Why carriers hate the iPhone
Source: Zach Epstein
With only three iPhone models in its lineup, Apple shipped more smartphones last quarter than any other vendor in the world. Carriers that sell Apple’s sought-after smartphone enjoy huge activation figures each quarter as a result, but activations and unit sales don’t necessarily paint a complete picture.
In fact, according to some industry watchers, carriers hate the iPhone.
Wireless carriers trip over themselves to offer Apple’s iPhone, especially in the United States. Sprint wanted the handset so badly it was willing to guarantee Apple $15.5 billion over four years for the privilege of selling its sleek smartphone, and it certainly didn’t help matters much in the fourth quarter when Sprint posted a $1.3 billion loss. T-Mobile is still sour over failed negotiations with Apple, and the carrier has resorted to offering up free microSIM cards to iPhone users willing to come aboard and forgo 3G data speeds.
“A logical conclusion is that the iPhone is not good for wireless carriers,” Nomura Securities analyst Mike McCormack told Money. “When we look at the direct and indirect economics that Apple has managed to extract from the carriers, the carrier-level value destruction is quite evident.” The site notes that Verizon Wireless’s EBITDA service margin has dropped from an average of 46.4% per quarter to 42.2% since the carrier added the iPhone to its lineup one year ago.
But the iPhone is a necessary evil for carriers that some expect to pay off in the long run. Sprint on Wednesday reported its best quarter in more than six years for net subscriber additions thanks to the 720,000 new postpaid subscribers who came to the carrier for the iPhone.
Some analysts also believe carriers will eventually raise their price points on the iPhone; despite the handset’s high cost to Apple’s partners, the iPhone 4S currently starts at $199 on contract to the end user while the iPhone 4 is available for $99 and the iPhone 3GS is free on contract from AT&T.
Regardless of what the iPhone is doing to carriers’ bottom lines, it remains the best-selling smartphone in the world and it likely will for some time. Apple is expected to launch a completely redesigned iPhone later this year that will reportedly feature a unibody aluminum case, a 4-inch display and 4G LTE connectivity.
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