Apple may see royalties from Cingular subscriber growth
Apple could see added perks from its exclusive iPhone distribution deal with Cingular, such as royalty payouts for helping to grow the wireless carrier's subscriber base.
According to Citigroup Investment Research analyst Michael Rollins, the Cupertino-based iPhone maker could receive as much as $250 - $300 for each subscriber it helps lure to Cingular's network beginning this June. The payouts would likely come over the life of the service contracts and represent very high-margin revenue for Apple, he said.
Rollins noted that the deal would be similar to an arrangement already in place between Cingular and Radio Shack, where the electronics retailer earns roughly $300 in total for closing new service contracts.
Although the terms of Apple's exclusive deal with Cingular have not been made public, the wireless carrier may be hoping to leverage such an incentive program with Apple to help offset expected declines in subscriber growth over the next few years.
After rising by an average of 25 percent in 2004, 2005 and 2006, global mobile phone subscriber growth is expected to fall to 12.8 percent in 2007, according to a research report released this week by iSuppli. The firm said the slowdown will continue in the years to come, with subscriber growth dropping to 9.6 percent in 2008, to 7 percent in 2009 and to 5.7 percent in 2010.
"The slowdown in new subscriber growth and the deceleration in mobile-phone sales translates directly into deteriorating market conditions for wireless carriers," said Dr. Jagdish Rebello, director and principal analyst for iSuppli. "Carriers and their mobile phone suppliers need new strategies to counter the impact of this phenomenon."
With fewer new subscribers to be found worldwide, carriers such as Cingular are also expected to focus on squeezing more revenue out of customers by offering enhanced services such as Internet access, mobile television and music playback capability.
For iPhone subscribers, some of these added costs are likely to arise in the form of monthly Internet data service packages, which will be required alongside standard service agreements and the initial cost of the $500+ device.
According to Citigroup Investment Research analyst Michael Rollins, the Cupertino-based iPhone maker could receive as much as $250 - $300 for each subscriber it helps lure to Cingular's network beginning this June. The payouts would likely come over the life of the service contracts and represent very high-margin revenue for Apple, he said.
Rollins noted that the deal would be similar to an arrangement already in place between Cingular and Radio Shack, where the electronics retailer earns roughly $300 in total for closing new service contracts.
Although the terms of Apple's exclusive deal with Cingular have not been made public, the wireless carrier may be hoping to leverage such an incentive program with Apple to help offset expected declines in subscriber growth over the next few years.
After rising by an average of 25 percent in 2004, 2005 and 2006, global mobile phone subscriber growth is expected to fall to 12.8 percent in 2007, according to a research report released this week by iSuppli. The firm said the slowdown will continue in the years to come, with subscriber growth dropping to 9.6 percent in 2008, to 7 percent in 2009 and to 5.7 percent in 2010.
"The slowdown in new subscriber growth and the deceleration in mobile-phone sales translates directly into deteriorating market conditions for wireless carriers," said Dr. Jagdish Rebello, director and principal analyst for iSuppli. "Carriers and their mobile phone suppliers need new strategies to counter the impact of this phenomenon."
With fewer new subscribers to be found worldwide, carriers such as Cingular are also expected to focus on squeezing more revenue out of customers by offering enhanced services such as Internet access, mobile television and music playback capability.
For iPhone subscribers, some of these added costs are likely to arise in the form of monthly Internet data service packages, which will be required alongside standard service agreements and the initial cost of the $500+ device.
Comments
Apple could see added perks from its exclusive iPhone distribution deal with Cingular, such as royalty payouts for helping to grow the wireless carrier's subscriber base.]
I worked this out about 2 weeks ago and posted it.. as usual, Citigroup are late to the party, and yet again prove incapable of providing realistic estimates:
If Apple do have a revenue sharing arrangement with Cingular, and they do intend to sell 10m iPhones, then they will have to include guidance for such income in their Q-ahead numbers. If they get just $5/month per subscriber (which is about what RIMM get for their Blackberry email service from the networks), then as I've pointed out, that's 10m * $60 = $600m. That's pure profit - it will go straight into earnings - translating to about 40-50c in FY earnings in 2008/9 (or about a 15% boost to profits).
I can't stress this enough: 10m iPhones is a done deal or SJ wouldn't have mentioned the figure. That's $6 billion in revenue - about enough to add $1.50 to FY08 earnings - that's about 1 35-50% boost to profits - (or somewhat less if you assume a lot of those may be sold after the launch while still in FY07). On top of that, you can add another 50c from subscriber revenue sharing to FY08/09. So in total, the iPhone could be bringing in an additional $2 to FY08 earnings estimates - enough for a 65% earnings surprise for the year.
Its laughable - simply laughable - that this hasn't been more widely picked up in all the analysis. SJ would not just pluck anticipated sales out of thin air. Its a done deal, or as good as, or he wouldn't have mentioned it. Thus the earnings for FY08 are also a "done deal." You know what analysts are still estimating for FY08, having not adjusted their estimates after raising FY07 through the roof? A (sorry I'm giggling) 15% increase in earnings over FY07.
And that's if they only sell the expected 10m. What if they sell 15m? Or 20m?
Insane! I say a 60% earnings surprise for FY08 from here at a bare minimum. Possibly as high as 100%.
I'm really wondering how successful this little device is going to be. I think it could be successful but take a long time -- possibly longer than the iPod took -- to get widely accepted. At that point, however, Cingular won't be the only carrier in town to sell them, I bet.
I realize it doesn't really work that way, profit is profit, but...... damn. $300 per subscriber on top of $600 for the phone? I can see why Radio Shack might get a cut for acting as a reseller, but they don't make phones.
Also, are their any more ominous words than "With fewer new subscribers to be found worldwide, carriers such as Cingular are also expected to focus on squeezing more revenue out of customers....."
This is what lock-in does. Once the era of rapid expansion of the subscriber base is over, carriers have no incentive to try and attract customers with improved services or lower prices because movement between carriers is artificially restricted.
So instead they figure out ways to nickel and dime you.
I'm really wondering how successful this little device is going to be. I think it could be successful but take a long time -- possibly longer than the iPod took -- to get widely accepted. At that point, however, Cingular won't be the only carrier in town to sell them, I bet.
I disagree, this is going to take off in a big time. I predict 18M worldwide will happen long before 2008 comes to a close.
The media jumped on this so much that even my parents know a good deal about the soon-to-be-released iPhone. Hell, even SNL had an iPhone skit less than a week after it was announced.
I, for one, am going back to Cingular (a carrier I used and despised several years ago) and I'm finally getting a "smartphone" (something I've never really had an overwhelming interest to buy) all because of the iPhone.
PS: I'm going to the WWDC this year. I can finally see a keynote in person. Yee-F@#king-Haw for me.
I'm really wondering how successful this little device is going to be. I think it could be successful but take a long time -- possibly longer than the iPod took -- to get widely accepted. At that point, however, Cingular won't be the only carrier in town to sell them, I bet.
I don't know. If the exclusivity is truly five years as reported and if AT&T/Cingular sells as many as they seem to think they will, they will have every incentive to re-up the exclusivity with Apple at the end of five years.
This could either be a head start for AT&T/Cingular or the beginning of a longterm exclusive alliance; I wouldn't just assume the other carriers will be on board in a few years.
I disagree, this is going to take off in a big time. I predict 18M worldwide will happen long before 2008 comes to a close.
The media jumped on this so much that even my parents know a good deal about the soon-to-be-released iPhone. Hell, even SNL had an iPhone skit less than a week after it was announced.
I, for one, am going back to Cingular (a carrier I used and despised several years ago) and I'm finally getting a "smartphone" (something I've never really had an overwhelming interest to buy) all because of the iPhone.
PS: I'm going to the WWDC this year. I can finally see a keynote in person. Yee-F@#king-Haw for me.
The iPhone is more than only a mobile phone in the strictest sense I don't know if there really is a category for the iPhone. Its potential uses exceed current smartphones and is closer to the UMPC market. Except it does not literally take a desktop and shrink to a small device.
You've got to know that cell phones around the world are already more advanced.
There are different ways of looking at more advanced. A phone may have a lot of advanced features. But if you have to toggle through endless submenus and dialogue boxes to use much of its functionality, that makes using these advanced features an unpleasant experience. To simplify the actual use of the features that makes the over all experience of using the phone easy is just as important as the features themselves.
"The slowdown in new subscriber growth and the deceleration in mobile-phone sales translates directly into deteriorating market conditions for wireless carriers," .... "Carriers and their mobile phone suppliers need new strategies to counter the impact of this phenomenon."
I like how they describe the deteriorating mobile phone market condition as a "phenomenon" when actually it has a very obvious cause. The mobile phone service providers are crooks. Their contracts are full of hidden costs, their customer service is terrible (I am speaking of verizon and at&t) and their billing is equally confusing. They charge you for the "right" to move your cell number to a new provider. When I was with verizon, I had the service rep tell me point blank, that when I make a phone call to someone else's cell on my plan (had free mobile to mobile), between 9am to 9pm, they took that out of my anytime minutes - not my m2m minutes. If that isn't crooked, I don't know what is.
Money is tight, people are cutting costs out of their budget. They are tired of signing $50/mo contracts and getting billed $80+ a month. No "phenomenon" here.
There are different ways of looking at more advanced. A phone may have a lot of advanced features. But if you have to toggle through endless submenus and dialogue boxes to use much of its functionality, that makes using these advanced features an unpleasant experience. To simplify the actual use of the features that makes the over all experience of using the phone easy is just as important as the features themselves.
The other half of this is 'advanced to what user'? I still believe that Apple's strategy is not to 'take' part of the current smart phone market but to create/access a new easy-to-use smart phone market!! This market is potentially larger than the current smart market and, believe me, there are plenty of people out there that will pay $100's of dollars for something that they can easily use but these same people wouldn't put that money out for the current crop of phones.
The media jumped on this so much that even my parents know a good deal about the soon-to-be-released iPhone. Hell, even SNL had an iPhone skit less than a week after it was announced.
You're right. I was talking with friends (windows only users) over the weekend, and they were talking about wanting the new iPhone. Whether they buy one or not - I don't know. But I know that the *known* features of this new iPhone is enough for me to purchase one - even if it means I have to go back to at&t (rat bastards).
With that kind of money coming in from ATT I wish Apple had used a bit of it to moderate the price of the iPhone.
I realize it doesn't really work that way, profit is profit, but...... damn. $300 per subscriber on top of $600 for the phone? I can see why Radio Shack might get a cut for acting as a reseller, but they don't make phones.
Also, are their any more ominous words than "With fewer new subscribers to be found worldwide, carriers such as Cingular are also expected to focus on squeezing more revenue out of customers....."
This is what lock-in does. Once the era of rapid expansion of the subscriber base is over, carriers have no incentive to try and attract customers with improved services or lower prices because movement between carriers is artificially restricted.
So instead they figure out ways to nickel and dime you.
This is just speculation. People have to stop accepting speculation as fact.
We may never know if this is true. If we do, it will take months.
This report is lumping the iPhone to the fate of the general mobile phone market and its something quite different. The general feature phone market that gives away free phones with a two year plan is different from the smartphone market. The feature phone market is becoming saturated and will face a slow down, but the smartphone market has been growing are a faster rate.
The iPhone is more than only a mobile phone in the strictest sense I don't know if there really is a category for the iPhone. Its potential uses exceed current smartphones and is closer to the UMPC market. Except it does not literally take a desktop and shrink to a small device.
In what way is this more than a smart-phone?
My Treo 700p does everything this does except for WiFi. Being on Sprint, I can also watch live tv, should I be interested.
When I go to buy a program, and I have many, I don't have to get what is filtered through Palm. I can choose among thousands.
I also have two book readers, and keep about two dozen books on my memory card at any one time.
I won't argue the ergonomics of the iPhone, or the better screen, and hopefully, better keyboard, but that doesn't make it "more" than a smart-phone. jobs was very insistent that it be considered as a phone, not a computer.
I also use Sprints far faster data service.
Perhaps, sometime in the future, it will be different. But, we can only go by what we know, anything else is not valid.
I like how they describe the deteriorating mobile phone market condition as a "phenomenon" when actually it has a very obvious cause. The mobile phone service providers are crooks. Their contracts are full of hidden costs, their customer service is terrible (I am speaking of verizon and at&t) and their billing is equally confusing. They charge you for the "right" to move your cell number to a new provider. When I was with verizon, I had the service rep tell me point blank, that when I make a phone call to someone else's cell on my plan (had free mobile to mobile), between 9am to 9pm, they took that out of my anytime minutes - not my m2m minutes. If that isn't crooked, I don't know what is.
Money is tight, people are cutting costs out of their budget. They are tired of signing $50/mo contracts and getting billed $80+ a month. No "phenomenon" here.
Another cynic!
It has nothing to do with the fact that you don't want to spend any money for the services you want.
It has to do with the simple fact that as more people get cells, there are less people as a percentage of the population left who don't have them.
That causes a slowdown in growth. It happens in every area, not just here.
If something new comes out, and one person buys it out of a total of ten people, that's the minimum. when the next person buys one, it's 100% growth. When two more buy it, that's 100% growth again. But, if three more people buy it, the growth is now 75%, even though more people bought it than before.
But that now leaves just three more people. What happens to the growth rate? Even if you add an additional person to the number each year, the growth rate will be much less than before, and dropping.
There are different ways of looking at more advanced. A phone may have a lot of advanced features. But if you have to toggle through endless submenus and dialogue boxes to use much of its functionality, that makes using these advanced features an unpleasant experience. To simplify the actual use of the features that makes the over all experience of using the phone easy is just as important as the features themselves.
Insane! I say a 60% earnings surprise for FY08 from here at a bare minimum. Possibly as high as 100%.
And that's not including iPhone junior.
i don't know what smartphone you've used, but none that I've used had "endless submeus". But looking at who Apple is trying to attract with this phone, which I believe is the tech savy consumer, the price seems high. But it'll take the iPod route and get less expensive as the years pass.
But what is a 'tech savy consumer'??? Is it the 'geek' that can either already do everything or figure it out, or is it the 'savy user' that what to make use of the latest tech without have to dig down and do the equivalent of 'sudo make me a sandwich'. (And yes I know there is no command-line or sudo on the smart phone but its just hyperbole to get the point across) I think the later is what this phone is targeting. Users who could make use of this high-tech functionality but either don't want to, or don't have time to move up the learning curve on the current phones. This is always a hard market to appreciate for those who are the current tech users (and producers) because all the current actions and requirement seem obvious and simple to them.
Insane! I say a 60% earnings surprise for FY08 from here at a bare minimum. Possibly as high as 100%.
Nice analysis.
Of course, it is now not a surprise any more, is it? (Here's hoping analysts don't bother with posts in Ai! 8)
I'm really wondering how successful this little device is going to be. I think it could be successful but take a long time -- possibly longer than the iPod took -- to get widely accepted.
For a start every famous musician, movie star and millionaire will get one, not to mention most well known techies. That should be enough to get most of the planet at least interested in the device. Most people who own a Mac have an interest in the device too, and all owners of iPod's and phones might be; "look at this device". I think this iPhone will do alright.