----------
Over the course of the contracts I don't think they are taking that big of hit. You said they are making $150.00 profit on the phone. That's a lot of money. I would take that over the two years.
Got a tip for us?
Let us know
Become a MacRumors Supporter for $50/year with no ads, ability to filter front page stories, and private forums.
The iPhone is a nightmare for carriers
- Thread starter AppleScruff1
- Start date
- Sort by reaction score
----------
Over the course of the contracts I don't think they are taking that big of hit. You said they are making $150.00 profit on the phone. That's a lot of money. I would take that over the two years.
Well not exactly. You'll just end up losing more customers to AT&T/Verizon because of the iPhone.
Yet here we are 5 years later with higher plan pricing and gimped service. At least in the US our Mobile services are going backwards yets pricing is going up.
This is pretty shortsighted and frankly naive. Taking on the iPhone is probably one of the smartest things Sprint could have done if they have any hope of staying afloat.
If people want the iPhone, which the numbers say they do, and you don't have offer it, those buyers have to go elsewhere. Most people are not flopping between phone companies every year or two, so having the iPhone as an option potentially ropes most people in for a decent amount of time.
Sometimes you have to take a loss in order to gain in business. Sprint is making the gamble that the short term loss will work in their favor.
Heck, the increased revenues from the iPhone will likely please investors even if they are in the red.
They were likely going to do that anyway.
It is all a calculated risk. Tell you what, you call Dan Hesse and let him know he is making a big mistake. I mean, there is no way they could have done any math whatsoever, only you AppleScruff1, the great financial mind of our time is aware of the reality.
There are so many factors at play with a deliberate move where you lose money, but no lets fixate on the one thing: losing money by offering a device. That is obviously the ONLY thing that could possibly matter in the grand scheme of things.
The phrase "You have to pay to play" comes to mind. Having the iPhone makes sure people will at least come to your door, what you do when they arrive is up to you. Hell maybe you sell them an Android, but if that person was looking for an iPhone initially guess what? You would never have that chance.
And if that is all you can respond with, you aren't worth my time.
No need to be arrogant or condescending. I am simply discussing the article that this thread is about. Perhaps you missed that? It is stated in the article that the iPhone is hurting the carriers bottom line.
Some people are trying to explain the reasons for this. You're just not willing to listen. It's pretty nonsensical to simply say "but it's hurting their bottom line!1!!!" and then walk away, in light of the fact that carriers want the iPhone - some of them quite desperately.
The story just doesn't add up.
Last edited:
I read the article. I made my comments and questions based on the article. It has nothing to do with not listening. I walked away from nothing. Read the article. It said the iPhone is hurting their bottom line. I commented on that statement. Is that so difficult to understand? The rah rah Apple is great logic has nothing to do with my comments. And of course you don't understand that.
My apologies but I don't see much discussing from you. All I see is the same things from you over and over: losing money. A few moments of reflection would allow you to contrive numerous explanations for such a move.
Let's consider some other examples, granted from a company that is doing alright for itself. These examples are obviously slightly different, but lets focus on the similarity which is losing money on something they sell.
Amazon losing money on the Kindle Fire
http://www.csmonitor.com/Innovation...ses-money-on-each-Kindle-Fire-sold-on-purpose
In the case of the Kindle Fire, Amazon obviously went through the trouble of designing (ha), manufacturing and selling the device. Now, I am sure Amazon at some point before selling realized that they would be losing money on the device. Why then proceed to build it? Better yet, why not price it so they could at least break even?
The answer is pretty obvious, they want to sell more content. Be it books, magazines, movie rentals, music or apps. They expect that by having an affordable device, adoption will be high and contents sales will follow.
Amazon losing money on Prime
http://moneyland.time.com/2011/11/1...annually-per-member-…-and-its-a-huge-success/
Now, Amazon Prime. For those who don't know what it is, essentially for $79 a year, an Amazon customer gets free two day shipping and $3.99 one day shipping.
Decent deal for the consumer if they shop on Amazon a lot. But, sounds like it is a bad deal for Amazon as they are spending $90 for every $79 they receive. This is not the whole story of course. Offering a service consumers enjoy and want (fast delivery) ultimately leads to more sales, which the article notes.
Back to iPhone
Whether or not offering the iPhone will lead to increased profits is arguable. The track record hasn't been good thus far. I will admit carriers are in a poor position right now, a damned if you do and damned if you don't scenario.
The Article said:
Is this a problem, sure it is. However, not many carriers can expect to not offer the iPhone and expect to be a competitor. That is just the way it is. Is it bad for consumers? It sounds that way if they are increasing rates. What are the solutions? I would like to see you offer something here. How can this problem be solved?
Also remember, there is no quote in that article where someone actually says "the iPhone is a nightmare." That is of course the view of the writer, keep that in mind.
Maybe you should look at other articles instead of basing it off just one article. Maybe look at articles that talk about loosing money on a product but in the end it turns out to be one of the smartist moves the company can make. There are lots of them. Amazon, Microsoft, Sony (PS3 and the like) just to get the product out the door and into the hands of people.
Maybe look past the initial one year mark? Most business, not all mind you, look at the 3-5 year mark for a product. Seems to me, with $150 profit over the life of a two year contract multiply that by 17 million, that is a nice chunk of change. I don't know what else to tell you but you seem to be stuck on the one year mark or the fact that company looses money during the year. Look past it and that will tell you why a company wants product "X".
Something tells me you don't want to hear that. I know there have been several who have stated this.
Maybe there is no appeasing you when it comes to this business or this topic of discussion. Which is ok.
So explain to me how they are going to make money in the long run. I buy a truck load of watermelons for a dollar eachand sell them for .99. I sell nothing but watermelons and there is no other money stream besides watermelon sales. How many watermelons must I sell to make a profit?
The Amazon and XBox examples are a bit different. They are selling you a product at a loss in the hopes of selling you further content at a profit. The data service is the content for a cell carrier.
So explain to me how there is no money stream coming from a two-year contract for cellular service.
The money stream for voice service is there for all phones, not just smartphones. The article being discussed is specific to the iPhone. If the article isn't true or the data is not accurate, fine. Somehow my simple mind fails to see how Sprint losing a few billion dollars to carry the iPhone on a network that sucked without the iPhone and didn't have the revenue to improve it even without the iPhone is a good business move. And Verizon did fine for all the years that AT&T had the iPhone exclusive. They didn't go out of business or become irrelevant by not carrying the phone.
So you don't think that the iPhone:
- attracted any new customers to Sprint?
- got off-contract Sprint customers who were about to jump ship to enter new contracts with Sprint?
- got people still in their current contracts to upgrade and enter into new contracts with Sprint?
Really? I mean, maybe the iPhone is overhyped now and then, but I think you underestimate how many people have a distaste for AT&T and VZW.
Because they want 2 year contracts and people aren't going to sign them without a carrier subsidy on the device.
Well considering you are not selling a contract for each watermelon. This makes it kind of hard doesn't it?
Aren't cell carries hoping you buy again from them after they have made the money off of you for data usage, overages, text fee's etc..... $150 profit just off the contract alone not to mention all the other little items that are thrown in.
How many new costumers were brought in for having this phone? That has to help the bottom line no?
Why is hard to wrap around this idea?
$150 profit over the course of 2 years? That's not really making money, IMHO. Apple makes over $300 on each phone. I understand the principles of business and I know what a loss leader is. I understand what you are saying and I agree. But the article seems to be indicating otherwise. I have no idea if it is true or not. Only the carriers know for sure. And I think it is fairly safe to say that all of these customers would still be using a cell phone even if the iPhone never existed. The topic at hand was about the iPhone. I just questioned why anyone would sell it to lose money. If the article isn't accurate and the carriers are profiting well from it, then I have nothing to ask and I wouldn't have posted it or asked the questions that I did.
No the phone by itself for just one.... you are right, but there is 17 million or so phones that makes up for a lot of money!!!
There maybe some loss in the beginning but again, I have to wonder if they are seeing the projection of what having phone "A" means at the end of year 2-3-4-5 etc....
Good topic though.
I think it would be interesting to see some detailed figures, especially for AT&T since they've had the phone since day one. There should be some accurate information available for them and even Verizon now. Sprint hasn't had it long enough to see where things are heading. It would be nice to see net revenue for each of the major phones and see how they compared. Perhaps you're looking at it the same way the carriers do, small amount of revenue times millions of devices. I think my problem is that I think of it in terms of Apples profit and revenue. They make a huge profit on a huge number of phones sold.
I think the fact that the higher costs are getting passed down to the consumer is being over looked. Yes, Sprint, ATT and Verizon hope to make money from the iPhone but the way they are having to do that is by getting more money out of us customers by raising fees and/or reducing services across the board (not just for iPhone users). Unlimited Data on ATT and Verizon? Not any more and Sprint started adding a $10/line 'smart phone tax' last year. I know Verizon and Sprint's preferred member perks have either been killed or drastically cut back.
Sure, our monthly cell bills might be around what they've always been, but the value we get for that money isn't want it was just a few years ago. When I went from a Pre to an iPhone on Sprint my bill went up $10/mo for the same service, my $250 upgrade discount wasn't applicable to the iPhone, and the preferred member program I was a part of was cancelled at the end of last year. I understand why Sprint bet the farm on the iPhone but that doesn't change the reality what trade-off's have to happen to carry the iPhone.
Lethal
Sure, our monthly cell bills might be around what they've always been, but the value we get for that money isn't want it was just a few years ago. When I went from a Pre to an iPhone on Sprint my bill went up $10/mo for the same service, my $250 upgrade discount wasn't applicable to the iPhone, and the preferred member program I was a part of was cancelled at the end of last year. I understand why Sprint bet the farm on the iPhone but that doesn't change the reality what trade-off's have to happen to carry the iPhone.
Lethal
By eliminating the cost of the phone service, you are eliminating the major profit center for the carrier.
Put another way, without the iPhone, my wife and I leave (in our case, ATT) and go to a carrier that does have the iPhone. With the iPhone, we pay ATT ~$125 per month for two years. Is this really that hard to understand?
LTD said it best early on...people want the iPhone and will take their business to the carrier that has it. It really is that simple; classic razor and blades business model.
Wow. There is a lot of talking around the facts in this thread.
Every subsidized phone cost money up front. The iPhone just costs more up front for the carriers. (Estimates that I've seen are an extra $100 over competing smartphones. $4/month over a two year contract.) Adding more smartphone users (higher subsidies) is going to lower margins with any phone for the current quarter. None of the carriers are losing money on the iPhone over the two year contract.
What the iPhone does for carriers is add customers (or prevent defections), and, more significantly, convert feature phone users to smartphone users. Carriers make more on smartphones than they do on feature phones. Especially on those customers that stay beyond the 2-year contract!
----------
Just the customer's? Wasn't the original iPhone was actually cheaper over a two year contract than the iPhone 3G? After the price cut/credit, of course.
Every subsidized phone cost money up front. The iPhone just costs more up front for the carriers. (Estimates that I've seen are an extra $100 over competing smartphones. $4/month over a two year contract.) Adding more smartphone users (higher subsidies) is going to lower margins with any phone for the current quarter. None of the carriers are losing money on the iPhone over the two year contract.
What the iPhone does for carriers is add customers (or prevent defections), and, more significantly, convert feature phone users to smartphone users. Carriers make more on smartphones than they do on feature phones. Especially on those customers that stay beyond the 2-year contract!
----------
Just the customer's? Wasn't the original iPhone was actually cheaper over a two year contract than the iPhone 3G? After the price cut/credit, of course.
Here's another article that claims that the iPhone is hurting carriers profits and that AT&T has been hit the hardest. In parrt:
http://www.latimes.com/business/la-fi-iphone-blues-20120211,0,3110013.story
http://www.latimes.com/business/la-fi-iphone-blues-20120211,0,3110013.story