AT&T not planning to subsidize iPhone?
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.
"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.
Comments
Apple said no subsidies early on. I don't see why this is so hard for people to understand...
-Clive
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.
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]
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.
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.
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).
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.
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.
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.
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.
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.
.
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
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.
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.
Sounds like an elitist a-hole tactic to me.
Elitist? You're right. That's exactly the core market out the door for iPhone.
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.