The Apple (NASDAQ: AAPL) iPhone was supposed to help AT&T (NYSE: T) get wireless market share from its competition. That may be working, but AT&T is paying a price. As other carriers introduce new handsets of their own, AT&T has to keep significant subsidies for the Steve Jobs product.
According to Reuters, "The derivative effect is lower profitability in wireless for all the carriers," said UBS analyst John Hodulik, adding that the iPhone is selling faster than he expected, which is actually bad for AT&T's profitability in the short term.
Counter-intuitive but true. The iPhone was supposed to be a big financial help to AT&T but no one seemed to think about margins. The question is whether the financial strain of marketing the handset will hurt is sales longer term. If it becomes too much of a burden on AT&T and overseas carriers who market the new 3G version, some might make the decision to go to competing products which are more profitable.
Apple's business philosophy, which has worked until now, is it introduce extraordinarily good products and charge a significant premium for them. Let the customer demand Apple's products and let the middle man whether that is the retailer or cell carrier bear the burden. Jobs ends up keeping what may be more than his fair share.
Pushing for most of the profit may work in an expanding economy, but if Apple wants to push that model in tough times, the company may find it has fewer friends.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
10-21-2008 @ 11:58AM
pk de cville said...
"If it becomes too much of a burden on AT&T and overseas carriers who market the new 3G version, some might make the decision to go to competing products which are more profitable."
Duh! AT&T will take care of itself, if need be, but I believe ATT is very happy with the situation: Millions of 2 year 3G 'sticky' contracts.
All ATT needs to do is build out the best 3G network in the USA and the iPhone contracts will finance the billions needed for that network rollout. With a good 3G network ATT will flourish and their investment in Apple will place them in the leadership position for the next 5 years.
Sounds terrible for ATT, doesn't it?
10-21-2008 @ 4:09PM
KenC said...
DAM wrote: "The question is whether the financial strain of marketing the handset will hurt is sales longer term. If it becomes too much of a burden on AT&T and overseas carriers who market the new 3G version, some might make the decision to go to competing products which are more profitable."
Doug baby, haven't you been paying attention?!? AT&T does NOT market the iPhone. That's Apple's responsibility. Have you ever seen an AT&T ad that showed an iPhone on tv? Nope, nada, never.
11-06-2008 @ 11:05AM
chano said...
It is clear that, while DAM may be an editor at 247WS, he is no journalist. Apple products democratise the markets they enter. Who is the beneficiary of this process? The consumer. Carriers will sell whatever brings them cellular traffic. The iPhone is the premier portable surfing device. It may cost the carrier more in subsidies, but the traffic is where the long term profit lies. To bleat on behalf of AT&T is naive in the extreme.
In defence of my criticism of DAM's incompetence as a journalist, I am adding here his comments about Apple Macs compared to Microsucks Windoze PCs. DAM's comments are so clearly the carefully phrased words of a Microsucks shill, his lack of shame beggars belief. Here are his words, abstracted from another of his paid misinformation program, also posted on 247 WS btw:
No one understands how to use a Mac. It is much too complex and has nothing like the ease of use that a PC running Microsoft (MSFT) Windows does.
This is such a taintedly stupid assertion. Everyone in the world knows that it is Apple that proved that ease of use promotes use. This is the only reason why their products prevail against all others. You have to be a fool to believe that Windoze is easier touse than Mac OS X.
If DAM has any courage, I'd like to see him justify his paid for lies.