June 11th 2008
By Mike Flaminio
Reuters reports that AT&T will shoulder part of the price of the 3G iPhone, from $200 to $500 per phone, according to analyst estimates. With current versions of the iPhone, the carrier pays Apple a percentage of monthly subscriber revenues, a practice that's ending.
"With dilution running at levels we never fathomed, we believe AT&T is assuming more risk than the previous arrangement," says JPMorgan analyst Michael McCormack. "We question whether a handset exclusivity agreement should warrant such a dramatic financial impact while other successful carriers have not found it necessary."
AT&T said the subsidy, aimed at boosting volume sales, will cut earnings per share by 10˘ to 12˘ in 2008 and 2009.
Apple, on the other hand, is expected to see its earnings dip only about 3˘ a share this year, according to some estimates, as it forsakes the percentage of recurring monthly service revenue it got from AT&T's iPhone users.
Editor's note: Previously, over 50% of iPhone buyers have been customers new to AT&T. Moreover, the iPhone recently lost market share to RIM and Palm, due to more aggressive pricing and marketing.
If AT&T and Apple want to keep this gravy train rolling, then they've obviously made the right moves. How much all of this costs each player in relative terms is a pointless endeavor at this point...
What's your take?