iPhone: Necessary evil for carriers?

[legion125]

Interesting article on how the iPhone sucks the life out of carrier margins and bottom lines. Do any of you think the iPhone is worth it.

 

http://www.bgr.com/2012/02/08/carriers-hate-the-iphone/

 

Carriers hate the iPhone

 

Apple’s iPhone is the most profitable product offered by the most valuable company in the world. With only three iPhone models in its lineup, the Cupertino-based technology giant shipped more smartphones last quarter than any other vendor in the world. Carriers that sell Apple’s sought-after smartphone enjoy huge activation figures each quarter as a result, but activations and unit sales don’t necessarily paint a complete picture. In fact, according to some industry watchers, carriers hate the iPhone. Read on for more.

Wireless carriers trip over themselves to offer Apple’s iPhone, especially in the United States. Sprint wanted the handset so badly it was willing to guarantee Apple $15.5 billion over four years for the privilege of selling its sleek smartphone, and it certainly didn’t help matters much in the fourth quarter when Sprint posted a $1.3 billion loss. T-Mobile is still sour over failed negotiations with Apple, and the carrier has resorted to offering up free microSIM cards to iPhone users willing to come aboard and forgo 3G data speeds.

“A logical conclusion is that the iPhone is not good for wireless carriers,” Nomura Securities analyst Mike McCormack told CNNMoney. “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.” The site notes that Verizon Wireless’s EBITDA service margin has dropped from an average of 46.4% per quarter to 42.2% since the carrier added the iPhone to its lineup one year ago.

But the iPhone is a necessary evil for carriers that some expect to pay off in the long run. Sprint on Wednesday reported its best quarter in more than six years for net subscriber additions thanks to the 720,000 new postpaid subscribers who came to the carrier for the iPhone. Some analysts also believe carriers will eventually raise their price points on the iPhone; despite the handset’s high cost to Apple’s partners, the iPhone 4S currently starts at $199 on contract to the end user while the iPhone 4 is available for $99 and the iPhone 3GS is free on contract from AT&T.

Regardless of what the iPhone is doing to carriers’ bottom lines, it remains the best-selling smartphone in the world and it likely will for some time. Apple is expected to launch a completely redesigned iPhone later this year that will reportedly feature a unibody aluminum case, a 4-inch display and 4G LTE connectivity.

[S4GRU]

I think that the iPhone is definitely a double edged sword. It's apparent that Dan Hesse is aware of that too based on the flavor of the conference call today. But he sure played up the positive part of their relationship with Apple. He makes it sound symbiotic.

 

But we all know Apple is the real winner here. But hopefully, Sprint can find some way to win somewhat out of the deal. If they do, it's more in public perception and marketing, not in the financials.

[legion125]

I wonder if the the predictions of Sprint showing a profit from iPhone sales will actually materialize in 2015. I'm guessing it's when the contract with Apple is pretty much over. If that's the case, then the revenue will have to come from the plans sold. This would be a small margin if you include the subsidized cost of the phone itself. I'm I missing something?

[pyroscott]

There are a good percentage of iPhone users that don't upgrade every time a new model is available or even every time they're eligible

 

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[MacinJosh]

There are a good percentage of iPhone users that don't upgrade every time a new model is available or even every time they're eligible

 

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That's true about iPhone users. I knew someone who still had an original iPhone on at&t until last year when they finally got rid of it and got an iPhone 4 on Verizon.

[legion125]

I wonder where the crowds will come from for the iPhone 5? The 4s was such a crowd pleaser and so many were sold on contract that unless this next version is a "nuke" (Stealing a term from Hesse), I don't know what the numbers will be and will Sprint makes its quota. They still hace to sell a heck of a lot of phones for the next 4 years.

[MacinJosh]

The only way they could get the sales numbers they need is to adopt at&t's iPhone strategy; offer iPhone users annual upgrades. That worked very well for at&t for the iPhone 3G, 3Gs & the 4.

[pyroscott]

The only way they could get the sales numbers they need is to adopt at&t's iPhone strategy; offer iPhone users annual upgrades. That worked very well for at&t for the iPhone 3G, 3Gs & the 4.

And watch their loss margin widen with the massive amount they subsidize the iPhone? They need to improve their network and continue to offer unlimited data. If the iPhone 5 supports sprint's lte they will sell a lot of iPhones for upgrades and bring in a lot of new customers. That is, if network vision pans out. The loss of light squared will hurt them some, but they should be fine

 

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