Buried in an AT&T press release touting the company's "exclusive" relationship with Apple is some interesting news:
"The new agreement between Apple and AT&T eliminates the revenue-sharing model under which AT&T shared a portion of monthly service revenue with Apple. Under the revised agreement, which is consistent with traditional equipment manufacturer-carrier arrangements, there is no revenue sharing."
The "kickback" agreement between Apple and AT&T was a source of significant rumor and speculation among analysts wondering how much money Apple made on each iPhone subscriber. Some estimates placed this kickback as high as $18 per month per subscriber -- a significant amount.
That Apple is willing to forgo this revenue to slash the cost of the iPhone shows how serious Jobs and Co. is about making inroads into the smartphone market -- and make their stated goal of 10 million iPhones sold in calendar year 2008.
Like the prior model, the new 3G iPhone will also require a 2-year contract to get the discounted price, but no word from AT&T or Apple on what the phone will cost for upgrading customers or those who refuse to sign a 2-year contract.
UPDATE: An AT&T spokesman told me "the phone will only be available with a two-year contract." In addition, previous iPhone owners will have their existing 2-year commitment restarted when buying a new iPhone.
The full release from AT&T is below:
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AT&T TO OFFER NEXT-GENERATION iPHONE ON ITS
HIGH-PERFORMANCE 3G NETWORK
Broadband Speed and New Capabilities Enhance Iconic Mobile Device
$199 Starting Price Significantly Expands Mass Market Appeal
New Corporate E-Mail and Web Applications Move iPhone Further Into Business Market
Note: AT&T will hold a conference call today for investors and analysts to provide background on the new iPhone 3G launch and AT&T’s wireless data strategy. The call will include comments from Ralph de la Vega, president and CEO, AT&T Mobility, and Rick Lindner, senior executive vice president and CFO for AT&T. The conference call will be broadcast live via the Internet at 4:30 p.m. ET on Monday, June 9, 2008, at www.att.com/investor.relations.
Broadcast satellite video available. Details follow at end of release.
SAN ANTONIO, June 9, 2008 — AT&T Inc. (NYSE:T) today announced it will be the exclusive U.S. provider of the new iPhone 3G, details of which were outlined earlier today at Apple’s Worldwide Developers Conference in San Francisco.
Under the terms of a new agreement with Apple, AT&T remains the exclusive U.S. carrier of the new iPhone, which will be available beginning July 11 at a starting price of $199 with a two-year contract. iPhone 3G boasts several significant enhancements, including:
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- 3G broadband wireless connectivity, which gives customers a home broadband-like speed experience when surfing the Internet, sharing files and using media-rich Web applications.
- Business-class capabilities, including e-mail, viewed on a large, touch-screen device and designed to meet the needs of companies of all sizes.
- The ability for developers, including AT&T, to create customized consumer and business applications using the Apple software developer’s kit (SDK).
Customers can get more information on iPhone 3G at www.att.com/iphone.
AT&T expects that iPhone 3G’s attractive pricing and rich 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.
“iPhone 3G will take mobile communications and computing to a whole new level
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Comments
Jordan - you are making no sense. How does the idea that Apple is no longer getting kickbacks (revenue share) from ATT contribute to Apple's ability to price the new iPhone so low? Logically, it should be the opposite. If Apple is NOT making additional revenue from ATT on the deals, then they are making less money than they were before and the price of the new phone should be higher.
Furthermore, if Apple is NOT getting revenue share why should they care whether you sign a two year agreement or not. Apple will get the same money either way. In fact, why would Apple give ATT an exclusive at all unless there was another form of revenue share like just an annual exclusivity fee.
This article is really incomplete.
Thought it was obvious but perhaps not: AT&T will be making a large payment to Apple for each iPhone sold. This is called a "subsidy".
Apple is sacrificing revenue to lower the price.
Lower price = lower revenue.
Before, Apple got revenue from a full priced iPhone PLUS a monthly "kickback" from AT&T. That's $400 for the phone plus $18/month for 2 years.
Now Apple gets a one-time "subsidy" from AT&T to cover the cost of the iPhone, but no kickback. That's $400 for the phone but no more.
Apple IS getting revenue share in the form of subsidized handsets. By offering the handset for a lower price, they sell more units. It's just that $200 of the $400 cost of the handset comes from AT&T rather than the customer. AT&T wouldn't cover half the cost of the unit if it wasn't locking the customer into a 2-year contract.
Make more sense now?
Here is another way to explain it .....
Previous arrangement::
- AT&T does NOT subsidize iPhone at purchase (i.e. Apple does NOT get a ONE-time revenue for the sale of iPhone to AT&T.)
- Apple gets monthly revenue (up to $18/mth according to reports) from each AT&T subscriber on contracted rate plan with activated iPhone
New arrangement:
- Apple is getting a ONE-time revenue for the sale of iPhone to AT&T.
- Apple is NOT getting monthly revenue sharing (up to $18/mth)
Assume the following:
1) %churn of 2% (= 98% subscribers remain on contract for entire 2 yr duration):
2) Unsubsidized cost of 8GB iPhone 3G is $399
Revenue to Apple:
1) In the previous arrangement, $18/mth x 24 mths x 98% = $423.36 revenue over 2 yr period
2) In new arrangement, $200 revenue at time of purchase but no additional revenue over time from AT&T rate plan subscription
The other impact not mentioned here is that with the subsidy model, subscribers are MORE likely to change their device at conclusion of the contract (i.e. new device on new 2yr contract).
jordan, why do you think that apple charges att 400 per iphone? not, say, 700 or 800?
instead of messing with monthly revenue share model, apple gets revenue share in advance. i see no reasons for apple in charging att just 400 bucks for iphone
the appstore.......thats why.
more iphones = more appstore sales.....