Apple iPhone Subsidies Take a Bite out of ATandT's Profits
Reporting by Ritsuko Ando; Editing by Steve Orlofsky and Derek Caney)2009-01-28
The article “Apple iPhone subsidies take a bite out of ATandT’s profits” discusses the payments that AT&T makes to apple, for the right to be the sole iPhone carrier, and the effects that these hefty payments had on their 2008 profit margin. AT&T experienced growth in the number of subscribers using their wireless network, however, this growth was offset by the decline in the number of land based subscribers. Profits were further consumed by the large subsidies that AT&T pays in order to carry the iPhone. These payments ensure that Apple will only let AT&T sell the iPhone and use it as part of their wireless network. AT&T has said that even with these payments to Apple, AT&T believes that this arrangement still works out in their favor since the iPhone is such a desired item. The fact that while profits did drop, overall revenues and stock pricing rose shows that value that the iPhone has upon the company. AT&T released the information that 40 percent of iPhone purchasers were new to AT&T. A second sub-theme of the article is the increasing reliance that telecommunications companies such as AT&T and Verizon have on their wireless networks as opposed to the traditional land lines. This is because each year more customers switch away from landlines and choose to use wireless networks. Even with these apparent woes facing AT&T they have said that they expect “solid results” in 2009 with relation to revenue growth and are not concerned about the slight downturn they experience in profits this year.
I think Tom's blog was very interesting and I agree with AT&T's tactics. According to Phill Schiler of Macworld, Itunes is the largest digital music vendor in the world and accounts for more than 70% of the worldwide sales. The prestige of the iPhone comes largely from its iTunes capabilities and technological advancements in the iPod hybrid of a mobile phone. AT&T has assumed the risk in paying these large amounts in subsidies because of their believe in the successful profit margin they have proved to obtain.
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