Is iPhone a bust for AT&T?
Posted
Aug 31 2009, 06:04 AM
by
Douglas McIntyre
Rating:
There are two ways to look at the economic relationship between Apple (AAPL) and AT&T (T), and both may be accurate. AT&T says it has signed up 10 million iPhone owners for its long-term calling and data plans. Many of those customers have come from other cellular providers. AT&T is thus adding new, and perhaps profitable, business.
On the other hand, AT&T pays Apple an estimated $400 a phone. AT&T probably has to hold onto its iPhone customers for the full two years of their subscription plan to make a lot of money.
The Wall Street Journal recently pointed out that AT&T has other smartphones that it does not have to pay handset companies like Samsung and Nokia (NOK) as much as $400 to acquire.
The economics of the iPhone may be much worse than most analysts believe, and that will only be exacerbated when the iPhone becomes available through additional cellular providers. The FCC’s look into “handset” monopolies could force AT&T to give up its exclusive arrangement with Apple. AT&T’s deal with Jobs & Co. expires next year anyway. There have been been a number of rumors that Verizon (VZ) will begin to offer the iPhone. Verizon’s 3G network is seen as more reliable than AT&T’s, as is Sprint’s (S).
The AT&T partnership with Apple was introduced with great fanfare and the large phone company has made the case that the iPhone has helped build its business and its image with customers. Those things have been undermined, at least to some extent, by troubles with the AT&T wireless network.
Now it appears that the iPhone deal may have been of remarkably little economic benefit to AT&T and the problem may be getting worse as time passes.
Top Stocks blogger Douglas A. McIntyre is an editor at 24/7 Wall St.
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