No doubt you’ve been reading a lot about the shiny new iPhone 3G. The gurus on this site can help you with the gizmos and gadgets way better than I can, so I’ll focus on the business side – and iPhone carrier AT&T has just announced an interesting new strategy.
Specifically, AT&T will soon stop sharing monthly revenue with Apple, opting instead to buy the phones directly from Apple and turn around and resell them to customers at a discount.
Remember, AT&T is the sole U.S. provider of the iPhone – the result of an exclusive deal with Apple last year before version one of the iPhone was released. The impact for consumers is significant: the move forces Apple to sell 8GB versions of the new iPhone for $199 and the 16GB version for $299. Those numbers were $499 and $599, respectively, on the first go around last summer.
Aside from triggering a stampede of customers out of Verizon and Sprint and into the AT&T fold, the move should help AT&T’s bottom line – expect a sharp increase in subscribers.
Consequently, AT&T sees big profits in the move away from the shared-revenue strategy. It’s already announced a hike in monthly charges, to $30 per month for an unlimited plan (from $20 last year) and to $45 per month for business users.
AT&T needs an edge now that Verizon has picked up Altell (although federal regulators have yet to okay that deal).
Analysts say that AT&T expects that the iPhone 3G's attractive pricing and cool set of features including business e-mail and other applications, combined with the broadband speeds of AT&T's 3G network, will spur significant subscriber and revenue growth — particularly in wireless data — and strengthen AT&T's wireless leadership and long-term growth profile.
"The iPhone 3G will take mobile communications and computing to a whole new level by combining a terrific user interface with a great experience accessing the Internet and subscribers' favorite applications on our 3G wireless network at unsurpassed speeds," said Ralph de la Vega, president and chief executive officer of AT&T Mobility. "Combine our high-performance 3G broadband wireless network, the new iPhone's business-class capabilities and a starting price of $199, and I expect that we will continue to increase revenue per user and attract customers who spend the most on wireless. The device is built, and priced, to sell."
AT&T will sell iPhone 3G in more than 2,200 company-owned retail stores and kiosks, as well as through its direct business sales teams. The profits could really be big here. Average monthly revenues per iPhone subscriber are nearly double the average of AT&T’s overall subscriber base.
Before you go out an buy AT&T stock, currently trading at around $37, note that even AT&T admits that, in the short term, the move away from a revenue sharing deal with Apple could negatively impact the bottom line. Says the company in a statement: “In the near term, AT&T anticipates that the new agreement will likely result in some pressure on margins and earnings, reflecting the costs of subsidized device pricing, which, in turn, is expected to drive increased subscriber volumes. The company anticipates potential dilution to earnings per share (EPS) from this initiative in the $0.10 to $0.12 range this year and next, with a 2008 adjusted consolidated operating income margin of approximately 24 percent and a full-year 2008 wireless OIBDA margin in the 39-40 percent range. As recurring revenue streams build without any further revenue sharing required, AT&T expects the initiative to turn accretive in 2010.”
In real speak, AT&T thinks it might take two year before the new iPhone deal really fortifies the bottom line.
There you go – a new deal for AT&T to exclusively market the hottest multimedia gadget on earth.
If you have the patience, the line forms to the left.