Slashdot Mirror
The iPhone Is a Nightmare For Carriers
New submitter HungryMonkey writes "According to the latest EBITDA numbers from AT&T, Sprint, and Verizon, the subsidies they have to pay Apple in order to carry the iPhone are drastically reducing their profits. From the Article: '"A logical conclusion is that the iPhone is not good for wireless carriers," says Mike McCormack, an analyst at Nomura Securities. "When we look at the direct and indirect economics that Apple has managed to extract from the carriers, the carrier-level value destruction is quite evident."' So one money sucking leech has attached itself to another money sucking leech?"
http://arstechnica.com/apple/news/2012/01/82-percent-of-atts-q4-2011-sales-are-smartphones-66-percent-are-iphones.ars
Yeah. 66% of AT&T's 4th quarter sales were iPhones. I was on Verizon for years, switched to AT&T only for their iPhone, and stuck with them only for their GSM capabilities worldwide. Sure, your margins are less when you offer a better service. Would you prefer no sales though?
So my android phone is subsidizing your iphone. Nice.
I can't see the problem with this. Phone carriers, internet carriers too since many seem to be doing both, should be dumb pipes. There's no dark side to that.
Don't carriers drop Apple? "We'll lose money on every transaction but make it up in volume" has nevevr worked.
Or, is it that profits are reduced, not eliminated? Value destruction means losing money, not reduced margins. Pretty important to distinguish. If they were losing huge buckets of money, we wouldn't see carriers clamoring to carry the devices. OTOH, selling at reduced margins at high volume can potentially be profit maximizing (e.g., Wal*Mart).
Its an expensive phone. Are Apple forcing them to give it away? sounds more like "Carriers business model is destroying their profits"
Apple drug these backward-ass bozos kicking and screaming into the modern phone era, so cry my a river.
When I think of the punitive overage changes these carriers have for data, roaming, SMS texting... It warms my heart to think of their financial discomfort.
For what we pay for cell service in the US we should have a state of the art infrastructure and widespread 4G access.
Carriers are crying all the way to the bank. Anyone selling the iphone has seen their sales jump as people ditch their carriers in a mad scramble to get the hottest phone on the market.
A story came out last week detailing that Apple is now one of the biggest phone makers on the planet. This is from a company who's primary market was computers. Clearly, they are doing something right if everyone wants what they are selling.
If the carriers don't like the iPhone, stop selling it, and watch all your business dry up. That's how the free market works, capitalist pigs.
If telephones are outlawed, then only outlaws will have telephones.
Which tells me it must make business sense to do so.
#DeleteChrome
Between 2009 and 2010, Verizon (VZ, Fortune 500) averaged EBITDA service margin of 46.4% per quarter. In the first quarter that the iPhone went on sale, that fell to 43.7%. Last quarter, when Verizon sold a record 4.2 million iPhones, its margin plunged to 42.2%.
Gee, margin "plunged" from 46.4% to 42.2%. It sounds like their profits have dropped from really, really obscene to just really, really obscene. I need to get out my tiny violin and start playing it for them.
Apple would BUY them at that point or just roll their own. Apple is sitting on a MOUNTAIN of cash.
Good-bye
How is this Apple's fault? The carrier needs to buy the phones from Apple, and they have a cost.
In order to get people to sign up for contracts, they give you the handset at a cheaper price, but you have them locked into a 2 year (or whatever contract).
If Microsoft (or anybody else) came out with the new Super Duper Happy Fun Phone that everyone suddenly wanted ... they'd be in the exact same boat. Because most people aren't going to pay the full cost of a new phone outright. Phones have always been expensive.
Subsidizing the phone cost is a loss leader, which is exactly what is happening. However, over the next two years, how much profits are they going to make by gouging people for the wireless service/bandwidth they've signed up for? I bet it far outstrips the cost of the phones ... it just happens that a lot of people are moving to those kinds of phones right now.
The problem is that the carriers have been unwilling to invest in their own infrastructure to keep up with growth, and now they're whining that the device that people want to have costs more than they can afford in one shot.
I fail to see why Apple (or any phone manufacturer) needs to come down on the price in order to ensure the carriers make money. They can raise the price they sell the phones for, or let another company do it and lose out on the potential business.
If the carriers are giving too much of a subsidy ... well, that's kinda their problem, isn't it? Apple never told them to give it away.
I'm betting the latest, shiniest phones from Microsoft, Samsung, Nokia, and pretty much everyone else are pretty damned spendy. If you give away expensive things, that's what happens.
Lost at C:>. Found at C.
The carrier subsidy on the Android phones, especially the fancy ones, also appears to be huge. An unlocked 8 GB Galaxy S2 at Amazon is $600, while a 16 GB iPhone 4S from apple is $650.
Yet AT&T charges $150 for the S II, and $200 for the 4S. So if the carrier subsidy is related at all to the gap between the contract price and no-contract price, the carrier subsidy for an iPhone is no worse than an Android phone.
So its probably not the "iPhone", but just the general trend to expensive smartphones compared with lower subsidy needed feature phones.
Test your net with Netalyzr
...the subsidies they have to pay Apple in order to carry the iPhone are drastically reducing their [insanely high, customer gouging] profits.
There, fixed that for you.
The NSA: The only part of the US government that actually listens.
That's a rent extraction - not economic value through gain in actual goods or services.
That's why there's a recession/depession - an economy leveraged on wealth-transfer over actual work.
It seems the "free market" wants to be a casino, not a merchantile exchange.
"Flyin' in just a sweet place,
Never been known to fail..."
Carriers shouldn't have any control over which phones work on their network. They should stop selling cell phones altogether.
Sell sim cards. Period. Offer some cheapo phones you don't really care about in your store. But make it obvious that users should really get the actual phone somewhere else especially if it's a smart phone.
AT&T used to sell or even rent land line phones in the early days. If you wanted a phone you had to buy one from the phone company. Today, if you want a landline phone you pick one up at practically anywhere for between 10 dollars for the cheap ones to 200 for the really fancy ones. That's what the wireless carriers need to do.
When they do that apple can't charge a fee anymore. It's just selling a phone. A bit of hardware. And the carriers aren't selling a phone. They're selling a data plan. Because I imagine that "minutes" are going to be a thing of the past at some point. At what point does it become more practical to just skype everything? Does skype cost the carriers more money then a regular phone connection? I wonder. They're obviously turning it all into data anyway. In any case, once all phones have internet the typical phone/voice connection becomes redundant. Just give everyone a data plan. People will stick to email and text most of the time to save on connection charges and that has to use much less bandwidth then a voice conversation.
Just sever the relationship entirely between phone and carrier. Sell sim cards. Then the carriers can anti trust apple or something if apple gets snippy about letting some carrier's sim cards work and others not.
I've decided to stop wasting my time responding to AC trolls/sockpuppets... so if you want a response from me... login.
. . .That was sales not actual devices active. In other words because a huge number of people updated their iPhone in that time period they sold more than Android did. It didn't change the US market share makeup. Apple is still hovering around 30% and Android around 50%.
The price to a carrier of an iPhone 4S is $600* or so.
The carriers sell the 4S for $200 with contract.
Instant $400 loss.
They do this because, over the course of a two-year contract, they'll make $1700 or so, at a minimum, in monthly charges.
The reason they're all posting losses is that smartphone sales are exploding, so they're all having to eat a lot of those one-time $400 sucker punches right now. As more of their customers switch from their $50 voice plans to $80 text plans, they will start posting profits again.
Effectively, carriers are investing heavily in smartphone hardware so that they can receive a payoff in data plan charges over the next couple of years.
* Apple charges $650 for a no-contract 4S; presumably the carriers get a wholesale discount, nobody knows exactly how much.
That's a rent extraction - not economic value through gain in actual goods or services.
You don't consider lending money or investing to be a service? I'd love to see the mental gymnastics you have to perform to square that one away.
In an information economy the intangible can become as valuable as the tangible, and 'actual work' can be performed on bytes, transforming them into some other non-random set of bytes, without coming into contact with the real world - all that is solid melts into air, but the air is still considered valuable. The distinction of rent from payment for labour is really quite a difficult one to make when you consider service to be labour, as many services (say setting up a website) could be considered simply owning the means of production and collecting rent from your users. Things have moved on a bit from 1848 when there was a far more clear distinction between those who laboured and those who had the means to hire labour.