AT&T posted a loss? With perpetually skyrocketing rates for land lines, DSL, U-Verse TV and wireless plans, how is it they are losing money?
They are losing money in large part because they are selling a lot of iPhones. It is the same reasons Verizons stock tanked when they announced 'record sales, but a whole lot of them were iPhones'. Carriers lose money (in the short term) when they sell an iPhone. About half of the phones listed as 'iPhone sales' were not the 5, but the 4 and 4s. Even though the give away the 4 for free, they still pay Apple a subsidy for them. Apple subsidies are higher than the prices they sell iPhones at so they lose quite a bit of dough on every iPhone they sell.
So if AT&T sold 8,000,000 iPhones , and loses on average $100 per phone in subsidies- they just lost $800,000,000 last quarter (thats just an exapmple and its actually probably quite a bit higher than that as I believe for the iPhone 5 they typically pay apple @650 but sell them for @200- or a net subsidy of $450 per phone; I think it was verizon that estimated paying $2.8billion in Apple subsidies last quarter). That is how they lose money in a quarter with record sales. It is also why AT&T is generally penalized more as a carrier than others- their margins stink because they are the most 'iPhone heavy' carrier due to the first few years of exclusivity. It is also why carriers try very hard to sell Android phones instead of Apple phones. They break even on some Android phones and pay a much smaller subsidy on high end ones- but still charge the same high data rates for them. Apple users often complain about that and say its unfair- but it certainly the lesser evil for Apple. The other option is to have no subsidies so carriers won't push Android phones- but an Android phone will cost $400 and the Apple will cost $650 to the consumer themselves. Apple will lose a lot more sales in that situation (as evidenced by Europe or other areas that don't subsidize as heavily as the US).
Why do carriers sell phones at a loss? The contracts. They are forced to jack their wireless contract prices way up so that they make their money back over time. Having more users eventually translates into more profits, they just take a hit during the actual sale.
The threat of carriers trying to ditch subsidies puts a lot of pressure on Apples margins. T-mobile announced they are going no subsidies. Should be interesting to see what happens. They will sell you a plan for around $50/mo. Their challenge is they can offer that rate because they will not sell you a subsidized phone. So you can get an iPhone via AT&T for $150-$200 bucks, but T-mobile will charge you $650 for it. AT&T's plan will run you 85$ a month though. T-mobile will interestingly FINANCE you that iPhone- which would drive their price to @$85 (50/mo for the plan, plus 35/mo toward the phone).... So with that users could get an iPhone for seemingly the same price whether through AT&T or T-mobile. The catch is going to be if they buy that $400 Android phone they will only be paying $70 a month instead of Apple users who pay $85.
One argument says that without subsidies they wont get Apple users. I don't really buy that as long as they can keep the iPhone monthly prices roughly the same as other carriers. If I'm paying $85/mo for the same data amounts/speeds- I don't really care if its because I finance the phone or had it subsidized on paper- my cost is the same. I do however now have the option to buy an Android phone and actually pay less. The other argument is that T-mobile will gain a competitive edge with their lower priced plans. As the phone market is saturating people don't need the latest heavily subsidized phones. Even as an Apple user, should I buy that shiny new iPhone 5 and pay $85/mo..... or should I keep my iPhone 4s for another 6 months and only pay $50/mo and then upgrade to the iPhone 5s when that is released? Budget buyers can just buy low cost phones outright and then just do the $50/mo plan. But only through T-mobile. Other carriers won't be able to afford the plans at the same price because they have to make up for their losses on subsidies. Really interested to see if T-mobile gains or loses users with this. If they gain it is big trouble for Apples future margins, if they lose net subscribers it will make a case that (in the US) you need to subsidize or you won't get all those juicy Apple users.
The threat of carriers trying to ditch subsidies puts a lot of pressure on Apples margins.
Yes, it's a major reason why analysts are worried. One of the previously secret things that came out from the Samsung trial last year, was that Apple was even more dependent on iPhone sales than anyone had previously realized.
In the AT&T call, someone asked CEO Randall Stephenson this question:
"And secondly, Randall, while we have you, I mean, Apple is still a very large percentage of your iPhone sales and it doesn't seem like the subsidies have really declined in that for the last six years.
With Android catching up in terms of quality, it would allow more global consolidation, do you see a point where those subsidies start to decline and if so, when? Thanks."
To which he replied:
As you think about subsidies, we are very encouraged by the new device line that we’re seeing come into the marketplace. And we had a record quarter in terms of selling Android devices. I’m very enthusiastic about the Windows 8 devices that are coming into the market place.
And in 2013, we’re going to see more and more of those. We think a good, vibrant, healthy set of options for our customers and the whole ecosystem is really, really good for our customers. And it’s a good healthy environment for competition among all the players which from our standpoint would probably be good for us as well.
So we’re optimistic about what we’ve seen coming into the line-up in 2013 and a good healthy competitive set of handsets across different OS’ ... actually very optimistic about Blackberry 10. Hope that it proves to be as good as it appears to be, so.
Yes, it's a major reason why analysts are worried. One of the things that came out from the Samsung trial last year, was that Apple was even more dependent on iPhone sales than anyone had previously realized.
The use of the word dependent seems duplicitous. The iPhone is certainly the majority of their profits but to say they are dependent upon it like they have no other business or profits if you remove that from the equation would be wrong.
There iPhone is growing in popularity and increasing their profits so we are to say they are growing more dependent on the iPhone? Really? The Mac is holding strong and the iPad is the fastest growing CE in the world so how is Mac dependent upon the iPhone? The only way honest way to say they are dependent on it to make their profits is to also say they are dependent on all other areas, including the iPod and iTunes because it's all part of the same company.
The iPhone is certainly the majority of their profits but to say they are dependent upon it like they have no other business or profits if you remove that from the equation would be wrong.
Well, yes, It should be obvious to everyone that they have other products.
That's why I thought it was also obvious that I meant most of their profits were dependent on the iPhone, not that the company itself was.
Seriously, I do expect readers to exercise some common sense, and to assume the best, not the worst. Or is that a silly wish in these parts?
Let's debate the topic, instead of disecting every phrase, looking for unintentional offenses. (I've guilty of that too) Sound fair?
And here I am thinking telco's in The Netherlands are bad. Man, this is just wrong. (Over here we pay €2.50/m for Caller ID if you're on PSTN, it's free on ISDN or VoIP).
Telco's. Can't do without them but there's never a good incentive to choose one over the other. (Guess that works as a tagline as well)
this is more bad news. Still hasn't sold 200% of all smart phones at ATT yet. /s
Lol. Although on second thought it can't be good business practices to rely so heavily on one product. But I see sol and KDarling are already discussing this further down this thread.
How many years now have analysts been predicting AT&T and Verizon would cut subsidies. They keep predicting it and it never happens. Do these subsidies really hurt the telcos in the long term? Aren't iPhone customers quite profitable for them? I know AT&T has said in the past that they see less churn with iPhone customers.
I must say it is amazing how iPhone is increasing market share on AT&T and Verizon when they're both actively pushing other phones. I've read numerous accounts of people going into a Verizon store looking for an iPhone and sales people trying to push them to something else. I guess in the US at least people want their iPhones.
How many years now have analysts been predicting AT&T and Verizon would cut subsidies. They keep predicting it and it never happens.
You could be right. It might never happen.
Analysts have only been seriously predicting it for less than a year. It started with overseas carriers dropping iPhone subsidies due to the upfront cost and tie up of their cash. Then the California trial last summer revealed info about how much Apple was charging carriers.
Now T-Mobile has dropped subsidies. AT&T and Verizon's CEO have said they're open to the idea.
Do these subsidies really hurt the telcos in the long term? Aren't iPhone customers quite profitable for them? I know AT&T has said in the past that they see less churn with iPhone customers.
Most of the subsidy talk centers around the iPhone. AT&T has stated that it takes an average 20 months out of a 24 month contract to pay off each iPhone subsidy. Sprint has talked about how iPhone subsidies were 40% higher than other phones.
True, less churn is nice, but having a billion dollars tied up in basically interest free customer loans hurts. Back when most phones were cheap and people forgot to upgrade, the subsidy model of higher monthly rate to pay for the phone, was great for the carrier. Now, with high priced smartphones and customers wanting upgrades ASAP, the situation is reversing.
I do believe that VZ and ATT are seeking some way to change the model away from all this upfront cost to them. As we all know, VZ and ATT follow each other like twins. If one drops subsidies and instead offers outside loans, you can bet the other will be close behind.
For customers, it might be a better deal, since they could end up with lower monthly costs by choosing a less expensive phone. It all depends on how much the carriers would drop the monthly rates without subsidies.
Comments
Quote:
Originally Posted by JollyPaul
AT&T posted a loss? With perpetually skyrocketing rates for land lines, DSL, U-Verse TV and wireless plans, how is it they are losing money?
They are losing money in large part because they are selling a lot of iPhones. It is the same reasons Verizons stock tanked when they announced 'record sales, but a whole lot of them were iPhones'. Carriers lose money (in the short term) when they sell an iPhone. About half of the phones listed as 'iPhone sales' were not the 5, but the 4 and 4s. Even though the give away the 4 for free, they still pay Apple a subsidy for them. Apple subsidies are higher than the prices they sell iPhones at so they lose quite a bit of dough on every iPhone they sell.
So if AT&T sold 8,000,000 iPhones , and loses on average $100 per phone in subsidies- they just lost $800,000,000 last quarter (thats just an exapmple and its actually probably quite a bit higher than that as I believe for the iPhone 5 they typically pay apple @650 but sell them for @200- or a net subsidy of $450 per phone; I think it was verizon that estimated paying $2.8billion in Apple subsidies last quarter). That is how they lose money in a quarter with record sales. It is also why AT&T is generally penalized more as a carrier than others- their margins stink because they are the most 'iPhone heavy' carrier due to the first few years of exclusivity. It is also why carriers try very hard to sell Android phones instead of Apple phones. They break even on some Android phones and pay a much smaller subsidy on high end ones- but still charge the same high data rates for them. Apple users often complain about that and say its unfair- but it certainly the lesser evil for Apple. The other option is to have no subsidies so carriers won't push Android phones- but an Android phone will cost $400 and the Apple will cost $650 to the consumer themselves. Apple will lose a lot more sales in that situation (as evidenced by Europe or other areas that don't subsidize as heavily as the US).
Why do carriers sell phones at a loss? The contracts. They are forced to jack their wireless contract prices way up so that they make their money back over time. Having more users eventually translates into more profits, they just take a hit during the actual sale.
The threat of carriers trying to ditch subsidies puts a lot of pressure on Apples margins. T-mobile announced they are going no subsidies. Should be interesting to see what happens. They will sell you a plan for around $50/mo. Their challenge is they can offer that rate because they will not sell you a subsidized phone. So you can get an iPhone via AT&T for $150-$200 bucks, but T-mobile will charge you $650 for it. AT&T's plan will run you 85$ a month though. T-mobile will interestingly FINANCE you that iPhone- which would drive their price to @$85 (50/mo for the plan, plus 35/mo toward the phone).... So with that users could get an iPhone for seemingly the same price whether through AT&T or T-mobile. The catch is going to be if they buy that $400 Android phone they will only be paying $70 a month instead of Apple users who pay $85.
One argument says that without subsidies they wont get Apple users. I don't really buy that as long as they can keep the iPhone monthly prices roughly the same as other carriers. If I'm paying $85/mo for the same data amounts/speeds- I don't really care if its because I finance the phone or had it subsidized on paper- my cost is the same. I do however now have the option to buy an Android phone and actually pay less. The other argument is that T-mobile will gain a competitive edge with their lower priced plans. As the phone market is saturating people don't need the latest heavily subsidized phones. Even as an Apple user, should I buy that shiny new iPhone 5 and pay $85/mo..... or should I keep my iPhone 4s for another 6 months and only pay $50/mo and then upgrade to the iPhone 5s when that is released? Budget buyers can just buy low cost phones outright and then just do the $50/mo plan. But only through T-mobile. Other carriers won't be able to afford the plans at the same price because they have to make up for their losses on subsidies. Really interested to see if T-mobile gains or loses users with this. If they gain it is big trouble for Apples future margins, if they lose net subscribers it will make a case that (in the US) you need to subsidize or you won't get all those juicy Apple users.
Quote:
Originally Posted by Frood
The threat of carriers trying to ditch subsidies puts a lot of pressure on Apples margins.
Yes, it's a major reason why analysts are worried. One of the previously secret things that came out from the Samsung trial last year, was that Apple was even more dependent on iPhone sales than anyone had previously realized.
In the AT&T call, someone asked CEO Randall Stephenson this question:
"And secondly, Randall, while we have you, I mean, Apple is still a very large percentage of your iPhone sales and it doesn't seem like the subsidies have really declined in that for the last six years.
With Android catching up in terms of quality, it would allow more global consolidation, do you see a point where those subsidies start to decline and if so, when? Thanks."
To which he replied:
As you think about subsidies, we are very encouraged by the new device line that we’re seeing come into the marketplace. And we had a record quarter in terms of selling Android devices. I’m very enthusiastic about the Windows 8 devices that are coming into the market place.
And in 2013, we’re going to see more and more of those. We think a good, vibrant, healthy set of options for our customers and the whole ecosystem is really, really good for our customers. And it’s a good healthy environment for competition among all the players which from our standpoint would probably be good for us as well.
So we’re optimistic about what we’ve seen coming into the line-up in 2013 and a good healthy competitive set of handsets across different OS’ ... actually very optimistic about Blackberry 10. Hope that it proves to be as good as it appears to be, so.
The use of the word dependent seems duplicitous. The iPhone is certainly the majority of their profits but to say they are dependent upon it like they have no other business or profits if you remove that from the equation would be wrong.
There iPhone is growing in popularity and increasing their profits so we are to say they are growing more dependent on the iPhone? Really? The Mac is holding strong and the iPad is the fastest growing CE in the world so how is Mac dependent upon the iPhone? The only way honest way to say they are dependent on it to make their profits is to also say they are dependent on all other areas, including the iPod and iTunes because it's all part of the same company.
Quote:
Originally Posted by SolipsismX
The use of the word dependent seems duplicitous.
Hmm. Wasn't meant to be.
The iPhone is certainly the majority of their profits but to say they are dependent upon it like they have no other business or profits if you remove that from the equation would be wrong.
Well, yes, It should be obvious to everyone that they have other products.
That's why I thought it was also obvious that I meant most of their profits were dependent on the iPhone, not that the company itself was.
Seriously, I do expect readers to exercise some common sense, and to assume the best, not the worst. Or is that a silly wish in these parts?
Let's debate the topic, instead of disecting every phrase, looking for unintentional offenses. (I've guilty of that too) Sound fair?
Regards
And here I am thinking telco's in The Netherlands are bad. Man, this is just wrong. (Over here we pay €2.50/m for Caller ID if you're on PSTN, it's free on ISDN or VoIP).
Telco's. Can't do without them but there's never a good incentive to choose one over the other. (Guess that works as a tagline as well)
Lol. Although on second thought it can't be good business practices to rely so heavily on one product. But I see sol and KDarling are already discussing this further down this thread.
I must say it is amazing how iPhone is increasing market share on AT&T and Verizon when they're both actively pushing other phones. I've read numerous accounts of people going into a Verizon store looking for an iPhone and sales people trying to push them to something else. I guess in the US at least people want their iPhones.
Quote:
Originally Posted by KDarling
Hmm. Wasn't meant to be [duplicitous].
Sure it was. You've had to backpedal on your spin at least twice in this thread.
Quote:
Originally Posted by Rogifan
How many years now have analysts been predicting AT&T and Verizon would cut subsidies. They keep predicting it and it never happens.
You could be right. It might never happen.
Analysts have only been seriously predicting it for less than a year. It started with overseas carriers dropping iPhone subsidies due to the upfront cost and tie up of their cash. Then the California trial last summer revealed info about how much Apple was charging carriers.
Now T-Mobile has dropped subsidies. AT&T and Verizon's CEO have said they're open to the idea.
Do these subsidies really hurt the telcos in the long term? Aren't iPhone customers quite profitable for them? I know AT&T has said in the past that they see less churn with iPhone customers.
Most of the subsidy talk centers around the iPhone. AT&T has stated that it takes an average 20 months out of a 24 month contract to pay off each iPhone subsidy. Sprint has talked about how iPhone subsidies were 40% higher than other phones.
True, less churn is nice, but having a billion dollars tied up in basically interest free customer loans hurts. Back when most phones were cheap and people forgot to upgrade, the subsidy model of higher monthly rate to pay for the phone, was great for the carrier. Now, with high priced smartphones and customers wanting upgrades ASAP, the situation is reversing.
I do believe that VZ and ATT are seeking some way to change the model away from all this upfront cost to them. As we all know, VZ and ATT follow each other like twins. If one drops subsidies and instead offers outside loans, you can bet the other will be close behind.
For customers, it might be a better deal, since they could end up with lower monthly costs by choosing a less expensive phone. It all depends on how much the carriers would drop the monthly rates without subsidies.