to good customer service. This is a pretty simple profit for them, even taking into account other expenses. On the other hand, selling it unlocked leads and risk to the buyer, with no guarantee they'll splash out for a nice contract, and undoubtedly fewer people would be buying smartphones if buying unsubsidised phones was the standard.
But the article is stating that the iPhone is actually hurting profits, that is what I question. If people had to pay full price, sales of all smartphones would drop drastically. And the article also claims that carriers have had to raise rates due to the iPhone. The major beneficiary of all of this seems to be Apple. They make a huge profit selling an item to cellular carriers who make little profit on something that taxes their network. And they fight for the right to do so. Why?
Little profit in the beginning, but as the contract goes out, that same sale can be worth a lot more. No? So far it doesn't seem like AT&T has done much in the way of improving the overly saturated airwaves!
Just an observation and opinion.
Little profit in the beginning, but as the contract goes out, that same sale can be worth a lot more. No? So far it doesn't seem like AT&T has done much in the way of improving the overly saturated airwaves!
The iPhone required a $25 per month data plan for AT&T, $30 for Verizon. So for AT&T, $25 x 24 months = $600. Less the subsidized cost of the iPhone, $450, leaving them a profit of $150 for the two year contract. Verizon fairs slightly better with the higher data price. $30 x 24 months = $720, less the $450 leaving Verizon with a margin of $270. And Sprint looks even worse on paper due their $15 billion commitment to the iPhone.
I think it's fair not to include the phone service in the price comparison because the customer pays that regardless of whether they have a smartphone or not. I'm really trying to narrow it down to what the iPhone itself means to the carriers bottom line. Other smartphones have less to be subsidized so the bottom line will be somewhat better than with the iPhone.
As I have said earlier, Verizon did fine without the iPhone. Were they worried that they would lose market share without it? What is most important, market share or profit? Of course we all know the answer concerning Apple, it's profit. Why not the same with the US carriers? Why are they doing Apple such a big favor for so little in return? Apple makes more upfront with the sale of the phone than the carrier makes in 2 years.
I'm simply looking at it from a business point of view.
rough back of the envelope calculation here. assume:
- sub acquisition cost of $50
- AT&T (or Verizon, Sprint) subsidize $300 per phone
- 2 year contract
- using AT&T's iPhone plan as a rough guideline
isolating financial performance within a quarter (3 months) gives a very bad outlook. but starting 2nd quarter (or month 4), iPhone payback is met. so basically, if they had record iPhone sales Q4 2011 the results most likely won't be seen till Q1, Q2 or Q3 2012 depending on which month the customer bought the phone... or basically profitability lags a quarter.
keep in mind what this shows isolates iPhone as the only cost. there's a lot of other cost of sales (e.g. marketing, overhead, etc) that i ignored and large amounts of OPEX that's not considered here. this is only a service revenue picture... an upside one at that.
1. the CNN article takes the analyst's comments out of context. the iPhone "isn't good" for carriers is because it was the phone that spurred the huge CAPEX events in the telecom industry from 2010-2011... so yeah, Apple basically forced carriers to build a robust 4G network. if they didn't do it, some other phone would have. a bigger network means you hire more people. a portion of these new hires gets allocated as COS or OPEX, naturally your EBITDA margins get eroded. but also keep in mind, EBITDA is inclusive of OPEX, which is a reflection of how well a company can manage their costs...
2. all phone subsidies impede service EBITDA margins. especially if you isolate the scope to a quarter where record sales have occurred. one way to combat that is to drive more customer growth, but since America is pretty saturated now from a cellphone standpoint, then the other solution is the restructure voice/data plans... which they seem to have started.
3. good quarter in Verizon happened when people didn't buy iPhones... well yes, after they iPhone payback from Q1 and Q2 happens of course there will be a good quarter.
so to answer your question, from a business point of view iPhones/smartphones are critical to carriers because their revenue is driven by wireless service and not equipment sales. i think all carriers at this point have thrown their chips in the slot that says "HUGE MOBILE DATA GROWTH". having a good smart phone line up makes it easier to sell data plans because that's what most people are using smart phones for. so if carriers are going to shift emphasis from $/minutes to $/Gb... they best have the products necessary for consumers to take advantage of that otherwise nobody would pay.
- sub acquisition cost of $50
- AT&T (or Verizon, Sprint) subsidize $300 per phone
- 2 year contract
- using AT&T's iPhone plan as a rough guideline
isolating financial performance within a quarter (3 months) gives a very bad outlook. but starting 2nd quarter (or month 4), iPhone payback is met. so basically, if they had record iPhone sales Q4 2011 the results most likely won't be seen till Q1, Q2 or Q3 2012 depending on which month the customer bought the phone... or basically profitability lags a quarter.
keep in mind what this shows isolates iPhone as the only cost. there's a lot of other cost of sales (e.g. marketing, overhead, etc) that i ignored and large amounts of OPEX that's not considered here. this is only a service revenue picture... an upside one at that.
1. the CNN article takes the analyst's comments out of context. the iPhone "isn't good" for carriers is because it was the phone that spurred the huge CAPEX events in the telecom industry from 2010-2011... so yeah, Apple basically forced carriers to build a robust 4G network. if they didn't do it, some other phone would have. a bigger network means you hire more people. a portion of these new hires gets allocated as COS or OPEX, naturally your EBITDA margins get eroded. but also keep in mind, EBITDA is inclusive of OPEX, which is a reflection of how well a company can manage their costs...
2. all phone subsidies impede service EBITDA margins. especially if you isolate the scope to a quarter where record sales have occurred. one way to combat that is to drive more customer growth, but since America is pretty saturated now from a cellphone standpoint, then the other solution is the restructure voice/data plans... which they seem to have started.
3. good quarter in Verizon happened when people didn't buy iPhones... well yes, after they iPhone payback from Q1 and Q2 happens of course there will be a good quarter.
so to answer your question, from a business point of view iPhones/smartphones are critical to carriers because their revenue is driven by wireless service and not equipment sales. i think all carriers at this point have thrown their chips in the slot that says "HUGE MOBILE DATA GROWTH". having a good smart phone line up makes it easier to sell data plans because that's what most people are using smart phones for. so if carriers are going to shift emphasis from $/minutes to $/Gb... they best have the products necessary for consumers to take advantage of that otherwise nobody would pay.
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EXACTLY. Roughly 17 million AT&T customers use iPhones. If the bare-minimum cost of using an iPhone on AT&T's network nets AT&T $150 per phone (not including text messaging rates, or the phone plan itself), AT&T is making $5.1 BILLION in profit, every two years. That is $25.5 TRILLION dollars a decade. In profit, just off the data plan cost. And we all know that they make profit off the minutes, and the text messaging. It is a no-brainer. You sell the phone that the most people want, and your install base goes through the roof. You're making a hefty profit off of the phone, even if you had to give up a lot to begin with. Which is why it is called an INVESTMENT. These companies are not slowly fading into oblivion. They are taking deep cuts entering the ring, but turning around and making money hand over fist.
How many people are willing to fork up $600+ for a phone up front?
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IMO, Sprint needs to be more competitive. I'm not paying more (or equal) money to Sprint than I would to AT&T for less coverage, slower (almost nonexistant) speeds, and less features. I'm not going to. I know it'll be hard for Sprint and that they probably can't do much about it, but as a consumer, that's how I feel.
Pay more money for less machine because it was Apple branded. Used to be true years ago but not as much anymore (don't pay attention to *LTD* he's still rather new when it comes to Macs). Newly revised Macs are pretty price comparable but since Apple doesn't update as often nor typically lower prices the longer a Mac has been out the less of a deal it becomes. Take the current Mac Pros, for example. Very long in the tooth and no longer priced competitively, but when the new towers come out they will probably the same price, if not a bit cheaper, than a similar spec'd PC from Dell or HP.
Lethal
Not many, obviously. But if I was going to take a substantial hit on my profits, why would I even care if anybody bought one? Wouldn't I be better off selling products that increased my profits?