AT&T paying Apple $325 subsidy on every iPhone 3G sold - report

[AppleInsider]

AT&T is paying Apple a $325 subsidy on each new iPhone 3G sold in the US in addition to offering the electronics maker a hefty bounty for each subscriber addition it gains from sales of the handset at Apple retail stores, according to a new report.

Oppenheimer equity research analyst Yair Reiner told clients in a research report that the subsidy is more than 50 percent higher than most other smart phones, which are typically subsidized by about $200.

He said the abnormal concession on AT&T's part reflect the carrier's confidence in the iPhone's ability to grow its subscriber base and drive an overall increase in the average revenue it makes off customers through higher margin services and data plans.

The net result, according to the analyst, is a disproportionally stacked offense in Apple's favor that will leave rivals like Research in Motion and Nokia "scrambling" to hit lower price points at the expense of their respective bottom lines.

What's more, Reiner said he also believes that AT&T is paying Apple an extra $100 for each new subscriber to AT&T signed up through Apple's brick-and-mortar stores, for a total commission of $425. That data point alone suggests that the analyst believes AT&T is also paying Apple the $325 subsidy on phones Apple sells.

The net result, Reiner added, is that Apple will be generating the same amount of revenue through iPhone 3G sales that it did under its original deferred revenue share agreement with the nation's No. 1 carrier, only this time around the cash will be up front and on the table.

[ View this article at AppleInsider.com ]

[ktappe]

Originally Posted by AppleInsider

AT&T is paying Apple a $325 subsidy on each new iPhone 3G sold

I think this explains a lot. It explains why the data plans have jumped $10/month. It explains why AT&T has yet to reveal whether any SMS will be included in the rate or if texting will cost extra (I'm now betting the latter.) With subsidies that high, AT&T has to get its $325 back somewhere....anywhere it can. I don't at all feel sorry for AT&T and am no apologist for them, but am recognizing the simple $$ of the situation. And now I'm less likely to be mad at AT&T for higher iPhone fees and more likely to be mad at Apple 'cos it seems that's where the money is really flowing.

[salmonstk]

I am confused. How much total does Apple get per phone. It sounds like its 199+325 or 524.

Thats more than before

[Cam'ron]

Originally Posted by salmonstk

I am confused. How much total does Apple get per phone. It sounds like its 199+325 or 524.

Thats more than before

That is what it sounds like to me.

[Kasper]

Originally Posted by salmonstk

I am confused. How much total does Apple get per phone. It sounds like its 199+325 or 524.

Thats more than before

Yeah -- I did a quick search of all the prior estimates on the per-month revenue share payment ($3 - $14) and it seems that if this analyst is correct, Apple would be making a lot more. But given that the original rev share deal was never made public, everything is estimated so it's kind of a he said, she said kind of deal...

K

[tundraboy]

Originally Posted by salmonstk

I am confused. How much total does Apple get per phone. It sounds like its 199+325 or 524.

Thats more than before

You forget they don't get a share of the monthly subscriptions anymore.

[TenoBell]

Last year when people complained Apple was being greedy with revenue sharing. I thought even if Apple switched to subsidizing they still would charge an extreme premium and in the end not make much difference.

[nagromme]

I don't like the subsidized concept.... but if I have to have a subsidy plan, at least let AT&T be paying a bundle

[jamiec]

Originally Posted by Cam'ron

That is what it sounds like to me.

It's more money for Apple upfront (or somewhat less, compared to the initial 8gig iPhone price). However, it's less money overall, since Apple no longer gets a portion of the monthly contract price from AT&T.

It was a good move for Apple to ditch the revenue-sharing aspect for the 3G iPhone. I'm surprised that there hasn't been more discussion about the fact that this obliterates the last big hurdle to the iPhone's adoption in China.

Further, if Apple didn't care much about black-market iPhones in the past, they REALLY don't care much now -- it's up to AT&T to go after people for the early termination fee.

[ghostface147]

I currently pay about 104 bucks a month with all taxes included. That includes 900 minutes and 1500 text messages. With the 3g data plan adding 10 bucks a month extra, plus SMS not being included (speculated, but highly likely)......I think I will be staying with my current iPhone. The reason why I say SMS is not included is because that falls in line with their other 3g data plans. Oh well. 1st gen iPhone it is for me....

[mrjoec123]

Originally Posted by ktappe

I think this explains a lot. It explains why the data plans have jumped $10/month.

No it doesn't. The data plans are now $30 because they're 3G. Period. Any 3G phone on AT&T will cost you $30 a month for data. Why would an iPhone be cheaper than all the other 3G phones AT&T offers?

[breeze]

[QUOTE=ktappe;1267229]I think this explains a lot. It explains why the data plans have jumped $10/month. It explains why AT&T has yet to reveal whether any SMS will be included in the rate or if texting will cost extra (I'm now betting the latter.)

If ATT excludes SMS, they risk a major rebellion and alienation that will lead to jailbreaking in masses just to get out of the contract with them. Also other telcos will be happy to try and lure ATT deserters by offering free SMS.

[webfrasse]

Originally Posted by nagromme

I don't like the subsidized concept.... but if I have to have a subsidy plan, at least let AT&T be paying a bundle

and you don't think they will charge you in the end...sucker:-)

/Mikael

[solipsism]

Originally Posted by salmonstk

I am confused. How much total does Apple get per phone. It sounds like its 199+325 or 524.

Thats more than before

It sounds about the same to me. And Apple can now earn a profit off the upfront subsidy payments .

Originally Posted by mrjoec123

No it doesn't. The data plans are now $30 because they're 3G. Period. Any 3G phone on AT&T will cost you $30 a month for data. Why would an iPhone be cheaper than all the other 3G phones AT&T offers?

The iPhone's unlimited EDGE data plan was only $20/month, which was unheard of at the time. I think AT&T charged $40-45 per month for Blackberry data plans, which were still only EDGE capable. The prices for unlimited data has only come down in the recent months.

The price increase may be more attributed with the billions that AT&T has put into getting a decent HSPDA network setup over the country since the original iPhone's release.

Originally Posted by jamiec

Further, if Apple didn't care much about black-market iPhones...

"Apple doesn't care about black markets"

[Eduardo]

Originally Posted by nagromme

I don't like the subsidized concept.... but if I have to have a subsidy plan, at least let AT&T be paying a bundle

Actually-those of us who have or will have an iPhone with AT&T will be paying a bundle. So the is not with AT&T or Apple but with us.

[SurfRat]

Originally Posted by mrjoec123

No it doesn't. The data plans are now $30 because they're 3G. Period. Any 3G phone on AT&T will cost you $30 a month for data. Why would an iPhone be cheaper than all the other 3G phones AT&T offers?

Exactly. I'm getting tired of all these people claiming AT&T has *raised* the price on iPhone's data plan. Simply not true. The cost of a 3G data plan from AT&T for ANY phone has always been $30 a month.

Let's try and keep up people, this info is common knowledge.

[dagamer34]

AT&T has definitely increased the footprint of it's 3G network. It's here in Detroit suburbs when it wasn't as recently as 2-3 weeks ago.

[nvidia2008]

Holey moley Apple is totally raping the service providers. Good on them.

[Bageljoey]

Originally Posted by webfrasse

and you don't think they will charge you in the end...sucker:-)

/Mikael

Or maybe he owns AAPL and he is counting on making a bunch more from Apple than he pays to at&t...

[marklark]

If Apple is making as much money from AT&T as they were with the original iPhone... Will we see any other companies in the US selling iPhones?

I don't think so... :^/

[saminsocks]

I think Apple will make out well in the end. A $325 subsidy and $10 extra a month means you'll break even in 2.7 years. In that time Apple will have almost surely released at least 2 new versions of the iPhone, and I'm sure many who have the iPhone 2.0 will upgrade to at least one of them. Even if they don't want to break their contract and get the latest phone, they're eligible for a new subsidy after 2 years, which means an extra $70 for Apple from every 2.0 owner who upgrades before AT&T has made a profit on the 3G data upgrade.

[solipsism]

Originally Posted by SurfRat

Exactly. I'm getting tired of all these people claiming AT&T has *raised* the price on iPhone's data plan. Simply not true. The cost of a 3G data plan from AT&T for ANY phone has always been $30 a month.

Let's try and keep up people, this info is common knowledge.

The part I bolded above is true. It was $20, now it will be $30. I haven't read a single comment claiming that AT&T has raised the iPhone's data rate past the amount it charges for other phones.

One thing that could have kept iPhone's data plan lower than other devices is its mandatory unlimited plan for every properly activated iPhone user. For comparison, other phones have an optional data plan and cheaper plans for less heavy data users. This is one possible reason why people are complaining about the price hike, despite the 3G access.

Originally Posted by marklark

If Apple is making as much money from AT&T as they were with the original iPhone... Will we see any other companies in the US selling iPhones?

I don't think so... :^/

What companies? If you mean other cellphone carriers, then no. IF you mean AT&T 3rd-party retailers, then maybe as many of the reasons for not including them last year have vanished.

[merdhead]

Well I guessed that the wholesale price of the phone was about $600+, so this sounds about right. I'd call the $100 a 'retail margin' discount going the other way rather than Apple getting a bounty.

Of course when it comes to selling unsubsidised phones, I'm sure they will cost a lot more to consumers.

[GoodOmens]

Originally Posted by saminsocks

I think Apple will make out well in the end. A $325 subsidy and $10 extra a month means you'll break even in 2.7 years. In that time Apple will have almost surely released at least 2 new versions of the iPhone, and I'm sure many who have the iPhone 2.0 will upgrade to at least one of them. Even if they don't want to break their contract and get the latest phone, they're eligible for a new subsidy after 2 years, which means an extra $70 for Apple from every 2.0 owner who upgrades before AT&T has made a profit on the 3G data upgrade.

Your calculations are wrong. Apple is no longer receiving the revenue stream from AT&T so AT&T is netting more then $10/user as before.

I read the revenue AT&T was paying Apple was around $18/month. So technically AT&T is making $28/month more per customer then before. Therefore the break even would be around 11~12 months. No details about how much AT&T was paying Apple so those numbers are estimates.

[Wiggin]

Originally Posted by jamiec

Further, if Apple didn't care much about black-market iPhones in the past, they REALLY don't care much now -- it's up to AT&T to go after people for the early termination fee.

Yes, I think that's a big point that people are forgetting. I suspect that in exchange for the upfront subsidies, Apple had to agree to in-store activation. Apple gets their money sooner, ATT gets more contracts. ATT had more to gain, so they probably asked for in-store activation first. Then Apple said, "OK, but we want our money upfront." Remember, iTunes activation was one of Steve's babies when the iPhone was announced.

[solipsism]

Originally Posted by Wiggin

Yes, I think that's a big point that people are forgetting. I suspect that in exchange for the upfront subsidies, Apple had to agree to in-store activation. Apple gets their money sooner, ATT gets more contracts. ATT had more to gain, so they probably asked for in-store activation first. Then Apple said, "OK, but we want our money upfront." Remember, iTunes activation was one of Steve's babies when the iPhone was announced.

ITunes activations appear to still be possible. It was mentioned at teh WWDC that you have 30 days to activate the device. I don't see how the same method will be possible with non-AT&T customers, but current AT&T customers may be able to walk in and out by showing their ID which verifies they have a current AT&T account and AT&T/Apple tiring the iPhone's IMEI to your account.

[halfyearsun]

Originally Posted by ktappe

I think this explains a lot. It explains why the data plans have jumped $10/month. It explains why AT&T has yet to reveal whether any SMS will be included in the rate or if texting will cost extra (I'm now betting the latter.) With subsidies that high, AT&T has to get its $325 back somewhere....anywhere it can. I don't at all feel sorry for AT&T and am no apologist for them, but am recognizing the simple $$ of the situation. And now I'm less likely to be mad at AT&T for higher iPhone fees and more likely to be mad at Apple 'cos it seems that's where the money is really flowing.

If it makes you feel better I'm sure att would still charge you more regardless of how much they paid apple.

Conversations that never occur at cell phone companies: "better phone? A chance to make more money? Nah let's be nice, the consumers deserve it. "

Cell phone companies and oil companies will always be the most "evil" rest assured. They're necessary evils...apple is voluntary. You can't rape the willing.

[BlackSummerNight]

WoW...how f'ing greedy of Apple. I'm pretty sure AT&T doesn't care how much they have to pay, the can/will just pass it on to us.

[obs1970]

Originally Posted by BlackSummerNight

WoW...how f'ing greedy of Apple. I'm pretty sure AT&T doesn't care how much they have to pay, the can/will just pass it on to us.

Nobody is forcing anybody to buy an iphone. your life does not depend on one. If you do not like the pricing, don't buy.

[BlackSummerNight]

Nobody is forcing you to reply to my comment. If you don't like it don't reply.

Originally Posted by obs1970

Nobody is forcing anybody to buy an iphone. your life does not depend on one. If you do not like the pricing, don't buy.

[solipsism]

Originally Posted by BlackSummerNight

Nobody is forcing you to reply to my comment. If you don't like it don't reply.

Or you to his. Is Apple being greedy? Probably. Is it within the typical profit margins of their other products? Probably. I don't see any reason why this iPhone should be looked upon with disdain over teh last one, which started at $600 and included the profit sharing. Even with the lowered price, the rumoured profit sharing amounts still put it with the same range as this one.

[addabox]

Originally Posted by BlackSummerNight

Nobody is forcing you to reply to my comment. If you don't like it don't reply.

Good for you. Thirteen year olds have rights, too.

[trevorlsciact]

Originally Posted by BlackSummerNight

WoW...how f'ing greedy of Apple. I'm pretty sure AT&T doesn't care how much they have to pay, the can/will just pass it on to us.

It's 10 bucks more a month, and it has 3G so.... whats the problem?

aaaaaaaaaaand, reality check, Apple is a COMPANY their job is to make money. They are generally a pretty good company, as far as companies go, but they are still a company.

Originally Posted by BlackSummerNight

Nobody is forcing you to reply to my comment. If you don't like it don't reply.

i think you seriously missed his point (although I'll agree "if you don't like it don't complain because nobody is forcing you to... buy an iPhone, live in the US, watch the TV show, or whatever..." is not a particularly valid point to begin with) but it makes more sense than what you said.

[merdhead]

Originally Posted by BlackSummerNight

WoW...how f'ing greedy of Apple. I'm pretty sure AT&T doesn't care how much they have to pay, the can/will just pass it on to us.

Apple is a corporation, it doesn't have emotions, so it can't be greedy. Also, as a publicly traded corporation it's required by law to maximise returns for its shareholders, usually by maximising profit.

So, the bottom line is if you don't like the price, don't buy it. But for God sake's stop whining.

[Eduardo]

Originally Posted by nvidia2008

Holey moley Apple is totally raping the service providers. Good on them.

Yeah; and the service providers pass on the charges to us. Are you implying that Apple is doing this "for the little guys"? I don't understand your statement "Apple is totally raping the service providers".

[Abster2core]

Originally Posted by BlackSummerNight

WoW...how f'ing greedy of Apple. I'm pretty sure AT&T doesn't care how much they have to pay, the can/will just pass it on to us.

Interesting Comparison iPhone vs N95 8 GB. http://www.allaboutsymbian.com/featu...ia_N95_8GB.php

Note the list price for a N95 runs between $440 to $785. However, as the article states, the total costs for the phone + service plan runs about the same "or lower" for the iPhone.

Again, one can see that cell phones bought from a carrier are in most part subsidized by the carrier. ATT doesn't have the N95, but the N75 lists for about $350 and the carrier will let you have it for $99. As such, ATT is subsidizing $250 to the cost, but guess who is actually paying the difference. You are over the period of the contract.

Standard practice. A company manufactures and markets their phone, the carrier subsidizes a significant portion of the manufactures price for the phone, and then offers it at a discounted price to entice users to commit to a long term contract for service.

[mgoodman]

Here's an idea, for those of you who are upset by Apple's trying to (how dare they!) profit by selling products: Make some of your money back!

!!NEW OFFER FOR APPLE BASHERS!!

It's simple really.

Do you think Apple is making tons of money selling iPhones?
Do you intend to buy an iPhone?
Do you think Apple is really sticking it to ATT?

Great! Now you too can BE Apple. You can OWN Apple Inc.!

Well, it isn't a new opportunity, but it is one that many (apparently) know nothing about...

You too can buy Apple stock. If you can read this message on your computer, you can go to Ameritrade.com or one of dozens of other websites and buy yourself a little piece of the company. Then, when you hear that the company's profit margin is high, that it is raking in cash, and that millions of people are buying the iPhone you can rather than

[Boogerman2000]

Originally Posted by salmonstk

I am confused. How much total does Apple get per phone. It sounds like its 199+325 or 524.

Thats more than before

I don't understand. So you can ONLY buy the phone if you commit to a two year plan with AT&T. You actually end up paying more over the course of the new contract, and that's fine considering the added features. But then how can Apple advertise the phone at a lesser price point given that it costs more in the long run?

[Ninja_Monkey]

Originally Posted by Boogerman2000

I don't understand. So you can ONLY buy the phone if you commit to a two year plan with AT&T. You actually end up paying more over the course of the new contract, and that's fine considering the added features. But then how can Apple advertise the phone at a lesser price point given that it costs more in the long run?

The phone costs less but the service is more.

[solipsism]

Originally Posted by Boogerman2000

I don't understand. So you can ONLY buy the phone if you commit to a two year plan with AT&T. You actually end up paying more over the course of the new contract, and that's fine considering the added features. But then how can Apple advertise the phone at a lesser price point given that it costs more in the long run?

Because that is how the subsidy model works. It's a horrible marketing tactic, IMO. Apple is selling you the device for $200. But it's locked to AT&T and requires a 2 year contract. AT&T is paying Apple the set upon fee for each new iPhone activation.

In at least some parts of Europe (though it may be an EU rule) they have to state the complete costs. So if they advertise a $200 iPhone, but it requires a 2 year contract, they have to state what it will really cost over those 2 years. I think we need to adopt this consumer friendly procedure.