AT&T not planning to subsidize iPhone?

[AppleInsider]

Wireless carrier AT&T is looking to use next month's launch of iPhone as an important branding opportunity, but now appears unlikely to offer subsidies on the Apple handset, according to comments made during a recent AT&T investor gathering.

"There was a major focus on the launch of the iPhone, expected in late June (based on Apple’s latest comments)," John Hodulik, an analyst with UBS, wrote in a report following the financial meeting. "While the company would not answer the vast majority of our questions, we were able to infer a couple of new data points."

First off, said Hodulik, AT&T indicated that it plans to use the iPhone launch "as a branding event" and that it will also increase its advertising dollars around the product to cement the "AT&T Mobility" name in the market. The No. 1 U.S. wireless carrier added that it expects Apple to market the product aggressively through its own avenues, as well.

"We expect the wireless market to see increased competitive pressure with the
launch of the iPhone," wrote Hodulik. "Meanwhile, the company will increase advertising and handset subsidies on non-Apple phones to take back postpaid gross add share lost in [the first quarter].

At the same time, however, the UBS analyst said comments made by AT&T management led him to believe the carrier will not subsidize the cost of Apple handsets, as has been widely rumored over past few months.

"In fact, AT&T may generate a small margin on sales of the [iPhone] in its stores," he wrote.

Hodulik add that, "Management would make no comments [sic] on how the phone is activated in its own or Apple owned stores, suggesting that this may be done somewhat differently versus typical handset purchases."

Overall, the analyst said he walked away from the meeting believing that AT&T's revenue share with Apple could be a more meaningful portion of monthly average revenue per user than previously thought. He explained that this is possible given the "significantly better economics" AT&T should realize from iPhone subscribers, given the lower "churn" and cost of adding each user to its network with advertising and branding help from Apple.

"The main concern was the impact of a generous revenue share could have if a large number of iPhone subscribers were existing AT&T Mobility customers," wrote Hodulik. "While giving no details, management suggested this had been contemplated, leading us to believe that the revenue share changes based on whether the customer is a new or upgraded subscriber or that the economics are adjusted based on the actual numbers of each."

Lastly, the UBS analyst said, AT&T expects the Apple phone to help drive traffic into its stores where it will increasingly sell wireline products along side its wireless services.

[ View this article at AppleInsider.com ]

[syklee26]

if they are not going to subsidize it, then the least they can do is to give free internet connectivity.

[theveeb]

If not free then at least subsidize the data plan for 1 or 2 years. Full price for the iPhone and for the cell service doesn't seem like a winning combination.

[Clive At Five]

Is this not the very same news that we've been hearing from day one? What is not to understand about this?

Apple said no subsidies early on. I don't see why this is so hard for people to understand...



-Clive

[Restalot]

These wireless carriers are so addicted to the "free phone" drug it is only a matter of time before we see subsidies. We know there are over a million intrested buyers and I could see a few hundred thousand pay full pop to be an early adopter... then, with the other 800,000 are sitting around scratching themselves wondering if they really want to spend the money, AT&T will remember the good ol' days when they sold 200,000 phones in 10 days and they will offer some type of deal to get more people in.

As the old saying goes, there are only two factors in business... fear and greed. AT&T will be greedy soon enough to take some risks.

[MacCentric]

Especially at launch, there is no reason for anyone to subsidize the iPhone, I believe that demand will outstrip supply even at the unsubsidized price until after Christmas. Remember that three years ago, plenty of people were buying the RAZR at $500. I see the price of the iPhone coming down eventually just like the RAZR did, but certainly not until they can keep up with the significant demand that they will have. I believe that the iPhone will be THE hot Christmas present this year, and the June launch gives Apple just the right amount of time to ramp up production to meet the demand.

[desarc]

Originally Posted by MacCentric

Especially at launch, there is no reason for anyone to subsidize the iPhone, I believe that demand will outstrip supply even at the unsubsidized price until after Christmas. Remember that three years ago, plenty of people were buying the RAZR at $500. I see the price of the iPhone coming down eventually just like the RAZR did, but certainly not until they can keep up with the significant demand that they will have. I believe that the iPhone will be THE hot Christmas present this year, and the June launch gives Apple just the right amount of time to ramp up production to meet the demand.

exactly. it'll decrease in price as the supply increases and/or demand decreases. anyone who thought otherwise is completely ignorant to the absolute basics of sales, economy, and life.
[and i'm putting that lightly]

[freeny]

Ill wait till it gets a bit cheaper thanks

[Louzer]

Originally Posted by Restalot

These wireless carriers are so addicted to the "free phone" drug it is only a matter of time before we see subsidies. We know there are over a million intrested buyers and I could see a few hundred thousand pay full pop to be an early adopter... then, with the other 800,000 are sitting around scratching themselves wondering if they really want to spend the money, AT&T will remember the good ol' days when they sold 200,000 phones in 10 days and they will offer some type of deal to get more people in.

As the old saying goes, there are only two factors in business... fear and greed. AT&T will be greedy soon enough to take some risks.

Seems like no one here remembers that Apple is part of this equation too. Subsidies will happen ONLY if Apple approves the idea. Apple doesn't want the iPhone to become so cheap that ANYONE can get one.

And AT&T is not going to subsidize their data plans for Iphone users. The whole reason they subsidize the phone is because the real money is in the monthly fees.

[Ireland]

Two words; iPhone nano.

[physguy]

Originally Posted by Louzer

Seems like no one here remembers that Apple is part of this equation too. Subsidies will happen ONLY if Apple approves the idea. Apple doesn't want the iPhone to become so cheap that ANYONE can get one.

And AT&T is not going to subsidize their data plans for Iphone users. The whole reason they subsidize the phone is because the real money is in the monthly fees.

The only reason they wouldn't reduce the data plans for Iphone users (since they are saving the cost of a subsidized phone) is because, according to this report, they ARE subsidizing the phone through ongoing payments to Apple from the phone plan. I very willing to pay this type of subsidy if Apple will be the support agency rather than ATT. I've never gotten decent support for my phone from any carrier while I get great support from Apple.

[CREB]

AT&T will try to get as much money as possible on the services end in the way of fees...this I know. I cannot see Jobs surrendering very much control of the iPhone to a giant like AT&T. I find this relationship an interesting one that could potentially turn very sour owed to the very different corporate cultures at both companies. We shall see, but until the iPhone can be used with multiple providers it will never reach its full potential.

I will not be one of the early iPhone adopters (learned my lesson with years worth of Mac equipment), but will wait until after the carnage has happened (read several models later, and choice of provider).

[melgross]

I see some of the geniuses are out already.

Look guys, stop trying to find ways that this phone will be subsidized. Apple said that it wouldn't be. It's about time that you accepted that, and stop trying to find ways around it.

[JeffDM]

Originally Posted by Louzer

Seems like no one here remembers that Apple is part of this equation too. Subsidies will happen ONLY if Apple approves the idea. Apple doesn't want the iPhone to become so cheap that ANYONE can get one.

Sounds like an elitist a-hole tactic to me.

And AT&T is not going to subsidize their data plans for Iphone users. The whole reason they subsidize the phone is because the real money is in the monthly fees.

Part of the reason the fees are so high is because the phones are subsidized. So an iPhone buyer would be paying double whammy, paying for an unsubsidized phone AND paying the same fees as anyone else that has subsidized phones.

Originally Posted by MacCentric

Especially at launch, there is no reason for anyone to subsidize the iPhone, I believe that demand will outstrip supply even at the unsubsidized price until after Christmas. Remember that three years ago, plenty of people were buying the RAZR at $500.

Do you have any numbers? I don't know anyone that was that dumb to buy it at anywhere near that price. It was desirable, but a great many more sales happened when it was realistically priced, as it is now. I know the iPhone will sell pretty well, but I'm not following that herd, especially on the leading edge of a 1.0 product.

[CREB]

Originally Posted by melgross

Look guys, stop trying to find ways that this phone will be subsidized.

You are correct, and AT&T has no trade-up program for the iPhone for its existing users. This will be a "pay if you want to play" scenario. Period.

[TBaggins]

Originally Posted by Louzer

Subsidies will happen ONLY if Apple approves the idea. Apple doesn't want the iPhone to become so cheap that ANYONE can get one.

That's almost a non-issue right now. Even with subsidies, the iPhone will still be so expensive that Joe Average won't be casually tucking one into his front pocket and hollerin' "Ring 'er up!".

That's not to say that I think it'll be subsidized out of the gate (it doesn't really need to be), only that it wouldn't matter in terms of exclusivity even if it were.

Take a look at some of the high-end smartphones available now... they're subsidized, and yet still go for $400, even $500... and that's with a 2-yr contract. The iPhone won't be even close to cheap until Apple comes out with some midrange models of it, AND those get subsidized on top of it.

The whole 'exclusivity/image vs commodization/sales' thing is an interesting subject though. The usual model is 'exclusivity/high margins' early, and 'commodization/mass sales' later. That seems to deliver maximum cha-ching to a companies cash coffers, properly implemented, and no one seems to do it better than Apple in recent years. I would not worry.

.

[nagromme]

I'd MUCH rather pay full price for the phone once, and pay a lower monthly fee as a result.

Obviously, paying a high/"subsidizing" price each month AND then not GETTING the subsidy (paying full price for the hardware) would be a bad deal.

So I expect to see a lower monthly cost than someone pays who gets a subsidized phone. Which in turn will encourage more people to USE the optional (?) data services that make an iPhone shine.

If the iPhone is $499 is NON-subsidized, as we've been led to believe, then it is FAR from the most expensive phone out there. Nokia just came out with an $1100 phone that has a GPS but lacks a ton of other specs the iPhone has. Lots of other phones unsubsidized cost more than the iPhone. The people who got them "cheaper" can enjoy their monthly bill

[SpamSandwich]

Originally Posted by Clive At Five

Is this not the very same news that we've been hearing from day one? What is not to understand about this?

Apple said no subsidies early on. I don't see why this is so hard for people to understand...



-Clive

As far as I'm concerned, it makes sense to offer a premium product like iPhone at full price. Talk about exclusivity. It will remain out of reach for most people for a few years, giving it that precious aura of cool. I think they'll still sell their entire production run. iPhone has had more press than any consumer product in recent memory.

[mariofreak85]

Originally Posted by JeffDM

Do you have any numbers? I don't know anyone that was that dumb to buy it at anywhere near that price. It was desirable, but a great many more sales happened when it was realistically priced, as it is now. I know the iPhone will sell pretty well, but I'm not following that herd, especially on the leading edge of a 1.0 product.

I bought my razr over 2 years ago. I believe I paid $400, then I went back a week later to exchange it because it broke, and the price dropped to $300.

But I would have paid $500, I love to be the first to have the latest and greatest. For a month after I bought my razr everyone looked at me with awe whenever I pulled my cell phone out.

[SpamSandwich]

Originally Posted by JeffDM

Sounds like an elitist a-hole tactic to me.

Elitist? You're right. That's exactly the core market out the door for iPhone.

[melgross]

Originally Posted by JeffDM

Sounds like an elitist a-hole tactic to me.

So?

Part of the reason the fees are so high is because the phones are subsidized. So an iPhone buyer would be paying double whammy, paying for an unsubsidized phone AND paying the same fees as anyone else that has subsidized phones.

I don't see that as having much effect on the fees. Most people's phones are not that expensive. Even if a phone is listed at $300, the actual cost to the phone company is closer to $150, at first, and it goes down as time goes by. As most people don't end up with $300 phones anyway, this isn't a real problem. That phone ends up costing the consumer perhaps $100 after the subsidy, so it's only costing the phone company $50 for the subsidy. Spread that out over the year contract, and it cones to about $4 a month. Not that much. Spread it out over two years, and it's almost nothing.

After a year, you have to start paying $4 or $5 a month for extended warranty service if you want to be on the safe side, and many do. It's almost pure profit. Many people pay that from the beginning for loss prevention anyway.

The phone companies lose very little from the subsidies. It's a myth.

Also, people who buy the more expensive phones also tend to get data services and such, increasing the sales and profits for the company, and totally wiping out the extra costs to themselves of any subsidies.

If someone can prove that phone companies are losing so much on subsidies, link us to it.

Do you have any numbers? I don't know anyone that was that dumb to buy it at anywhere near that price. It was desirable, but a great many more sales happened when it was realistically priced, as it is now. I know the iPhone will sell pretty well, but I'm not following that herd, especially on the leading edge of a 1.0 product.

It was a very hot phone when it first came out. I remember a bunch of my friends buying them just before the price dropped. The price drop was considered to be a big mistake.

[TBaggins]

Originally Posted by JeffDM

Part of the reason the fees are so high is because the phones are subsidized. So an iPhone buyer would be paying double whammy, paying for an unsubsidized phone AND paying the same fees as anyone else that has subsidized phones.

There is definitely a lot of truth to that. Subsidies are never 'free', they're simply paid off over the life of the contract.

So, unless you're offered the option of paying less in monthly fees if you supply your own phone/buy one at retail price (and I'm hard-pressed to think of any carrier that does that), your best play is to take advantage of the subsidy, i.e. play the game.

Do you have any numbers? I don't know anyone that was that dumb to buy [the RAZR] at anywhere near that price. It was desirable, but a great many more sales happened when it was realistically priced, as it is now. I know the iPhone will sell pretty well, but I'm not following that herd, especially on the leading edge of a 1.0 product.

The RAZR was a huge sales hit for Motorola throughout its entire lifespan, until recently (now that it's stopped being 'cool' to have one/everyone has one/many other phone makers now offer thin phones). It's extremely likely that sales volume was greater once the price came down, but that was offset by the much lower margins RAZRs fetched once they went mass-market:

RAZR margins decline

"Motorola is having a relatively tougher time than other major phone vendors," Gartner Inc. analyst Todd Kort tells Unstrung, "because they are facing difficult comparisons with their performance of the last two or three years, when they were able to achieve substantial market share gains and strong profit growth based on the huge success of their RAZR line.

"Interest in the RAZR remains good," Kort adds, "but profit margins on the RAZR line have substantially declined." Motorola is now charging "a small fraction" of the $500 original price for RAZRs at launch.

http://www.unstrung.com/document.asp?doc_id=114953 (01/07)

.

[Restalot]

Originally Posted by melgross

I see some of the geniuses are out already.

Look guys, stop trying to find ways that this phone will be subsidized. Apple said that it wouldn't be. It's about time that you accepted that, and stop trying to find ways around it.

Not all of us are from the US market... in the US there is a concept known as MAP (minimum advertised price) which allows manufacturers to hold retailers accountable to retail prices they manage. In most other "free" markets worldwide (it's an irony the great capitalist economy of the US is not included) it is illegal (under competition laws) for the manufacturer to force the retailer to any price.

Ergo, we may well see this phone subsidized very early after launch, just not perhaps in your backyard.

[melgross]

Originally Posted by TBaggins

The whole 'exclusivity/image vs commodization/sales' thing is an interesting subject though. The usual model is 'exclusivity/high margins' early, and 'commodization/mass sales' later. That seems to deliver maximum cha-ching to a companies cash coffers, properly implemented, and no one seems to do it better than Apple in recent years. I would not worry.

.

It was the commodification of the RAZR that ruined the brand name. It's just what companies are NOT supposed to do.

Apple tries to avoid that as much as possible. I think they looked at what happened to Moto, and decided that wasn't going to happen here.

People have gotten used to subsidies, but Apple wants then to buy the phone for what it is, not for the discount.

As long as they are not trying to have this phone get a large marketshare, the strategy is fine.

[CREB]

Originally Posted by TBaggins

Subsidies are never 'free', they're simply paid off over the life of the contract.

Bingo! You win a free iPhone!

[melgross]

Originally Posted by Restalot

Not all of us are from the US market... in the US there is a concept known as MAP (minimum advertised price) which allows manufacturers to hold retailers accountable to retail prices they manage. In most other "free" markets worldwide (it's an irony the great capitalist economy of the US is not included) it is illegal (under competition laws) for the manufacturer to force the retailer to any price.

Ergo, we may well see this phone subsidized very early after launch, just not perhaps in your backyard.

Actually, manufacturers here can't normally force a retailer to hold a price. It isn't as simple as you make it out to be.

It wouldn't hold for phone companies anyway, because the phone is part of a package. The phone companies can divvy the costs up anyway they choose.

[TBaggins]

Originally Posted by CREB

Bingo! You win a free iPhone!

Sadly, I would not want one, even as great a device as it is.

Cingular/ATT's network is a mediocre (on a good day) where I live, and their customer service is legendarily snotty and incompetent. I'll wait 'til it comes to either Verizon or T-mobile... and I don't care if that's a long time.

.

[EagerDragon]

I currently have a Treo 650 with Sprint. Their data plan (all you can eat) is only 15 dollars a month if I remeber correctly.

Minutes are minutes regardless of phone so I expect the same price for that plan, but the amount of Internet access is likely to increase with the iPhone.

Anyone can answer: What does the data plan for AT&T/Cingular (all you can eat) cost for a similar (Treo/Blackberry) phone?

[CREB]

Originally Posted by TBaggins

Cingular/ATT's network is a mediocre (on a good day) where I live, and their customer service is legendarily snotty and incompetent.

Believe me I know all about what you are saying regarding AT&T...in more ways than one.

[timewarp424]

If they aren't offering a discount on the phone and aren't offering a discount on plans, I don't think it'll be quite as hot as they think. For sure it'll sell to a select few, but I think if this is the route they're taking, they are going to have trouble breaking into 1% of the market. A company can't charge full price for a phone and not discount the prices that are meant to take care of discounts. People realize that's quite the scam. I, for one, am starting to change my mind about buying one of these. Not because I don't have the money, but because I am not a fool to get completely to the ninth degree ripped off by "some cool, early adopters fee." You have to remember this is apple's first phone. They don't have the proven relability of say someone who has been making phones for quite the while. So, what worked for moto on the RAZR, might not work for Apple on the Iphone.

[physguy]

Originally Posted by melgross

I see some of the geniuses are out already.

Look guys, stop trying to find ways that this phone will be subsidized. Apple said that it wouldn't be. It's about time that you accepted that, and stop trying to find ways around it.

But this is where I'm confused. This quote from the report

Overall, the analyst said he walked away from the meeting believing that AT&T's revenue share with Apple could be a more meaningful portion of monthly average revenue per user than previously thought. He explained that this is possible given the "significantly better economics" AT&T should realize from iPhone subscribers, given the lower "churn" and cost of adding each user to its network with advertising and branding help from Apple.

indicates there is a 'subsidy' to Apple, its just not paid up front. In the total scheme this is still a subsidy in my thinking.

[desarc]

the iPhone will sell at whatever price.
why?

because EVERYONE has a cell phone. EVERYONE has or wants an iPod.
and people with no money max out credit cards to drop $400 on sunglasses, shoes, purses, etc.

because it will be a status-symbol object. the poor, huddled masses pick up any status symbol they can, no matter how far into debt it puts them. it's the american way.

there is an enormous demographic that doesn't know the difference between 3g, edge, hspda, gsm, cdma, and scsi. they will buy the iPhone because it will be [it is] cool.

for those of us who CAN afford it, work on macs all day long, and don't want to put a phone AND ipod in their pants pocket, it's a no brainer. i'll get an 8gb on day one as long as they're in stock. for those of you who think it's foolish to get a v.1.0 item, i'll get an upgrade in 2 years [or 1].

[CREB]

Originally Posted by timewarp424

If they aren't offering a discount on the phone and aren't offering a discount on plans, I don't think it'll be quite as hot as they think. For sure it'll sell to a select few, but I think if this is the route they're taking, they are going to have trouble breaking into 1% of the market. A company can't charge full price for a phone and not discount the prices that are meant to take care of discounts. People realize that's quite the scam. I, for one, am starting to change my mind about buying one of these. Not because I don't have the money, but because I am not a fool to get completely to the ninth degree ripped off by "some cool, early adopters fee." You have to remember this is apple's first phone. They don't have the proven relability of say someone who has been making phones for quite the while. So, what worked for moto on the RAZR, might not work for Apple on the Iphone.

The iPhone will be 2007's Tickle Me Elmo—it will sell like mad owed to cultural values versus what it initially has to offer. So goes marketing.

P.S. Motorola has the highest return, and dissatisfaction rate of any phone brand sold at AT&T.

[TBaggins]

Originally Posted by melgross

It was the commodification of the RAZR that ruined the brand name. It's just what companies are NOT supposed to do.

I think that's true to a point. Moto did drop the price too quickly and rode the RAZR marketshare horse too hard. They burned brand for short-term gain, and now its biting them in the arse.

But you do also have to look at the flip-side of it... if Moto hadn't commoditized the thin phone form factor, the Asian phone makers would've done it for them. Heck, even some of the low-end 'free' and near-free phones are thin now.

But, was Moto ahead of the commodization curve, more than they needed to be? Were they milking it? Yeah, they were.

Apple tries to avoid that as much as possible. I think they looked at what happened to Moto, and decided that wasn't going to happen here.

People have gotten used to subsidies, but Apple wants then to buy the phone for what it is, not for the discount.

As long as they are not trying to have this phone get a large marketshare, the strategy is fine.

As with the iPod, at some point Apple does start to play the commodization/mass market game. The only question is when and how do they play it.

However they go about it, I have no doubt they'll play the game better than Moto did, and they won't kill the brand. Stevie J is too smart for that.

.

[JeffDM]

Originally Posted by melgross

So?

Just calling it for what it is, that's all.

[solipsism]

Perhaps Apple is selling the iPhone at cost. At first this seemed very un-Apple until I recalled a previous AI article where Apple oddly was moving the AppleTV and iPhone to a 2 year subscription model.

"In order to account for the new features, Apple said it will document iPhone and Apple TV income through a subscription based accounting model, in which income will be distributed over a 24-month period. Payments from AT&T/Cingular will be reported on a quarterly basis."

This lack of a subsidization starts to make sense when you consider this new accounting model. Apple isn't just getting AT&T to change their carrier services but are now having to share their subscription profits directly with a manufacturer. Obviously very unorthodox for the cell phone company but it appears Apple is really banking on the long term success of the iPhone.

Assuming this is true and that Apple receives payments from AT&T even after the 24 month contract period is up, it behooves Apple to release many new free software updates and to make the phone's usable life-span as long as possible.

If Apple is changing things up this much and getting in this deep with AT&T, then I think they'd also with their own subscription plans too.

[timewarp424]

Originally Posted by CREB

The iPhone will be 2007's Tickle Me Elmo—it will sell like mad owed to cultural values versus what it initially has to offer. So goes marketing.

P.S. Motorola has the highest return, and dissatisfaction rate of any phone brand sold at AT&T.

I think there's a sweet spot in price when it comes to hot items. This isn't hitting it.


And I knew that about moto. But they've made more cellphones than apple. Even knowing your fact, I would still trust them more.

[CREB]

Originally Posted by timewarp424

And I knew that about moto. But they've made more cellphones than apple. Even knowing your fact, I would still trust them more.

I understand perfectly. I loved Motorola for years, still look at them hoping they will change for the better, and will buy one again should they.

[TBaggins]

Originally Posted by timewarp424

You have to remember this is apple's first phone. They don't have the proven reliability of say someone who has been making phones for quite the while.

That is an unintentional joke. The established phone makers regularly have problems with reliability, both in hardware and software, with Motorola being probably the worst offender of all.

Sadly, consumers seem to accept this a lot more than they should, probably because subsidies keep the 'apparent' cost of the phone low, and because they figure they're getting a new phone in a relatively short amount of time anyway.

Apple actually has an opportunity here to school the established phone makers in reliability, if the iPhone has fairly few teething problems.

.

[jcatma61]

Pardon me if I was in another solar system or something, but when Monkey Boy Ballmer was out there in January bloviating about this being the most expensive subsidized phone, he was wrong on both counts.

AT&T never said they'd discount or subsidize iPhone. They don't have the ability according to the deal with Apple. Jim Cramer wrote about the possibilty months ago that AT&T would use its own clout to drive a nail into Verizon et al. by discounting from their end. That's what's intended to change the market. They just don't discount service fees today in order to close competitors' contracts and grow their numbers.

Dunno about anyone else, but that makes great sense to me, and it's how everyone else outside the U.S. markets is doing it now. In Australia, for instance, you pay full fare for the hardware -- which may or may not be sold by the carrier -- and then you pay a much lower monthly rate.