“AT&T’s earnings report on Wednesday highlights the enormous stakes involved in the renewal of its exclusive contract to distribute Apple’s iPhone in the United States,” Saul Hansell reports for The New York Times. “AT&T is paying Apple an unusually high subsidy on top of the $199 and $299 paid by iPhone buyers. But it appears to be getting quite a return on that investment. In the first quarter, AT&T credited the iPhone for helping increase its wireless operating profit margin to 26 percent from 25 percent a year ago.”
“The company activated 1.6 million iPhones on its network in the quarter. And more than 640,000 of those customers were new to AT&T’s network. That represents three-quarters of the net addition of 875,000 new postpaid consumer accounts in the quarter,” Hansell reports. “(AT&T added 325,000 more net business and prepaid wireless accounts in the quarter.)”
“iPhone customers, moreover, are particularly valuable, mainly because they also buy expensive data plans. Their average bill is $94 a month, 60 percent higher than the company’s overall customer base,” Hansell reports. “If the average iPhone customer brings in $90 a month, or $1,080 a year in revenue, and the operating profit margin stays constant at 26 percent, that means an iPhone customer represents at least $561 in operating profit over a two-year contract. That probably understates the impact because iPhone customers have higher-than-average profit margins.”
“Put another way, if the company gets 2.5 million new customers a year because of its iPhone exclusivity, the deal represents at least $700 million a year in operating profits — profits that it could lose if Verizon sold the iPhone, too,” Hansell reports. “[And] these numbers may be low… With the sort of numbers AT&T reported this quarter, the company has every reason to make Apple an offer it can’t refuse to keep its exclusive deal for another few years.”
“The benefit of somewhat more iPhone sales from wide distribution is likely to be swamped by a huge bid from AT&T to keep exclusivity, and an equally high bid from Verizon to win some (or maybe even all) of the business for itself,” Hansell reports. “In other words, no matter what happens, Apple wins.”
Read more in the full article here.
MacDailyNews Take: Steve Jobs in the catbird seat. Again.
Before they start throwing money at Apple, Verizon has some kowtowing to do:
Steve Jobs eventually will get old… I like our chances. – Ivan Seidenberg, Chairman and CEO of Verizon Communications, scoffing at the suggestion that Apple’s iPhone was set to become a mass-market handset and waiting for Steve Jobs to retire (or die?), June 27, 2008
[Thanks to MacDailyNews Reader “Citymark” for the heads up.]