Is AT&T pricing itself out of a good profit margin with the new iPhone?
A growing number of Wall Street onlookers seem to think so. A few weeks back I wrote that AT&T would be charging $200 for the new iPhone 3G – that’s down from up to $500 for the 2007 model that rolled out to wide acclaim.
Now news comes out that AT&T will have to pay Apple $325 per unit for the sole right to carry the new iPhone model. Oppenheimer Investments analyst Yair Reimer has come out with a new report adding that AT&T will add a $100 per-unit fee for the sole right to sell the iPhone who signed up for the phone and service inside Apple stores. Says Reimer, “When you add these figures to the retail price of the handset, AT&T could be paying as much as $624 for the 8-GB iPhone 3G, and $724 for the 16-GB version.”
Reimer’s is the highest per-phone cost I’ve seen involving AT&T. A few months ago, Piper Jaffrey analyst Gene Munster said that AT&T would be paying up to $466 per iPhone. Other analysts have gone as low as $350 per unit to $700 per unit.
AT&T has a plan, though. The telecom giant seems willing to take a short-term hit – it has already said it will cut earnings by about 12 cents per share for each of the next two years. But down the road AT&T expects data-hungry subscribers to demand and pay for new features like GPS, internet access, music and video downloads, and other features. AT&T analysts expect those revenues to start kicking in by 2010.
It’s a big bet for AT&T. Wall Street has long been ringing with rumors that Verizon turned down Apple for the rights to the iPhone because it wouldn’t pay Apple a cut of its monthly revenues. But it’s a deal that AT&T was only too happy to sign off on.
The numbers appear to work in AT&T’s favor. If the average monthly plan, for example, averages $70 per iPhone customer. After two years of service, AT&T would collect $1,680 per customer.
Not such a bad bet, if enough people buy the new iPhone.