The Carriers should just say NO! to Apple.

[HarryT]

Originally Posted by Kumabjorn

Whoaa!
90 cents a minute? WTF???
In Sweden I pay 19 öre or 0.19 SEK a minute that translates into 2.8 cents a minute. I always assumed that cell phone minute rates were a lot cheaper in the US. I'm not even on a plan, I have a cash refill setup, pay in advance (say $20) and call for that until it reaches zero.

Mobile phone charges tend to be lower in Europe than in the US because we have a much more competitive market.

[Kumabjorn]

Except when we cross borders. Roaming charges are outrageous.

[HarryT]

Originally Posted by Kumabjorn

Except when we cross borders. Roaming charges are outrageous.

Yes - that's very true! Although they are now significantly less than they were.

[SeaKing]

Originally Posted by murraypaul

I don't see anything in the article which says that, overall, Verizon is looking money on iPhone customers.

I will try to make it clearer for you with a little cut and paste from the article. The underlines are mine. The italics is from the article.

First there is a growth in customers which is why I said, they were trying to make up for their losses with volume.

"Some are obvious. The device's ability to win over new customers and retain existing ones has been proven over and over."

The problems are with their profit margins. I cut out some pertinent parts for you.

"Others aren't so optimistic. Morgan Stanley analyst Simon Flannery said he expects average revenue per user growth to slow for the wireless carriers. Beyond data, the companies face pressure from shrinking revenue on the voice and text message side of the business. "

"AT&T's results over the past few years illustrate Moffett's concerns. Since getting the iPhone and moving to a subsidy model, the company has seen lower margins, he said. Its fourth-quarter wireless margins dropped by a third from a year ago. "

"All of that came at a cost. After taking out one-time items such as pension-related costs, the company [[Verizon]] earned 52 cents a share, two cents shy of Wall Street expectations. Excluding income tax, depreciation and amortization, earnings fell 1.1 percent from its year-earlier period. A year ago, when Verizon didn't have the iPhone, it saw 5.5 percent growth."

"Verizon, however, was upbeat about the customer growth driven by the iPhone, acknowledging that margins would fluctuate in the next few quarters."

"The carriers, meanwhile, are falling over themselves paying for the privilege of selling the iPhone. While everyone is lauding Apple for its blowout quarter, no one's getting excited for the carriers' financial performance. "

I guess while membership has its priviledges, with the Apple iPhone you pay through the nose too.

[azazel1024]

Yeah, I still don't see anywhere where it says they lost money. They have reduced margins because of it, potentially. However, it is not unlike Barnes and Nobel and Amazon with their ereaders or Sony/Microsoft with their game consoles. They make relatively little money on the hardware (and in some cases, may be taking a loss), but hope and generally do, make up for it in secondary sales (books, games, etc).

In this case the carriers are paying a subsidy, which they do for a lot of phones, not just Apple's iPhones. They then make up for it in voice and data plans that they lock a cutomer in to.

For example with Verizon, the base data plan is $30 a month for 2 years. I think the most basic voice plan to go with that is around $50 per month. That is $80 per month for 2 years, or $1,920 over 2 years. The 4s runs basically $600 new unsubsidized. They sell them for roughly $160-200 each. Supposing they are not cutting a volume discount with Apple (and they might not be) then they are paying $400 odd in subsidies to lock in a cutomer for basically $2,000 in income, or a 20% up front expense.

Of course if it is a second line, then the income is less as the voice plans tend to be cheaper, yet still with data and extra voice charges, that is probably upwares of $1,000 for each extra line that is an iPhone/Smart phone.

Also, if you check, there are plenty of phones that are more expensive than the iPhone and are subsidized down to similar prices ($200-250 price range, unsubsidized price ranging from $500-800).

Even with ones that are cheaper, there are very, very few smart phones that are less than $400 unsubsidized. Most of the cheaper smart phones are subsidized down to $100 and a few $49 or occasionally free/$1...so the price per unit for the subsidy is coming out near what the iPhone's subsidy is anyway to get those customers locked in.

Back to reduced margins...part of what is cutting in to their margins in a big way is that they are spending through the nose to build out their 4G LTE network as well as trying to buy up spectrum and a bunch of other big capitol expenditures. The subsidies companies like Verizon are paying are a rather small part of their overall actual expenditures.

And yeah, everyone wants the highest margins possible. However, personally (and most companies take this route also), I'd rather earn $200 in profit on $1,000 in income than $100 in profit on $400 in income even though my margins are less.

[Kumabjorn]

Seems you think that the cost for a carrier to transmit voice and data is zero. You need to take those costs into consideration as well.

[SeaKing]

azazel1024,

The financial guys think otherwise. I think I will stick with them.

[Andrew H.]

Originally Posted by SeaKing

azazel1024,

The financial guys think otherwise. I think I will stick with them.

The financial guys don't think that they lost money.

[stonetools]

In the end, the carriers would prefer to gain and keep customers WITH the iPhone-even when earning a lower margin , rather than go without the iPhone and LOSE those customers altogether.

[ilovejedd]

Originally Posted by azazel1024

Also, if you check, there are plenty of phones that are more expensive than the iPhone and are subsidized down to similar prices ($200-250 price range, unsubsidized price ranging from $500-800).

Not really. Industry standard subsidy for smartphones is around $200. You can't really base how much carriers pay manufacturers based on retail pricing. It's only Apple that enjoys higher than normal subsidies. This is probably why the carriers can regularly offer other smartphones on sale or for free but they can't do so with the iPhone.

Originally Posted by SeaKing

azazel1024,

The financial guys think otherwise. I think I will stick with them.

As mentioned by others, Verizon isn't losing money. They're just enjoying slimmer profit margins. Sprint, however, is on much shakier ground.

[murraypaul]

Making less money is not the same as losing money.

[Penforhire]

I'm with Azazel. This is simple math. If they aren't raking in my 2 year data contract then they're taking in a (hefty) cancellation fee.

Verizon is losing money for other reasons such as their FIOS operation, where they stopped rolling it out because the installation cost was higher than their income. And their landline business which is shrinking rapidly, along with AT&T's, as we all go to cell phones and cut the cord.

I have zero sympathy for the major American cellular companies given how much they charge for texting (just tiny packets of data) and tethering (I paid for my data, how dare you care how I use it!).

[SeaKing]

Ok. I see what some of you are saying.
An example: (I will just throw some numbers into it to make a point.)
A company spends 50 Billion dollars operating.
Gets back 50 Billion dollars plus $1.
A pretty terrible margin, but yes they didn't lose money overall.
If that is your point, you are exactly right.

Now I ask a question. Why did Verizon's margin decrease so much?
Why did AT&Ts?

Did it have something to do with the large subsidies for the iPhones? Something to do with the customers continually upgrading so that they got more subsidies?

Was it in part because Verizon "lost money" on its iPhone business?
I think the answer is yes, for that is what the article implies.
That is what the financial boys said.

Or was it just "karma?"

That bad karma can be a real *****!

[athlonkmf]

Originally Posted by SeaKing

The Carriers should just say NO!

For carriers, the iPhone is a bittersweet drug
by Roger Cheng January 26, 2012 6:51 AM PS

"Could the wireless carriers actually be addicted to the iPhone?

By now, it's well understood that the iPhone is a double-edged sword for the wireless carriers. On one side, Apple's smartphone is a pricey device to carry, requiring an unusually high subsidy that carriers must pay to keep it affordable enough for the masses. On the other, it leads to more loyal customers who pay more each month.

Furthermore, the telecom companies get to wrap themselves in the hip vibe that Apple brings to its products and partners, and can you put a price on being cool?

Apparently, you can, and it's a steep one. The dilemma for the carriers is that with each successful quarter of iPhone sales, there is a corresponding hit to their profit as a result of the extra subsidies paid out, as illustrated by Verizon and AT&T's fourth-quarter results. (Sprint Nextel hasn't reported yet, but will likely see a similar impact.)... "

http://news.cnet.com/8301-1035_3-573...CmoreStories.0

Personally, I think my relatives and friends are crazy to pay for an iPhone as much as they do. I didn't know the carriers were crazy too.

When they say "no", Apple would say "we're now introducing our own network"

[RainingLemur]

Originally Posted by athlonkmf

When they say "no", Apple would say "we're now introducing our own network"

I'd be ok with that.