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?"

Comments

Re:Perspective

[Cutting_Crew]

Yes, again, this is bad, why?

Sure, you have to front the $600 for the phone, but your monthly bill is now $20 instead of $80. After 10 months you're breaking even, and after the two years of the contract your're about $700 ahead, enough to pay for a "free" phone upgrade, and then it's gravy from there on out.

how is it $20 instead of $80. I thought your bill wasn't going down if you bought a phone outright or after your 2 year contract is over(your bill still doesnt drop, supposedly you have paid them back the subsidized portion.

Re:Perspective

[Tyler Eaves]

Because the carriers are forced to actually compete on price, since people can switch carriers at the drop of a hat. NO LONG TERM CONTRACTS.

Plus carriers only have to cover actual operating expenses, not making back the $500 or so that they "lost" from a heavily subsidized phone.

To give an actual example, a sample plan picked more or less at random, in the UK (Virgin Mobile)

600 minutes, 2500 texts, 2.5GB of data. 21GBP = ~$33.

A similar (but inferior plan) from Verizon in the US
450 minutes = $39.99. Add another $10 for 1000 texts (or $20 for unlimited), and another $30 for 2GB of Data.
Oh, and your're locked in for 2 years.

Re:Perspective

[drakaan]

Actually, it sounds like it's even worse than that.

...Nomura's McCormack said carriers feel the need to have the iPhone to maintain their market share. But to make money on the devices, he thinks they will have to raise rates or get tough with Apple on reducing the subsidy...

OK. Charge people more for iPhones or get tough with Apple, got it.

...The latter is practically impossible. So carriers have been gradually hiking prices. Over the past year, Sprint increased its smartphone rates by $10 a month, Verizon ended its unlimited data offering and New Every Two deal, and AT&T ended its unlimited plan and raised its prices by $5 a month...

...Wait, what? Yes. Carriers have been hiking prices, but across the board. So now I'm subsidizing the people who want iPhones because the carriers want iPhone users? And iPhone users increase market share but not profit? Am I in bizzaro-world?

The situation here seems to be that not carrying the iPhone is profitable, since the subsidy cost is so high, but carriers *feel* like they need to carry it because otherwise people who won't end up making them profit will complain and not sign money-losing contracts that cause price hikes for non-apple customers that *do* make them money.

WTF???